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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-23642
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NORTHWEST AIRLINES CORPORATION
(Exact name of registrant as specified in its charter)
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DELAWARE 95-4205287
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
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2700 LONE OAK PARKWAY, EAGAN, MINNESOTA 55121
(Address of principal executive offices)
(612) 726-2111
Registrant's telephone number, including area code
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
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NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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COMMON STOCK, PAR VALUE $.01 PER SHARE THE NASDAQ NATIONAL MARKET
PREFERRED STOCK PURCHASE RIGHTS THE NASDAQ NATIONAL MARKET
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
The aggregate market value of the voting stock held by nonaffiliates of the
registrant as of February 26, 1999 was $1.6 billion.
As of February 26, 1999, there were 84,034,905 shares of the registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference certain information
from the registrant's Proxy Statement for its Annual Meeting of Stockholders to
be held on April 23, 1999.
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PART I
ITEM 1. BUSINESS
Northwest Airlines Corporation ("NWA Corp." and, together with its
subsidiaries, the "Company"), is the indirect parent corporation of Northwest
Airlines, Inc. ("Northwest"). Northwest operates the world's fourth largest
airline (as measured by 1997 revenue passenger miles ("RPMs")) and is engaged in
the business of transporting passengers and cargo. Northwest's business focuses
on the development of a global airline network through its strategic assets that
include:
- domestic hubs at Detroit, Minneapolis/St. Paul and Memphis;
- an extensive Pacific route system with hubs at Tokyo and Osaka;
- a trans-Atlantic alliance with KLM Royal Dutch Airlines ("KLM") that
operates through a hub in Amsterdam; and
- a global alliance with Continental Airlines, Inc. ("Continental").
OPERATIONS AND ROUTE NETWORK
Northwest operates substantial domestic and international route networks and
directly serves more than 150 cities in 21 countries in North America, Asia and
Europe. Northwest had more than 50.5 million enplanements and flew over 66.7
billion RPMs in 1998. Northwest began operations in 1926.
Northwest has expanded its network and provides greater service to its
customers through the use of domestic and international alliances and code-share
agreements with other airlines. Code-sharing is an agreement under which an
airline's flights can be marketed under the two-letter designator code of
another airline. By coordinating flight schedules, product development and
marketing, Northwest and its alliance partners, provide a global network to over
500 cities and 90 countries in the U.S., Canada, Asia, India, the South Pacific,
Mexico and the Caribbean, Europe, the Middle East, Africa and Latin America.
During 1998, Northwest and Continental entered into a thirteen-year global
strategic commercial alliance that connects the two carriers' networks and
includes extensive code-sharing, frequent flyer program reciprocity and other
cooperative activities. The airlines will continue operating their two networks,
which overlap on only seven routes, under separate identities. The combined
network will result in a domestic presence comparable to that of either United
Air Lines, Inc. or American Airlines, Inc. (based on 1998 ASMs), provide
Northwest access to Latin America and increase its Pacific presence.
In December 1998, Northwest and Continental began implementing their
alliance. Since then, they have initiated code-sharing to several points in Asia
and to many domestic cities. Northwest anticipates that it will add additional
code-sharing with Continental in 1999; however, further international
code-sharing is subject to certain regulatory approvals. Through increased
domestic and international connections, Northwest anticipates increasing its
market share and enhancing its revenue. Other joint activities anticipated to be
implemented include airport facility coordination, joint purchasing, certain
coordinated sales programs, and the inclusion of Continental in Northwest's
trans-Atlantic joint venture alliance with KLM. Through combined purchasing
power and increased efficiencies in airport operations, Northwest also
anticipates reducing its operating costs.
DOMESTIC SYSTEM
Northwest's domestic route system serves 46 states in the U.S., the District
of Columbia, Mexico, Canada and the Caribbean. Northwest operates its domestic
system through its hubs at Detroit, Minneapolis/St. Paul and Memphis. The hub
system gathers passengers from the hub and cities surrounding the hub and
provides more frequent local and connecting service than if each route were
served on a nonstop point-to-point basis. As part of its alliance with
Continental, Northwest's passengers will be able to connect
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through Continental's hubs in Newark, Houston and Cleveland to additional cities
not previously served by Northwest.
Northwest's hubs provide connections to feed traffic into its ten gateway
cities for international service. Northwest operates international flights from
its Detroit and Minneapolis/St. Paul hubs as well as from Anchorage, Boston,
Honolulu, Las Vegas, Los Angeles, New York, Philadelphia, San Francisco, Seattle
and Washington D.C. In addition, KLM operates flights to Amsterdam from Memphis,
Atlanta, Chicago and Houston.
Northwest has exclusive marketing agreements with two regional carriers:
Mesaba Aviation, Inc. ("Mesaba") and Express Airlines I, Inc. ("Express"), a
wholly-owned indirect subsidiary of NWA Corp. Under these agreements, these
regional carriers operate their flights under the Northwest "NW" code and are
identified as Northwest Airlink carriers. The primary purpose of these marketing
agreements is to provide more frequent service to small cities, which increases
connecting traffic at Northwest's hubs. Currently these carriers exclusively
serve 77 airports.
DETROIT. Northwest and Mesaba together serve over 130 cities from Detroit.
For the 12 months ended June 30, 1998, Northwest and Mesaba enplaned 66% of
originating passengers from this hub, while the next largest competitor enplaned
5%. Detroit, which is the sixth largest origination/destination hub in the U.S.,
is Northwest's largest international gateway from the continental U.S., offering
nonstop flights to 17 foreign cities, including 20 nonstop flights to Japan per
week.
MINNEAPOLIS/ST. PAUL. Northwest and Mesaba together serve over 140 cities
from Minneapolis/St. Paul. For the 12 months ended June 30, 1998, Northwest and
Mesaba enplaned 73% of originating passengers from this hub, while the next
largest competitor enplaned 5%. Minneapolis/St. Paul is the eleventh largest
origination/ destination hub in the U.S.
MEMPHIS. Northwest and Express serve over 80 cities from Memphis. For the
12 months ended June 30, 1998, Northwest enplaned approximately 56% of
originating jet passengers from this hub, while the next largest competitor
enplaned approximately 23%. Mesaba began serving this hub in March 1999 with
regional jet service.
Northwest has additional marketing agreements with Alaska Airlines, Horizon
Air, Trans States Airlines, Inc. and America West Airlines, Inc. for
code-sharing on some of these carriers' routes in the western U.S. The primary
purpose of the arrangements with these airlines is to provide increased
connections between Northwest's route network and their route networks to
generate increased traffic into Northwest's domestic system and international
gateways to the Pacific.
Northwest, together with Mesaba, currently operates service to seven cities
in Mexico, 12 cities in Canada and five cities in the Caribbean. Through its
alliance with Continental, Northwest will be able to provide substantial
connecting service to Mexico and Central America, as Continental is one of the
leading airlines providing service to the region, serving more destinations than
any other U.S. airline.
INTERNATIONAL SYSTEM
Northwest has a comprehensive route network to the Pacific, providing
extensive service to Japan and China, and also services destinations to Europe
and India. The Company has joint marketing alliances and code-share agreements
with other foreign carriers that allow it to expand its service and enter
additional markets with minimal capital outlay.
PACIFIC. Northwest has served the Pacific market since 1947 and has one of
the world's largest Pacific route networks, with over 470 weekly flights.
Northwest's Pacific operations are concentrated at its Tokyo hub. Northwest has
the largest slot portfolio of any non-Japanese airline at Tokyo's
slot-constrained Narita International Airport, with 316 weekly takeoff and
landing slots. Northwest uses its route certificate and slot portfolio to
operate a network linking eight U.S. gateways and ten Asian and Micronesian
destinations
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via Tokyo. Northwest has also developed a hub at Osaka's Kansai airport, where
it holds 108 takeoff and landing slots. Northwest currently operates 42 weekly
departures from Osaka, which includes service between four U.S. gateways and
three Asian destinations.
Northwest provides passenger service between various points in the U.S. and
Japan and operates flights between Japan and Korea, Taiwan, the Philippines,
Thailand, Singapore, Northern Mariana Islands,
and China, including Hong Kong. Northwest's Japan presence results from the 1952
U.S.-Japan bilateral aviation agreement, as amended, which establishes rights to
carry traffic between Japan and the U.S. and extensive "fifth freedom" rights
between Japan and India, the South Pacific and other Asian destinations. "fifth
freedom" rights allow Northwest to operate service from any gateway in Japan to
points beyond Japan and carry Japanese originating passengers. Northwest and
United are the only U.S. passenger carriers that have "fifth freedom" rights
from Japan. On March 14, 1998, the U.S. and Japan expanded their aviation
agreement. Primary benefits of the new agreement for Northwest included
unlimited rights and frequencies to operate between any point in the U.S. and
Japan and the ability to code-share with Japanese carriers. The agreement
confirmed and expanded Northwest's "fifth freedom" rights and the U.S. received
assurances that Northwest will retain all its weekly takeoff and landing slots
at Tokyo and Osaka and will have access to new slots as they become available.
In 1998, the Company added nonstop service between Detroit and Nagoya, Las Vegas
and Tokyo, Anchorage and Tokyo, and Nagoya and Manila. In 1999, Northwest began
nonstop service between Kaohsiuing, Taiwan and Osaka and Kuala Lumpur, Malaysia
and Osaka.
Northwest continues to expand its Pacific presence through additional
alliances. Northwest is currently implementing an alliance with Japan Air
System, which has approximately 25% of Japan's domestic traffic. The alliance
includes coordinated flight connections, traffic servicing, and reciprocal
frequent flyer programs and is expected to include code-sharing and other
cooperative activities. Northwest also has code-sharing and marketing agreements
with Hawaiian Airlines and Pacific Island Aviation.
In October 1998, the Company began code-sharing with Air China as part of a
minimum four year alliance entered into in May 1998. The alliance connects the
two carriers' networks and also includes frequent flyer program reciprocity and
joint marketing. At the end of 1998, Northwest and Air China provided 17 flights
each week between the U.S. and China, including four Northwest nonstop flights
between Detroit and Beijing. This is the only regularly scheduled nonstop
service between the U.S. and China's capital operated by a U.S. carrier.
Northwest alliance partners, Alaska Airlines, America West Airlines and
Continental, have entered into alliance agreements with Air China; Northwest and
its partners collectively provide the most nonstop and one-stop service between
the U.S. and China.
On February 2, 1999, Northwest and Malaysia Airlines entered into a
Memorandum of Understanding ("MOU") designed to lead to an operational and
marketing alliance. The MOU provides for coordinated flight connections,
code-sharing, frequent flyer program reciprocity and other coordinated
activities.
ATLANTIC. Northwest provides passenger service from seven U.S. gateway
cities to Amsterdam, Paris, Frankfurt and London (Gatwick) with 70 weekly
nonstop flights. Northwest also provides service to Mumbai and Delhi, India from
Amsterdam. Daily nonstop service from Minneapolis/St. Paul to Oslo, Norway is
scheduled to begin on May 1, 1999 and from Minneapolis/St. Paul to Amsterdam in
April 1999. An additional seasonal daily nonstop flight from Detroit to
Amsterdam is planned to be added in June 1999.
Northwest and KLM operate their trans-Atlantic flights pursuant to a
commercial and operational joint venture alliance. Northwest and KLM have
expanded their trans-Atlantic presence by operating joint service between 13
U.S. cities and Amsterdam, KLM's hub airport. Code-sharing between Northwest and
KLM has been implemented on flights to 61 European, eight Middle Eastern, seven
African, three Asian and over 185 U.S. cities. The Northwest/KLM alliance
benefits from antitrust immunity that facilitates coordinated pricing,
scheduling, product development and marketing.
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In September 1997, Northwest and KLM expanded their alliance for a minimum
of 13 years and expanded their areas of cooperation to include services between
Europe and Canada, India and Mexico. In addition, the two companies plan to
increase the level of cooperation between their respective cargo divisions and
will explore extending their alliance to include additional partners and to
further develop strategies for joint marketing and product development. In
February 1998, a leading aviation trade magazine, AIR TRANSPORT WORLD, awarded
its "1997 Airline of the Year" honor to the Northwest/KLM alliance.
In November 1998, KLM and Alitalia entered into a strategic commercial
alliance and began code-sharing. KLM and Alitalia have stated that they expect
to develop a European multi-hub network based in Amsterdam, Rome and Milan.
Continental and Alitalia currently code-share between the U.S. and Italy and
Northwest anticipates that Alitalia will also join the Northwest/KLM
trans-Atlantic joint venture alliance, subject to regulatory approvals. If
consummated, the addition of Alitalia and Continental to the Northwest/KLM
trans-Atlantic joint venture alliance would create a combination comparable in
scale and scope to other global alliances, resulting in over a 15%
trans-Atlantic market share (based on 1998 ASMs) with service to 48 countries.
To further enhance Northwest's service in Europe, India, and Southeast Asia,
Northwest also has marketing agreements with Eurowings, Braathens, KLM uk, KLM
exel, Jet Airways Private Ltd., Kenya Airways, and Garuda Indonesia. KLM has
similar agreements with Air Engiadina of Switzerland and Regionale Air of
France, and Northwest expects to enter into similar agreements with these two
airlines. Northwest has a marketing agreement with Business Express Airlines for
code-sharing in the Boston area to feed its trans-Atlantic and domestic route
network.
In September 1992, the U.S. and the Netherlands entered into an "open-skies"
bilateral aviation treaty which authorizes the airlines of each country to
provide international air transportation between any U.S.-Netherlands city pair
and to operate connecting service to destinations in other countries. Based
primarily on the open-entry market created by this treaty and the limited
competitive overlap between route systems, Northwest and KLM petitioned the
Department of Transportation (the "DOT") for joint immunity from the U.S.
antitrust laws and, under conditions imposed by the DOT, were granted such
immunity in January 1993. Northwest and KLM re-submitted their alliance
agreement to the DOT in January 1998. The European Commission ("EC") has
commenced a review of all trans-Atlantic airline alliances, including
Northwest/KLM. The EC is considering imposing certain regulatory conditions that
may restrict the areas of permissible cooperation.
LATIN AMERICA. Through the Company's alliance with Continental, Northwest
will increase its Latin American presence. Continental flies to eight cities in
South America and offers additional connecting service through alliances with
foreign carriers. Northwest expects to implement code-sharing in Latin America
with Continental in 1999.
CARGO
Northwest, utilizing eight Boeing 747 freighter aircraft, is the world's
tenth largest cargo air carrier (based on 1997 freight ton miles). Northwest is
one of only two U.S. passenger airlines to operate a dedicated all-cargo
freighter fleet. Cargo accounts for 7% of the Company's operating revenues, and
the majority of its cargo revenues originate in or are destined for Asia.
Through its Tokyo and Anchorage cargo hubs, Northwest serves most major air
freight markets between the U.S. and the Pacific.
OTHER ACTIVITIES
MLT INC. MLT Inc. ("MLT") is among the largest vacation wholesale companies
in the U.S. In addition to its MLT Vacations charter program, MLT markets and
supports Northwest's WorldVacation packages and offers leisure fares to several
domestic and international destinations, primarily on Northwest.
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NORTHWEST AEROSPACE TRAINING CORPORATION. Northwest Aerospace Training
Corporation ("NATCO") provides training and aircraft simulation services to
pilots for Northwest, other airlines, governments and corporations. The NATCO
training facility is among the world's largest aircraft simulation facilities,
with 22 full-flight simulators and training devices. In 1998, 44% of NATCO's
revenues came from third parties. NATCO's customer base includes both domestic
and international airlines.
NORTHWEST PARS, INC. Northwest PARS, Inc. holds a 33.7% limited partnership
interest in WORLDSPAN, L.P. ("WORLDSPAN"). WORLDSPAN operates and markets a
computer reservations and passenger processing system ("CRS") for the travel
industry. Delta Air Lines, Inc. and Trans World Airlines, Inc. own 40% and 26.3%
of WORLDSPAN, respectively.
INDUSTRY CONDITIONS AND COMPETITION
The airline industry is both cyclical and seasonal in nature. Due to
seasonal fluctuations, the Company's operating results for any interim period
are not necessarily indicative of those for the entire year. The Company's
second and third quarter operating results have historically been more favorable
due to increased leisure travel on domestic and international routes during the
spring and summer months.
The airline industry is highly competitive. Airline profit levels are highly
sensitive to adverse changes in fuel costs, average fare levels and passenger
demand. Passenger demand and fare levels have historically been influenced by,
among other things, the general state of the economy, international events,
airline capacity and pricing actions taken by other airlines. For example, from
1990 to 1993, the weak U.S. economy, turbulent international events and
extensive price discounting by carriers resulted in unprecedented losses for
U.S. airlines, including Northwest. Since then, the U.S. economy has improved
and broadly available, deep price discounting has ceased.
Northwest's competitors include all the other major domestic airlines, as
well as foreign, national, regional and new entrant airlines, some of which have
more financial resources or lower cost structures than Northwest. Northwest uses
yield inventory management systems to vary the number of discount seats offered
on each flight in an effort to maximize revenues while remaining price
competitive with lower-cost carriers.
In recent years, the major U.S. airlines have formed marketing alliances
with other U.S. and foreign airlines. Such alliances generally provide for
code-sharing, frequent flyer program reciprocity, coordinated scheduling of
flights to permit convenient connections and other joint marketing activities.
Such arrangements permit an airline to market flights operated by other alliance
members as its own. This increases the destinations, connections and frequencies
offered by the airline, which provide an opportunity to increase traffic on that
airline's segment of flights connecting with alliance partners. Other major U.S.
airlines have alliances or planned alliances that may be more extensive than
Northwest's alliances. Northwest's ability to grow its route network by entering
into alliances depends upon the availability of suitable alliance candidates and
the ability of Northwest and its alliance partners to meet business objectives
and to perform their obligations under the alliance agreements.
Northwest has developed strategies that are designed to utilize the
Company's strategic assets to its competitive advantage. These strategies focus
on providing reliable, convenient and consistent air transportation. In
addition, the Company's frequent flyer program, targeted fare promotions and
customer service improvements are designed to maintain and improve its
competitive position.
WORLDSPAN COMPUTER RESERVATION SYSTEM
The large majority of travel agencies in the U.S. obtain their airline
travel information through access to a CRS. A CRS, which is typically owned or
operated by an airline or airlines, is used by travel agents to make airline,
hotel and car reservations and to issue airline tickets. Northwest's presence
through WORLDSPAN in the CRS market gives it a voice in the distribution of its
airline product. Based on the number of passenger segments sold and the number
of agency locations, WORLDSPAN ranks third in
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market share among travel agents in the U.S. WORLDSPAN is subject to CRS
regulations promulgated by the DOT and the European Economic Community.
MARKETING
Consistent with the experience of other carriers, approximately 80% of
ticket sales for travel on Northwest are sold by travel agents. Travel agents
generally receive commissions on sales of tickets. Airlines often pay additional
commissions in connection with special revenue programs.
Northwest introduced electronic ticketing for its entire U.S. and Canadian
route system in 1996. By the end of 1998, 52% of Northwest's North American
customers were using electronic tickets ("E-Tickets"). Northwest is continuing
to expand electronic ticketing and anticipates that in 1999 E-Tickets will be
available for travel from North America to all Northwest destinations worldwide.
Northwest became the first major airline to deploy compact self-service
kiosks to enhance its electronic ticketing services in 1997. These electronic
service centers enable E-Ticket customers to obtain boarding passes, make
current-day flight or seat changes, obtain WORLDPERKS Gold upgrades and, at some
locations, check their own bags. Electronic service centers are now available at
18 airports in North America, including Detroit, Minneapolis/St. Paul, Memphis,
Baltimore, Boston, Chicago O'Hare, Indianapolis, Kansas City, New York (La
Guardia), Los Angeles, Milwaukee, Newark, Philadelphia, Phoenix, San Francisco,
Seattle/Tacoma, Tampa and Washington D.C. (Ronald Reagan National).
Northwest offers CyberSaver fares through its web site on the World Wide Web
(www.nwa.com). These fares offer travelers the opportunity to realize deep
discounts for weekend travel on selected domestic routes. In 1998, Northwest
became the first airline to allow participants in the WORLDPERKS frequent flyer
program to redeem mileage awards online. In cooperation with KLM, the web site's
expanded booking capability now allows customers from the U.S., Canada, Japan,
the United Kingdom, Sweden, Norway, Denmark and Germany to arrange their travel
online. In 1998, the site was named "best airline web site" by the DOW JONES
BUSINESS DIRECTORY and by the Web Marketing Association.
In conjunction with the Northwest's global alliance with Continental,
Northwest and Continental Micronesia, Inc. ("CMI"), a wholly-owned subsidiary of
Continental operating in the South Pacific, plan to utilize coordinated sales
activities.
FREQUENT FLYER PROGRAM
Northwest operates a frequent flyer marketing program known as "WORLDPERKS"
under which mileage credits are earned by flying on Northwest or participating
airlines and by using the services of participating bank credit cards, hotels,
long-distance companies and car rental firms. Northwest sells mileage credits to
the other companies participating in the program. The program was designed to
retain and increase the business of frequent travelers by offering incentives
for their continued patronage.
The WORLDPERKS program is based on a mileage banking system (miles earned
are accumulated in an account for each member). Mileage credits can be redeemed
for free or upgraded travel on Northwest and other participating airlines or for
other travel industry awards. Additional features include the use of seasonal
awards based on peak/off-peak period travel and a three-tier award structure.
Concurrently with the commencement of its global alliance with Continental,
Northwest enhanced its WORLDPERKS program. Beginning in 1998, WORLDPERKS miles
do not expire, domestic award travel levels starting as low as 20,000 miles are
available nine months of the year and WORLDPERKS members are allowed to earn
WORLDPERKS miles on Northwest and its alliance partners, including Continental.
Northwest accounts for its frequent flyer obligation on the accrual basis
using the incremental cost method. Northwest includes food and beverage, fuel,
insurance, security, miscellaneous claims and WORLDPERKS service center expense
in its incremental cost calculation. The incremental costs do not include any
contribution to overhead or profit. Food, beverage and other costs are based on
average cost
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per passenger for the current twelve-month period. The incremental fuel unit
cost per passenger is based on engineering formulas that determine the average
fuel cost per pound carried. Average year-to-date fuel price and estimated
average weight of each added onboard passenger and luggage are factored into the
incremental cost computation and converted to a rate per passenger per award.
The number of estimated travel awards outstanding at December 31, 1998, 1997
and 1996 was approximately 6,147,000, 5,123,000 and 4,536,000 awards,
respectively (data for 1998 is based on an average of 22,500 miles per domestic
award instead of the previous 23,900 miles per award and an average of 45,500
miles per international award). Northwest estimated its recorded liability based
on 5,073,000, 4,198,000 and 3,642,000 of these awards, respectively. The
estimated liability excludes accounts that have never attained the lowest travel
award level and awards that are expected to be redeemed for upgrades or are not
expected to be redeemed at all, and includes an estimate for partially earned
awards on accounts that previously earned an award. The number of estimated
travel awards used for travel on Northwest during the years ended December 31,
1998, 1997 and 1996 was approximately 1,159,000, 1,111,000 and 1,025,000,
respectively. These awards represented an estimated 6.8%, 5.8% and 5.5% of
Northwest's total RPMs for each such year, respectively. Northwest believes
displacement of revenue passengers is minimal based on the low ratio of
WORLDPERKS award usage to revenue passenger miles, the Company's ability to
manage frequent flyer inventory through seat allocations and blackout dates, and
program incentives to travel during off-peak periods.
AIRCRAFT FUEL
Northwest's worldwide aircraft fuel requirements are met by approximately 50
different suppliers. Northwest has contracts with these suppliers, the terms of
which vary as to price, payment terms, quantities and duration. Northwest also
makes purchases of fuel based on price and availability. In order to provide a
measure of control over price and supply, Northwest trades and ships fuel and
maintains fuel storage facilities to support its flight operations. Petroleum
product prices, including jet fuel, are primarily driven by crude oil costs. The
market's alternate uses of crude oil to produce petroleum products other than
jet fuel (e.g., heating oil and gasoline) as well as the adequacy of refining
capacity and other supply constraints affect the price and availability of jet
fuel. Major changes in the price or availability of fuel could materially affect
the financial results of the Company.
The following table summarizes Northwest's fuel consumption and costs:
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YEAR ENDED DECEMBER 31
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1998 1997 1996
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Gallons consumed (in millions)................................... 1,877 1,996 1,945
Total costs (in millions)(1)..................................... $ 1,006 $ 1,295 $ 1,307
Average cost per gallon (cents).................................. 53.60 64.86 67.21
Percentage of operating expenses................................. 10.9% 14.3% 14.8%
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(1) Excludes taxes and into-plane fees.
REGULATION
GENERAL. The Airline Deregulation Act of 1978, as amended, eliminated most
domestic economic regulation of passenger and freight transportation. Northwest
is subject to DOT regulations because it holds certificates of public
convenience and necessity as well as air carrier operating certificates.
Northwest's domestic route authority from the DOT permits it to engage in the
interstate and overseas transportation of passengers, freight and mail between
all points in the U.S. and it territories and possessions.
The DOT has jurisdiction over international route authorities, CRSs and
certain consumer protection matters, such as advertising, denied boarding
compensation and baggage liability. The Federal Aviation Administration (the
"FAA") regulates flight operations, including air space control, and aircraft
and
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security standards. The Department of Justice (the "DOJ") has jurisdiction over
airline competition matters, including mergers and acquisitions. Other federal
agencies have jurisdiction over postal operations, use of radio facilities by
aircraft and certain other aspects of Northwest's operations.
In April 1998, the DOT issued proposed competition guidelines that would
severely limit major carriers' ability to compete with new entrant carriers. In
addition, the DOJ is investigating competition at major hub airports and several
items of legislation have been introduced in Congress that would, if enacted:
(i) create new slots for redistribution to new entrants and smaller carriers,
(ii) provide financial assistance, in the form of guarantees and/or subsidized
loans, to smaller carriers for aircraft purchases and/or (iii) require major
carriers like Northwest to enter into interline agreements with smaller carriers
and authorize the DOT to investigate airline marketing practices that may
inhibit service to small and medium sized communities and impose regulations to
remedy any service problems so identified. The outcomes of the DOT guidelines,
the investigations and the proposed legislation are unknown. However, to the
extent that (i) restrictions are imposed upon Northwest's ability to respond to
competition, or (ii) competitors receive financial assistance or special
regulatory protections, Northwest's business may be adversely impacted.
Northwest operates its international routes under route certificates issued
by the DOT. Substantial portions of Northwest's Pacific route certificates are
permanent and do not require renewal by the DOT. Certain other international
route certificates are temporary and subject to periodic renewal by the DOT.
Northwest requests extensions of these certificates when and as appropriate. The
DOT typically renews temporary authorities on routes when the authorized carrier
is providing a reasonable level of service. With respect to foreign air
transportation, the DOT must approve agreements between air carriers, including
code-sharing agreements, and may grant antitrust immunity for those agreements.
Northwest's rights to operate to foreign countries, including Japan and
other countries in the Pacific and Europe, are governed by aviation agreements
between the U.S. and the respective foreign countries. Many aviation agreements
permit an unlimited number of carriers to operate between the U.S. and the
respective foreign country, while other aviation agreements limit the number of
carriers and flights on a given international route. From time to time, the U.S.
or its foreign country counterpart may seek to renegotiate or cancel an aviation
agreement. In the event an aviation agreement is amended or canceled, such a
change could adversely affect Northwest's ability to maintain and/or expand air
service to the foreign country.
Operations to and from foreign countries are subject to the applicable laws
and regulations of those countries. There are restrictions on the number and
timing of operations at certain international airports served by Northwest,
including Tokyo and Osaka. Additionally, slots for international flights are
subject to certain restrictions on use and transfer.
AIRPORT ACCESS. Four of the nation's airports, Chicago O'Hare, New York
(LaGuardia and Kennedy International) and Washington D.C. (Ronald Reagan
National), have been designated by the FAA as "high density traffic airports,"
and the number of take-offs and landings at such airports ("slots") have been
limited during certain peak demand time periods. Currently the FAA permits the
buying, selling, trading or leasing of these slots, subject to certain
restrictions.
LABOR. The Railway Labor Act ("RLA") governs the labor relations of
employers and employees engaged in the airline industry. Comprehensive
provisions are set forth in the RLA establishing the right of airline employees
to organize and bargain collectively along craft or class lines and imposing a
duty upon air carriers and their employees to exert every reasonable effort to
make and maintain collective bargaining agreements. The RLA contains detailed
procedures that must be exhausted before a lawful work stoppage may occur.
Pursuant to the RLA, Northwest has collective bargaining agreements with six
domestic unions representing 11 separate employee groups. For current status of
agreements, see "Item 1. Business--Employees." In addition, Northwest has
agreements with four unions representing its employees in countries throughout
Asia; such agreements are not subject to the RLA.
9
<PAGE>
NOISE ABATEMENT. The Airport Noise and Capacity Act of 1990 ("ANCA")
requires the phase-out of Stage II aircraft operations (as defined in Part 36 of
the Federal Aviation Regulations) by December 31, 1999, subject to certain
exceptions. The FAA regulations, which implement the ANCA, require carriers to
modify or reduce the number of Stage II aircraft operated by 75% by the end of
1998 and 100% by the end of 1999. Alternatively, a carrier could satisfy these
compliance requirements by operating a fleet that is at least 75% Stage III by
the end of 1998 and 100% Stage III by the end of 1999. As of December 31, 1998,
Northwest operated 342 Stage III aircraft and 67 Stage II aircraft. Northwest is
currently in compliance and has plans in place to enable it to meet the 1999
year-end operational requirements.
The ANCA also recognizes the right of airport operators with special noise
problems to implement local noise abatement procedures as long as such
procedures do not interfere unreasonably with the interstate and foreign
commerce of the national air transportation system. The ANCA generally requires
FAA approval of local noise restrictions on Stage II aircraft and establishes a
regulatory notice and review process for local restrictions on Stage II aircraft
first proposed after October 1990. As a result of litigation and pressure from
airport area residents, airport operators have taken local actions over the
years to reduce aircraft noise. These actions include restrictions on nighttime
operations, restrictions on frequency of aircraft operations and various
operational procedures for noise abatement. While to date Northwest has
sufficient operational and scheduling flexibility to accomodate current local
noise restrictions, its operations could be adversely affected if
locally-imposed regulations become more restrictive or widespread.
The European Union is considering a proposed rule that would prohibit the
registration in Europe of aircraft with "hushkits" after April 1, 1999.
Northwest opposes such a rule as it could inhibit its operations in Europe as
well as reduce the Company's fleet strategy options in relation to older
aircraft, which are often retired and sold in Europe, Africa and Asia.
SAFETY. The FAA has jurisdiction over aircraft maintenance and operations,
including equipment, dispatch, communications, training, flight personnel and
other matters affecting air safety. To ensure compliance with its regulations,
the FAA requires all U.S. airlines to obtain operating, airworthiness and other
certificates, which are subject to suspension or revocation for cause.
The Company's aircraft require various levels of maintenance or "checks" and
periodically undergo complete overhauls. Maintenance efforts are monitored
closely by the FAA, with FAA representatives present at the Company's
maintenance facilities. The FAA has issued several Airworthiness Directives
("ADs") which mandate changes to an air carrier's maintenance program for older
aircraft. These ADs (which include structural modifications to certain aircraft)
were issued to ensure that the oldest portion of the nation's transport aircraft
fleet remains airworthy. The Company is currently, and expects to remain, in
compliance with all applicable requirements under the FAA-issued ADs.
A combination of FAA and Occupational Safety and Health Administration
regulations on both the federal and state levels apply to all of Northwest's
ground-based operations.
ENVIRONMENTAL. The Company is subject to regulation under various
environmental laws and regulations, which are administered by numerous state and
federal agencies, including the Clean Air Act, the Clean Water Act and
Comprehensive Environmental Response, Compensation and Liability Act of 1980
("CERCLA"). In addition, many state and local governments have adopted
environmental laws and regulations to which the Company's operations are
subject.
The Massachusetts Department of Environmental Protection has identified a
number of contaminated sites at Boston's Logan Airport. Northwest has been
identified as a potentially responsible party under Massachusetts law.
Management believes that its liability for the cost of the remediation of the
Logan site, if any, will not have a material adverse effect on the Company's
financial statements when taken as a whole.
10
<PAGE>
CIVIL RESERVE AIR FLEET PROGRAM. Northwest is a participant in the Civil
Reserve Air Fleet Program pursuant to which Northwest has agreed to make
available, during the period beginning October 1, 1998 and ending September 30,
1999, 33 747 aircraft, 38 DC10 aircraft, and nine 727 aircraft for use by the
U.S. military under certain stages of readiness related to national emergencies.
EMPLOYEES
As of December 31, 1998, the Company had approximately 50,600 full-time
equivalent employees of whom approximately 2,300 were foreign nationals working
primarily in Asia. Unions represent approximately 90% of the Company's
employees. Collective bargaining agreements provide standards for wages, hours
of work, working conditions, settlement of disputes and other matters. The major
agreements with domestic employees became amendable or will become amendable on
various dates as follows:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF
FULL-TIME
EQUIVALENT
EMPLOYEES AMENDABLE
EMPLOYEE GROUP COVERED UNION DATE
- ---------------------------------- ------------- --------------------------------------------------- -----------
<S> <C> <C> <C>
Pilots............................ 6,000 Air Line Pilots Association, International 9/13/02
Clerks and Agents................. 10,600 International Association of Machinists & Aerospace
Workers ("IAM") 2/25/03
Equipment Service Employees and
Stock Clerks.................... 7,000 IAM 2/25/03
Flight Attendants................. 9,600 International Brotherhood of Teamsters, Chauffeurs,
Warehousemen & Helpers of America 8/2/96
Mechanics and Related Employees... 9,400 IAM 10/03/96
</TABLE>
As previously discussed, the above agreements are governed by the RLA.
Pursuant to the RLA, an agreement becomes amendable at the expiration of its
stated term, and continues in effect while the parties pursue agreement on a new
contract. In addition to the direct negotiation phase, the RLA also provides for
a period of mediation, potential arbitration of unresolved issues, and a 30-day
"cooling off" period before either party can resort to self help. See also "Item
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" for further discussion of
collective bargaining activities.
HOLDING COMPANY REORGANIZATION
In connection with the purchase of its interest in Continental, NWA Corp.
effected a holding company reorganization on November 20, 1998. As a result of
this reorganization, Northwest Airlines Holdings Corporation, which was formerly
known as Northwest Airlines Corporation and was at that time the publicly traded
holding company ("Old NWA Corp."), became a direct wholly-owned subsidiary of
the new holding company, NWA Corp. As a result, NWA Corp. is now the publicly
traded holding company, which owns directly Old NWA Corp. and indirectly the
holding and operating subsidiaries of Old NWA Corp. References in this Annual
Report to NWA Corp., Common Stock and Series C Preferred Stock for time periods
prior to November 20, 1998 refer to Old NWA Corp. and the Common Stock and
Series C Preferred Stock of Old NWA Corp., respectively. See Note A to the
Consolidated Financial Statements included within Item 8. Consolidated Financial
Statements and Supplementary Data.
FORWARD-LOOKING STATEMENTS
Certain of the statements made in this section and elsewhere in this report
are forward-looking and are based upon information available to the Company on
the date hereof. The Company through its
11
<PAGE>
management may also from time to time make oral forward-looking statements. In
connection with the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, the Company is hereby identifying important
factors that could cause actual results to differ materially from those
contained in any forward-looking statement made by or on behalf of the Company.
Any such statement is qualified by reference to the following cautionary
statements.
It is not reasonably possible to itemize all of the many factors and
specific events that could affect the outlook of an airline operating in the
global economy. Some factors that could significantly impact expected capacity,
load factors, revenues, expenses and cash flows include the airline pricing
environment, fuel costs, labor negotiations both at the Company and other
carriers, low-fare carrier expansion, capacity decisions of other carriers,
actions of the U.S. and foreign governments, foreign currency exchange rate
fluctuation, inflation, the general economic environment in the U.S. and other
regions of the world and other factors discussed herein.
Developments in any of these areas, as well as other risks and uncertainties
detailed from time to time in the Company's Securities and Exchange Commission
filings, could cause the Company's results to differ from results that have been
or may be projected by or on behalf of the Company. The Company cautions that
the foregoing list of important factors is not exclusive. The Company undertakes
no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise. These
statements deal with the Company's expectations about the future and are subject
to a number of factors that could cause actual results to differ materially from
the Company's expectations.
ITEM 2. PROPERTIES
FLIGHT EQUIPMENT
The Company operated a fleet of 409 aircraft at December 31, 1998,
consisting of 330 narrow-body and 79 wide-body aircraft. The diversity of the
fleet accommodates both the Company's domestic hub-and-spoke system and its
international routes and enhances the Company's ability to match its aircraft to
its route network requirements more efficiently.
As of December 31, 1998, 296 aircraft were owned and 113 aircraft were
leased. The Company currently operates 63 (of which 35 are owned) Airbus A320
aircraft with an average age of 5.7 years. The Company's fleet of Boeing
aircraft includes 38 (of which 29 are owned) 727 aircraft with an average age of
19.6 years, 48 (of which 15 are owned) 757 aircraft with an average age of 9.3
years, 33 (of which 18 are owned) 747 aircraft with an average age of 16.7 years
and eight (of which five are owned) 747 freighters with an average age of 18.9
years. The Company's fleet of McDonnell Douglas aircraft includes 173 (of which
156 are owned) DC9 aircraft with an average age of 28.1 years, 38 (of which 30
are owned) DC10 aircraft with an average age of 24.4 years and eight (all of
which are owned) MD-80 aircraft with an average age of 16.5 years.
Although the DC9 and DC10 average aircraft age exceeds twenty years, these
aircraft have considerable remaining technological life, based upon the cycle
life (capacity for number of landings) expected by the manufacturer and other
factors. The Company also believes that these aircraft have economic value for
the Company given its route network and maintenance programs. The Company has
adopted programs to hushkit and modify the 173 DC9 aircraft. As of December 31,
1998, the Company hushkitted 130 of these aircraft and plans on completing the
remaining aircraft by December 31, 1999. As a result of these programs, the
Company estimates these aircraft could fly on average approximately 14
additional years beyond 1998 based upon the manufacturer's expected cycle life
for such aircraft and their projected annual utilization by Northwest. The
Company estimates that its DC10 aircraft fleet could fly on average at least 20
additional years beyond 1998 based upon the manufacturer's expected cycle life
for such aircraft and their projected annual utilization by Northwest.
12
<PAGE>
For further information related to the Company's aircraft leases and
commitments see Notes E, K and N to Consolidated Financial Statements included
within Item 8. Consolidated Financial Statements and Supplementary Data.
OTHER PROPERTY AND EQUIPMENT
Northwest's primary offices are located at or near the Minneapolis/St. Paul
International Airport. The Company owns a 160-acre site east of the
Minneapolis/St. Paul International Airport containing the Company's corporate
offices. Additional owned buildings include reservation centers in Baltimore,
Detroit, Tampa and Chisholm, Minnesota; a data processing center in Eagan,
Minnesota; and several office buildings. The Company owns property in Tokyo,
including a 1.3-acre site in downtown Tokyo and a 33-acre land parcel, 512-room
hotel and flight kitchen located near Tokyo's Narita International Airport.
Northwest leases the majority of its airport facilities, support services
buildings and sales and reservations offices. Expiration dates on these leases
range from 1999 to 2027. The Company leases reservations centers in or near
Honolulu, Los Angeles, New York City and Seattle. Maintenance bases under
operating leases are located in Minneapolis/St. Paul, Atlanta, Georgia and
Duluth, Minnesota. The Company also operates approximately 50 city ticket
offices. In certain cases, the Company has constructed a facility on leased
land, which reverts to the lessor upon expiration of the lease. These facilities
include cargo buildings in Anchorage, Boston, Los Angeles, San Francisco and
Honolulu; support buildings at the Minneapolis/St. Paul International Airport; a
flight kitchen and line maintenance hangar in Seattle; and a 2-bay DC10 hangar
in Detroit that will be completed in 1999. Northwest opened a new international
departures facility in Detroit in September 1997 and is managing the design and
construction of a new $1.2 billion terminal in Detroit which will provide
Northwest with 74 gates compared to the 60 present gates. To improve service for
its cargo customers, Northwest is investing in a new facility at New York's John
F. Kennedy International Airport with scheduled completion in April 1999.
ITEM 3. LEGAL PROCEEDINGS
The Antitrust Division of the U.S. Department of Justice commenced a civil
antitrust action in the United States District Court for the Eastern District of
Michigan (Case No. 98-74611) against the Company and Continental Airlines, Inc.
("Continental") challenging the Company's acquisition of the beneficial
ownership of 8,661,224 shares of Continental Class A Common Stock. The Justice
Department's complaint seeks divestiture by the Company of the acquired
Continental stock or the imposition of additional terms and restrictions on the
Company with respect to the acquired Continental stock. The Company intends to
vigorously defend the lawsuit. The lawsuit did not challenge the alliance
between Northwest and Continental, although the Justice Department has indicated
that they will continue to monitor the alliance.
In January 1998, Northwest received a civil investigative demand ("CID")
from the Antitrust Division of the Department of Justice related to an antitrust
investigation to determine whether there are, have been or may be violations of
Sections 1 and 2 of the Sherman Act related to, among other things,
monopolization of hub markets. Northwest understands that this is part of a
larger Justice Department investigation of competitive practices in the airline
industry. The CID is a request for information in the course of a civil
antitrust investigation and does not constitute the institution of legal
proceedings. Northwest filed information with the Justice Department that it
believes to be responsive to the CID. In February 1999, Northwest received from
the Justice Department a request for additional information relating to the CID.
In addition, in the ordinary course of its business, the Company is party to
various other legal actions which the Company believes are incidental to the
operation of its business. The Company believes that the outcome of the
proceedings to which it is currently a party (including those described above)
will not have a material adverse effect on the Company's consolidated financial
statements taken as a whole.
13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during
the fourth quarter of 1998.
MANAGEMENT
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company, together with their ages and business
experience, are set forth below:
JOHN H. DASBURG, age 56, has served as President and Chief Executive Officer
and a director of NWA Corp. and Northwest since 1990. Mr. Dasburg joined
Northwest in November 1989 as Executive Vice President-Finance and
Administration and was appointed President and Chief Executive Officer in
November 1990. From 1987 to 1989, Mr. Dasburg served as President of Marriott's
Lodging Group and as an Executive Vice President of Marriott Corp. From 1980
through 1987, he held various senior executive positions at Marriott. Prior to
1980, he was a partner of KPMG Peat Marwick. Mr. Dasburg is on the board of
directors of KLM, Owens Corning, The St. Paul Companies, Inc. and the Mayo
Foundation.
RICHARD H. ANDERSON, age 43, was appointed Executive Vice President and
Chief Operating Officer of NWA Corp. and Northwest in December 1998. He was
Executive Vice President-Technical Operations and Airport Affairs from April
1998 to December 1998 and served as Senior Vice President-Technical Operations
and Airport Affairs from January 1997 to April 1998. From July 1994 to December
1996, he was Senior Vice President-Labor Relations, State Affairs and Law. He
joined Northwest in 1990 as Vice President-Deputy General Counsel. Prior to
joining Northwest, Mr. Anderson was Staff Vice President and Deputy General
Counsel of Continental. From 1989 to 1990, Mr. Anderson was Associate General
Counsel of Continental.
MICKEY FORET, age 53, rejoined Northwest in May 1998 as Special Projects
Officer and in September 1998 he was appointed Executive Vice President and
Chief Financial Officer of NWA Corp. and Northwest. He originally joined
Northwest as Senior Vice President-Planning and Finance in December 1992 and
from September 1993 to May 1996 served as Executive Vice President and Chief
Financial Officer. From June 1996 to September 1997, Mr. Foret served as
President and Chief Operating Officer of Atlas Air, Inc. From 1990-1992, Mr.
Foret was a consultant, primarily to aviation-related businesses. In 1992, Mr.
Foret also served as President and Chief Executive Officer of KLH Computers,
Inc. From 1974-1990, Mr. Foret held senior positions with Continental Airlines
Holdings, Inc. and its subsidiary and predecessor companies, including President
and Chief Operating Officer.
J. TIMOTHY GRIFFIN, age 47, was appointed Executive Vice President-Marketing
and Distribution of NWA Corp. and Northwest in January 1999. From June 1993 to
January 1999, he served as Senior Vice President-Market Planning and Systems.
Prior to joining Northwest in 1993, Mr. Griffin held senior positions with
Continental Airlines and American Airlines.
PHILIP C. HAAN, age 43, was appointed Executive Vice
President-International, Sales and Information Services of NWA Corp. and
Northwest in January 1999. From December 1995 to January 1999, he served as
Senior Vice President-International Services. Mr. Haan joined Northwest in April
1991 as Vice President-Revenue Management and served in a number of officer
positions. Prior to joining Northwest, he was with American Airlines and Ford
Motor Company.
DOUGLAS M. STEENLAND, age 47, was named Executive Vice President-General
Counsel and Alliances of NWA Corp. and Northwest in January 1999. Mr. Steenland
served as Executive Vice President-General Counsel and Secretary from June 1998
to January 1999 and as Senior Vice President-General Counsel and Secretary from
July 1994 to June 1998. He joined Northwest as Vice President-Deputy General
Counsel
14
<PAGE>
and Secretary in July 1991. Prior to joining Northwest, Mr. Steenland was a
senior partner at the Washington, D.C. law firm of Verner, Liipfert, Bernhard,
McPherson and Hand.
RAYMOND J. VECCI, age 56, joined Northwest as Executive Vice
President-Customer Service of NWA Corp. and Northwest in July 1997 and in
January 1999 was also appointed President-Michigan Operations. From January 1997
to March 1997, he was Executive Vice President and Chief Operating Officer for
Carnival Airlines and President and Chief Executive Officer from March 1997 to
June 1997. He was Executive Vice President and Chief Operating Officer of Tower
Air from September 1996 to December 1996. From 1991 to 1995, Mr. Vecci was
Chairman, President and Chief Executive Officer of Alaska Air Group and Alaska
Airlines.
CHRISTOPHER E. CLOUSER, age 47, has served as Senior Vice President-Human
Resources, Communications and Administration of NWA Corp. and Northwest since
September 1996. From July 1993 to September 1996, he served as Senior Vice
President-Communications, Advertising and Human Resources. He joined Northwest
in April 1991 as Senior Vice President-Corporate Communications and Advertising.
From 1988 to 1991, Mr. Clouser was Vice President-Corporate Relations and
Advertising for Bell Atlantic Corporation. He also served on the board of
directors of the Bell Telephone Company of Pennsylvania. Mr. Clouser has
previously held officer positions at Hallmark Cards, U.S. Sprint and United
Telecommunications, Inc.
RICHARD B. HIRST, age 54, has served as Senior Vice President-Corporate
Affairs of NWA Corp. and Northwest since July 1994. He joined Northwest as
Senior Vice President, General Counsel in 1990. From 1986 to 1990, Mr. Hirst
served as Vice President, General Counsel and Secretary at Continental.
ROLF S. ANDRESEN, age 63, has served as Vice President-Finance and Chief
Accounting Officer of NWA
Corp. and Northwest since June 1998 and served as Vice President-Finance and
Controller from July 1994 to April 1998. Prior to joining Northwest, Mr.
Andresen held the Chief Financial Officer position at Private Jet Corp. in 1994
and various officer positions, including Chief Financial Officer, at Pan
American World Airways from 1991 to 1993.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is quoted on the Nasdaq National Market under
symbol NWAC. The table below shows the high and low sales prices for the
Company's common stock during 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------------------- ---------------------
QUARTER HIGH LOW HIGH LOW
- --------------------------------------------------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C>
1(st).............................................. 65 5/16 45 1/2 41 3/4 33 1/8
2(nd).............................................. 62 3/16 37 43 3/4 33 7/8
3(rd).............................................. 44 1/2 25 1/16 42 19/32 35 1/4
4(th).............................................. 27 5/8 18 5/8 49 1/8 40 1/2
</TABLE>
As of February 26, 1999, there were 1,269 stockholders of record.
Since the acquisition in 1989 of NWA Corp.'s principal indirect subsidiary,
NWA Inc., which is the parent of Northwest, NWA Corp. has not declared or paid
any dividends on its common stock and does not currently intend to do so. Under
the provisions of certain of the Company's bank credit agreements, NWA Corp.'s
ability to pay dividends on or repurchase its common stock is restricted. Any
future determination to pay cash dividends will be at the discretion of the
Board of Directors, subject to applicable limitations under Delaware law, and
will be dependent upon the Company's results of operations, financial condition,
contractual restrictions and other factors deemed relevant by the Board of
Directors.
15
<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
NORTHWEST AIRLINES CORPORATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------------------------------------------------
1998(1) 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF INCOME (IN MILLIONS, EXCEPT PER
SHARE DATA)
Operating revenues
Passenger.................................. $ 7,606.5 $ 8,822.1 $ 8,598.3 $ 7,762.0 $ 7,010.1
Cargo...................................... 633.5 789.4 745.8 751.2 755.8
Other...................................... 804.8 614.3 536.4 571.7 559.0
--------- --------- --------- --------- ---------
9,044.8 10,225.8 9,880.5 9,084.9 8,324.9
Operating expenses........................... 9,236.2 9,068.6 8,826.7 8,171.5 7,485.3
--------- --------- --------- --------- ---------
Operating income (loss)...................... (191.4) 1,157.2 1,053.8 913.4 839.6
OPERATING MARGIN............................. (2.1)% 11.3% 10.7% 10.1% 10.1%
Income (loss) before extraordinary item...... $ (285.5) $ 605.8 $ 536.1 $ 342.1 $ 295.5
Net income (loss)............................ $ (285.5) $ 596.5 $ 536.1 $ 392.0 $ 295.5
Earnings (loss) per common share:
BASIC.................................... $ (3.48) $ 5.89(2) $ 5.05(2) $ 3.11(2) $ 3.00
DILUTED.................................. $ (3.48) $ 5.29(2) $ 4.52(2) $ 2.90(2) $ 2.90
BALANCE SHEETS (IN MILLIONS)
Cash, cash equivalents and unrestricted
short-term investments..................... $ 480.0 $ 1,039.9 $ 752.1 $ 970.9 $ 968.3
Total assets................................. 10,280.8 9,336.2 8,511.7 8,412.3 8,070.1
Long-term debt, including current
maturities................................. 4,000.7 2,069.3 2,060.4 2,467.1 4,013.5
Long-term obligations under capital leases,
including current obligations.............. 654.9 705.3 772.2 841.2 890.3
Mandatorily redeemable preferred security of
subsidiary................................. 564.1 486.3 549.2 618.4 --
Redeemable stock............................. 260.7 1,154.7 602.6 945.5 795.0
Common stockholders' equity (deficit)(3)..... (476.7) (311.0) 92.9 (818.8) (1,370.7)
OPERATING STATISTICS(4)
Scheduled service:
Available seat miles (ASM) (millions)...... 91,310.7 96,963.6 93,913.7 87,472.0 85,015.6
Revenue passenger miles (millions)......... 66,738.3 72,031.3 68,639.1 62,515.2 57,873.2
Passenger load factor...................... 73.1% 74.3% 73.1% 71.5% 68.1%
Revenue passengers (millions).............. 50.5 54.7 52.7 49.3 45.5
Revenue yield per passenger mile........... 11.26 CENTS 12.11 CENTS 12.53 CENTS 12.42 CENTS 12.11 CENTS
Passenger revenue per scheduled ASM........ 8.23 CENTS 9.00 CENTS 9.16 CENTS 8.87 CENTS 8.25 CENTS
Operating revenue per total ASM(5)........... 9.12 CENTS 9.76 CENTS 9.85 CENTS 9.58 CENTS 8.93 CENTS
Operating expense per total ASM(5)........... 9.21 CENTS 8.63 CENTS 8.78 CENTS 8.66 CENTS 8.08 CENTS
Cargo ton miles (millions)................... 1,954.4 2,282.8 2,215.8 2,246.3 2,322.3
Cargo revenue per ton mile................... 32.4 CENTS 34.5 CENTS 33.7 CENTS 33.4 CENTS 32.5 CENTS
Fuel gallons consumed (millions)............. 1,877.1 1,996.3 1,945.1 1,846.2 1,792.8
Average fuel cost per gallon................. 53.60 CENTS 64.86 CENTS 67.21 CENTS 55.66 CENTS 56.23 CENTS
Number of operating aircraft at year end..... 409 405 399 380 361
Full-time equivalent employees at year end... 50,565 48,984 47,536 45,124 43,673
</TABLE>
- ------------------------------
(1) 1998 was affected by labor-related disruptions which included work actions,
a 30-day cooling off period, an 18-day cessation of flight operations due to
the pilots' strike, a seven-day gradual resumption of flight operations and
a rebuilding of traffic demand.
(2) Excludes the effects of the 1997 extraordinary loss ($.10 per basic share
and $.08 per diluted share), the 1996 preferred stock transaction ($.75 per
basic share and $.68 per diluted share), the 1995 preferred stock
transaction ($.64 per basic share and $.58 per diluted share) and the 1995
extraordinary gain ($.55 per basic share and $.50 per diluted share).
(3) No dividends have been paid on common stock for any period presented.
(4) All statistics exclude Express Airlines I, Inc.
(5) Excludes the estimated revenues and expenses associated with the operation
of Northwest's fleet of eight 747 freighter aircraft and MLT Inc.
16
<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Northwest Airlines Corporation ("NWA Corp." and, together with its
subsidiaries, the "Company") incurred a net loss of $285.5 million for the year
ended December 31, 1998, compared with net income of $596.5 in 1997. Loss per
share was $3.48 in 1998 compared with diluted earnings per share of $5.21 in
1997. An operating loss of $191.4 million was reported in 1998 compared to
operating income of $1.16 billion in 1997.
The year ended December 31, 1998 was affected by labor-related disruptions
which included the pilots' strike. Because of these events, year-over-year
comparisons are not a useful measure of the underlying operating and financial
performance of the Company. However, for continuity of reporting and as a
measure of the impact of the labor disruptions, the traditional comparisons are
presented herein. The Company estimates the cost of the labor disruptions in
lost revenue and incremental expenses to be approximately $1.04 billion on a
pre-tax basis for the year ended December 31, 1998.
Northwest Airlines, Inc. ("Northwest") is the principal indirect operating
subsidiary of NWA Corp., accounting for more than 95% of the Company's 1998
consolidated operating revenues and expenses. The Company's operating results
are significantly impacted by both general and industry economic environments.
Small fluctuations in revenue per available seat mile ("RASM") and cost per
available seat mile ("CASM") can have significant impacts on the Company's
profitability. The Company acquired Express Airlines I, Inc. ("Express") on
April 1, 1997; the operating results of Express are included in the consolidated
financial statements commencing on that date.
RESULTS OF OPERATIONS--1998 COMPARED TO 1997
OPERATING REVENUES. Operating revenues were $9.04 billion, a decrease of
$1.18 billion (11.5%). Operating revenue per total service available seat mile
("ASM") decreased 6.6%. System passenger revenue decreased $1.22 billion (13.8%)
primarily attributable to a decrease in scheduled service ASMs and a decrease in
passenger RASM due to the labor disruptions. The decrease in RASM was also a
result of a weaker Asian economic environment and weaker foreign currency
exchange rates. Passenger revenue included $93.6 million and $100.1 million of
Express revenues for the years ended December 31, 1998 and 1997, respectively.
The following analysis by market is based on information reported to the
U.S. Department of Transportation ("DOT") and excludes Express:
<TABLE>
<CAPTION>
SYSTEM DOMESTIC PACIFIC ATLANTIC
--------- -------- -------- ------
<S> <C> <C> <C> <C>
1998
Passenger revenue (in millions)................ $ 7,512.9 $5,190.1 $1,619.9 $702.9
INCREASE/(DECREASE) FROM 1997:
Passenger revenue (in millions)................ $(1,209.1) $ (691.8) $ (573.1) $ 55.8
Percent...................................... (13.9)% (11.8)% (26.1)% 8.6%
Scheduled service ASMs (capacity).............. (5.8)% (6.3)% (12.1)% 22.2%
Passenger RASM................................. (8.6)% (5.8)% (15.9)% (11.1)%
Yield.......................................... (7.0)% (5.4)% (13.4)% (5.4)%
Passenger load factor.......................... (1.2) pts. (.3) pts. (2.2) pts. (5.1) pts.
</TABLE>
Domestic passenger revenue was lower due to decreased capacity and yields
resulting from the labor disruptions.
Pacific passenger revenue decreased due to the labor disruptions, an
unfavorable general economic environment in the Pacific and weaker Asian
currencies, of which the largest impact was due to the
17
<PAGE>
Japanese economy and yen. The average yen per U.S. dollar exchange rate for the
year ended December 31, 1998 and 1997 was 133 and 120, respectively, a weakening
of the yen of 10.8%. In response to the continued weak Asian economic
environment, lower demand and increased competition, the Company reduced
capacity in the region during 1998.
Atlantic passenger revenue increased due to an increase in capacity which
resulted primarily from new flying (including service to Mumbai and Delhi, India
from Amsterdam) and the initiation of Philadelphia-Amsterdam and
Seattle-Amsterdam service and increases in Minneapolis/St. Paul-Amsterdam and
Detroit-Amsterdam services, offset by a decrease in RASM as a result of the
labor disruptions.
Cargo revenue decreased $155.9 million (19.7%) due to 14.4% fewer cargo ton
miles and a 6.2% decrease in cargo revenue per ton mile due to the labor
disruptions, a weaker Asian economic environment and weaker Asian currency
exchange rates. Other revenue increased $190.5 million (31.0%) due to increased
revenue from KLM Royal Dutch Airlines ("KLM") joint venture alliance settlements
and MLT Inc.
OPERATING EXPENSES. Operating expenses increased $167.6 million (1.8%).
Operating capacity decreased 5.9% to 91.4 billion total service ASMs which
contributed to the 6.7% increase in operating expense per total service ASM.
Salaries, wages and benefits increased $236.7 million (7.8%) due primarily to an
increase in average full-time equivalent employees of 4.0%, retroactive
compensation related to collective bargaining agreements and the impact of
settled contracts. Aircraft fuel and taxes decreased $296.7 million (21.3%) due
to a 17.4% decrease in the average fuel price per gallon from 64.86 cents to
53.60 cents and a 6.0% decrease in fuel gallons consumed as a result of the
labor disruptions. Commissions decreased $163.3 million (19.1%) due to lower
revenues as a result of the labor disruptions, a lower effective commission rate
caused by a shift in revenue mix and changes to the Company's commission
structure which began in September 1997. Aircraft maintenance, materials and
repairs increased $140.6 million (22.7%) due to higher utilization of outside
suppliers as a result of increased scheduled overhauls and timing of check
cycles, and decreased employee productivity due to the labor disruptions. Other
expenses (the principal components of which include outside services, selling
and marketing expenses, passenger food, personnel, advertising and promotional
expenses, communication expenses and supplies) increased $239.4 million (12.2%),
due primarily to increased business for MLT Inc. claims, advertising and
promotions, as well as the accelerated retirement of seven of the Company's
oldest Boeing 747 aircraft resulting in a fleet disposition charge of $65.9
million recorded in the fourth quarter. See Note A to the Consolidated Financial
Statements for additional discussion of the fleet disposition charge.
OTHER INCOME AND EXPENSE. Interest expense--net increased $78.0 million
(33.3%) primarily due to additional borrowings to fund the Company's cash
requirements. This level of increase is expected to continue into 1999 due to
the higher level of borrowings. The foreign currency loss for the year ended
December 31, 1998 was primarily attributable to balance sheet remeasurement of
foreign currency-denominated assets and liabilities. Other, net increased
primarily due to the sale of an equity investment in GHI Limited.
RESULTS OF OPERATIONS--1997 COMPARED TO 1996
OPERATING REVENUES. Operating revenues were $10.23 billion, an improvement
of $345.3 million (3.5%). Operating revenue per total service ASM decreased .9%.
System passenger revenue increased $223.8 million (2.6%) due to an increase in
scheduled service ASMs and the inclusion of Express revenues of $100.1 million.
These increases were offset by a decrease in passenger RASM driven by
unfavorable foreign currency exchange rates and the reinstatement of federal
ticket taxes in March 1997.
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<PAGE>
The following analysis by market is based on information reported to the DOT
and excludes Express:
<TABLE>
<CAPTION>
SYSTEM DOMESTIC PACIFIC ATLANTIC
-------- -------- -------- ------
<S> <C> <C> <C> <C>
1997
Passenger revenue (in millions)................ $8,722.0 $5,881.9 $2,193.0 $647.1
INCREASE/(DECREASE) FROM 1996:
Passenger revenue (in millions)................ $ 123.7 $ 165.5 $ (58.4) $ 16.6
Percent...................................... 1.4% 2.9% (2.6)% 2.6%
Scheduled service ASMs (capacity)................ 3.2% 2.2% 5.6% 1.7%
Passenger RASM................................... (1.7)% .7% (7.7)% .9%
Yield............................................ (3.4)% (2.0)% (7.4)% (1.4)%
Passenger load factor............................ 1.2pts. 1.8pts. (0.4) pts. 1.9pts.
</TABLE>
Domestic passenger revenue increased as a result of an increase in capacity
and an increase in RASM. The Company increased frequencies to ten cities and
entered six new markets. The increase in RASM was due to an increase in
passenger load factor offset by a decrease in yield due to the reinstatement of
federal taxes on airline tickets and international departures. The Company
benefited from the absence of ticket taxes for two months in 1997 versus eight
months in 1996.
Pacific passenger revenue decreased due to a decrease in RASM which was
partially offset by an increase in capacity related to the initiation of
Minneapolis/St. Paul-Osaka service and additional trans-Pacific frequencies,
mainly for the Minneapolis/St. Paul-Tokyo service. The decrease in Pacific RASM
was primarily due to a decrease in yield, which was largely attributable to a
weaker Japanese yen. The average yen per U.S. dollar exchange rate for the year
ended December 31, 1997 and 1996 was 120 and 108, respectively, a weakening of
the yen of 11.2%. Atlantic passenger revenue increased due to an increase in
capacity and an increase in RASM.
Cargo revenue increased $43.6 million (5.8%) due to a 2.6% increase in cargo
revenue per ton mile and 3.0% more cargo ton miles primarily due to the
development of a more efficient freighter schedule. The increase in cargo
revenue per ton mile was primarily due to increased import sales driven by the
continued strength of the U.S. dollar versus Asian currencies. Other revenue
increased $77.9 million (14.5%) due to settlements under the joint venture
alliance with KLM and increased charter activity.
OPERATING EXPENSES. Operating expenses increased $241.9 million (2.7%)
compared to the 3.3% capacity increase to 97.1 billion total service ASMs.
Operating expense per total service ASM decreased for the first time in four
years from 8.78 cents per total service ASM to 8.63 cents, a decrease of 1.7%.
Salaries, wages and benefits increased $314.5 million (11.6%) due primarily to
the end of the Wage Savings Period as discussed under "Liquidity and Capital
Resources--LABOR AGREEMENTS" and an increase in average full-time equivalent
employees of 3.3%. The increase in full-time equivalent employees was
attributable to the increased flying of 3.3% and increased traffic of 3.7%.
Offsetting the increased salaries, wages and benefits expense was $49.2 million
in lower pension expense due to a higher pension discount rate applied in 1997
compared to 1996. Aircraft fuel and taxes decreased $3.1 million (.2%) due to a
3.5% decrease in the average fuel price per gallon from 67.21 cents to 64.86
cents offset by an increase of 2.6% in fuel gallons consumed. Commissions
decreased $13.2 million (1.5%) primarily due to increased domestic revenue where
effective commission rates are lower than those paid internationally and also
due to changes in the Company's commission structure beginning in September 1997
which reduced commissions paid from 10% to 8% on tickets purchased in the U.S.
or Canada for travel to destinations outside North America. Aircraft maintenance
materials and repairs increased $64.2 million (11.5%) due primarily to $19.1
million (3.4%) related to Express and an increased number of scheduled airframe
and engine overhauls in accordance with the Company's maintenance program. The
Company contracted for some of its additional maintenance work with outside
suppliers, resulting in labor costs that would normally be classified as
salaries and wages being included in maintenance materials and repairs expense.
Other
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<PAGE>
expenses increased $88.7 million (4.7%) due primarily to increased volume and
rates for outside services, selling and marketing fees and personnel expenses.
OTHER INCOME AND EXPENSE. Interest expense-net decreased $28.4 million
(10.8%) primarily due to the retirement of debt prior to scheduled maturity and
lower interest rates on debt. The foreign currency gain for the year ended
December 31, 1997 was primarily attributable to balance sheet remeasurement of
foreign currency-denominated assets and liabilities.
EXTRAORDINARY ITEM. The Company repurchased for $78.7 million certain NWA
Trust No. 2 aircraft notes in January 1998 pursuant to a tender offer. An
extraordinary loss of $9.3 million, net of tax, was recorded in 1997 as 99% of
the notes were tendered by December 31, 1997.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1998, the Company had cash and cash equivalents of $480
million and borrowing capacity of $1.0 billion under its revolving credit
facilities, providing total available liquidity of $1.48 billion.
Cash flows from operating activities were $88.3 million for 1998, a decrease
of $1.52 billion compared with 1997 due primarily to the labor disruptions as
well as higher than normal sale proceeds of frequent flyer miles in 1997 of
$387.7 million. Cash flows from operating activities were $1.61 billion for 1997
and $1.37 billion for 1996. Net cash used in investing and financing activities
during 1998, 1997 and 1996 was $348.7 million, $1.43 billion and $1.66 billion,
respectively.
INVESTING ACTIVITIES. Investing activities in 1998 consisted primarily of
the purchase of 13 Airbus A320 aircraft, ten RJ85 aircraft, and three used DC10
aircraft, costs to commission aircraft before entering revenue service, engine
hushkitting, aircraft modifications, deposits on ordered aircraft and ground
equipment purchases. On November 20, 1998, NWA Corp. issued 2.6 million shares
of common stock and paid $399 million in cash to acquire the beneficial
ownership of 8.7 million shares of Class A Common Stock of Continental Airlines,
Inc. ("Continental"). The Company funded its investment in Continental with cash
from its general working capital. In a related transaction, Northwest and
Continental entered into a thirteen-year global strategic commercial alliance
that connects the two carriers' networks and includes extensive code-sharing,
frequent flyer program reciprocity and other cooperative activities.
Investing activities in 1997 consisted primarily of costs to commission
aircraft before entering revenue service, deposits on ordered aircraft, the
refurbishment of DC9 aircraft, engine hushkitting, ground equipment purchases,
the acquisition of Express, the purchase off lease of four aircraft and the
purchase of eight RJ85 aircraft, one DC10-30 aircraft and three DC9-30 aircraft.
Capital expenditures for 1996 pertained primarily to the acquisition of 13
Boeing 757 aircraft, seven DC9-30 aircraft, three DC10-30 aircraft and two
747-200 aircraft; the purchase off lease of 22 aircraft; and the refurbishment
of DC9 aircraft.
FINANCING ACTIVITIES. Financing activities in 1998 included the Company's
repurchase of its remaining Common Stock held by KLM, the issuance of $400
million of unsecured notes, the incurrence of $240 million of debt secured by
six Boeing 757 aircraft, the payment of debt and capital lease obligations, and
the sale and leaseback of 13 A320 aircraft and four RJ85 aircraft. During the
third quarter, in anticipation of potential labor disruptions, the Company
borrowed the $2.08 billion available under its credit facilities, and
subsequently repaid such borrowings. In October 1998, the Company borrowed $835
million to fund its cash requirements.
On May 1, 1998, NWA Corp. purchased from KLM the remaining 18.2 million
shares of NWA Corp. Common Stock which had been reclassified as redeemable
common stock. The Company had previously agreed to repurchase the shares over a
three-year period ending in September 2000. The purchase price of $780.4 million
was paid with a combination of $336.7 million of cash and three senior unsecured
7.88% notes with principal amounts of $206 million, $137.7 million and $100
million. The Company repaid the first note on September 29, 1998; the remaining
two notes are due on September 29, 1999 and 2000, respectively.
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<PAGE>
The Company's Credit Agreement was amended in December 1997 to increase its
existing revolving credit facility from $500 million to $675 million and to
extend the availability period to December 2002. In addition, the facility added
a new $175 million 364-day unsecured revolving credit facility due in December
1998. In December 1998, $10.2 million of the $175 million 364-day revolver was
converted into a term loan due December 2002. The remaining $164.8 million was
renewed for another 364 days; however, to the extent this facility is not
renewed for an additional 364-day period, the Company may borrow up to the
entire non-renewed portion of the facility and all such borrowings mature in
December 2002. In May 1998, the Company provided certain collateral to secure
its previously unsecured term loan and revolving credit facilities under the
Credit Agreement.
In May 1998, the Company obtained a secured 364-day $1.0 billion additional
revolving credit facility. This revolving credit facility was renewed in
February 1999, which extended the expiration date from May 11, 1999 to February
8, 2000 and reduced the amount available from $1.0 billion to $750 million.
Interest is calculated at a floating rate based on the London Interbank Offered
Rate plus 2.25% with a .5% per annum commitment fee payable on the unused
portion of such revolving credit facility.
In February 1999, the Company completed an offering of $421.2 million of
pass through certificates to be used to finance, directly or through leveraged
lease arrangements, the acquisition of four new Boeing 747-400 aircraft
scheduled for delivery in 1999.
Financing activities in 1997 pertained primarily to NWA Corp.'s repurchases
of its Common Stock and Series A and B Preferred Stock, the issuance of $250
million of unsecured notes, the sale and leaseback of eight RJ85 aircraft and
the payment of debt and capital lease obligations. On September 29, 1997, the
Company repurchased 6.8 million shares of NWA Corp. Common Stock held by KLM for
$273.1 million. Concurrently, all of NWA Corp.'s Series A and B Preferred Stock
held by KLM and other holders was repurchased for $251.3 million. Both
repurchases were funded using existing cash resources.
Financing activities in 1996 pertained primarily to the sale and leaseback
of seven Boeing 757 aircraft and the payment of debt and capital lease
obligations, including prepayments of $180 million. In July 1996, NWA Corp.
acquired from KLM 3,691.2 shares of NWA Corp. Series A Preferred Stock and
2,962.8 shares of NWA Corp. Series B Preferred Stock in exchange for $379
million of unsecured promissory notes which were repaid in December 1996.
See Note D to the Consolidated Financial Statements for maturities of
long-term debt for the five years subsequent to December 31, 1998.
CAPITAL COMMITMENTS. The current aircraft delivery schedule provides for
the acquisition of 102 aircraft over the next eight years. See Notes K and N to
the Consolidated Financial Statements for additional discussion of aircraft
capital commitments. Other capital expenditures, including costs to commission
presently owned aircraft that have not yet entered revenue service, but
excluding those costs discussed below, are projected to be approximately $250
million in 1999, which the Company anticipates funding primarily with cash from
operations.
The Company has adopted programs to hushkit and modify 173 DC9 aircraft to
meet noise and aging aircraft requirements. As of December 31, 1998, the Company
hushkitted 130 of these aircraft and plans on completing the remaining aircraft
by December 31, 1999 for $68 million. The aging aircraft modifications are
expected to aggregate $147 million during the next three years for these
aircraft. Capital expenditures for engine hushkits and aging aircraft
modifications were $157 million in 1998. The Company has also elected to upgrade
aircraft systems and refurbish interiors for the 173 DC9 aircraft. Capital
expenditures associated with upgrading systems and interior refurbishment were
$31 million in 1998, which completed the interior refurbishment of the DC9
aircraft. Aircraft system upgrade costs are expected to aggregate $27 million
during the next three years.
The Company completed the interior refurbishment of three 747 aircraft and
five DC10 aircraft and plans to refurbish the interiors of 25 additional 747
aircraft and 21 additional DC10 aircraft. The program
21
<PAGE>
to refurbish the interiors of the Company's international 747 and DC10 aircraft
is estimated to aggregate $67 million during the next three years. As of
December 31, 1998, the Company hushkitted 10 of its 29 Boeing 727-200 aircraft.
Remaining costs are estimated to aggregate approximately $13 million in 1999.
In February 1999, the Company entered into an agreement to purchase 54
Canadian Regional Jet aircraft, with options to purchase up to 70 additional
aircraft. The scheduled delivery for such aircraft is nine in 2000, 22 in 2001,
ten in 2002, eight in 2003 and five in 2004. Committed expenditures for these
aircraft, including estimated amounts for contractual price escalations and
predelivery deposits, will be approximately: $50 million in 1999, $175 million
in 2000, $400 million in 2001, $200 million in 2002, $150 million in 2003 and
$100 million in 2004. Financing has been arranged for the committed aircraft.
The Company has not yet selected the operator of these aircraft.
WORKING CAPITAL. The Company operates, like its competitors, with a working
capital deficit, which aggregated $1.59 billion at December 31, 1998. The
working capital deficit is primarily attributable to the $1.11 billion air
traffic liability for advance ticket sales
LABOR AGREEMENTS. The labor cost savings discussed in Note C to the
Consolidated Financial Statements improved the Company's 1993 to 1996 cash flow
from operating activities. The Company's 1993 agreements with the employee
unions provided that wage scales at the end of the Wage Savings Period snapback
to August 1, 1993 levels and snap-up pursuant to formulae based in part on wage
rates and wage rate increases at other large U.S. airlines. Consequently, at the
end of the Wage Savings Period, salaries and wages increased by approximately
$340 million on an annualized basis including $50 million for snap-ups. The
Company's labor contract with each of its unions became amendable as each labor
cost savings agreement ended in 1996. Contract negotiations began at that time
with the unions.
On August 28, 1998, Northwest ceased its flight operations as a result of a
strike by its pilots represented by Air Line Pilots Association, International
("ALPA"). The Northwest Master Executive Council ("Northwest MEC") of ALPA
announced the commencement of the strike as a result of the failure to reach
agreement with Northwest on the terms of a new collective bargaining agreement.
The strike followed the expiration of a 30-day "cooling off" period that began
July 30, 1998, when an impasse was declared by the National Mediation Board
("NMB"). The cessation of flight operations lasted 18 days. On September 13,
1998, a new four-year agreement was ratified. The agreement provides for lump
sum retroactive payments to pilots equal to 3.5% of salaries since October 31,
1996, wage increases of 3% annually through 2001, 2.5 million stock options to
be granted over a three year period, elimination of the "B pay scale" over three
years, enhanced vacation benefits and a profit sharing plan. The agreement also
permits implementation of the Continental alliance.
On October 28, 1998, the Company and its 15 meteorologists reached and
ratified an agreement on a new six-year contract. On October 30, 1998, the 260
members of the Aircraft Technical Support Association, the Company's fourth
largest union, ratified a new six-year agreement. On December 1, 1998, the 170
members of the Transport Workers Union ratified a new five-year contract. On
December 23, 1998, the Company and its 148 flight kitchen employees represented
by the International Association of Machinist and Aerospace Workers ("IAM")
signed a new four-year contract.
The Company and the IAM reached a tentative agreement in June 1998, which
was not ratified by the covered employees, who included mechanics and related
employees, clerks, agents, equipment service employees and stock clerks. In
November 1998, at a representation election, a majority of the mechanics and
related employees elected the Aircraft Mechanics Fraternal Association to be
their collective bargaining representative. The IAM is protesting the election
and certification of the vote is currently under review by the NMB. The
remaining ground employees continue to be represented by the IAM. On February
16, 1999, the IAM ratified a new four-year agreement. The agreement provides for
lump sum retroactive payments equal to 3.5% of salaries since October 2, 1996, a
14% wage increase over the duration of the contract and a 50% increase in
pension benefits. The Company estimates the increased
22
<PAGE>
costs under the six ratified agreements will be approximately $145 million for
1999 based on current levels of employment.
The Company remains in direct negotiations with the International
Brotherhood of Teamsters ("IBT"), which represents its flight attendants.
Contract negotiations are being mediated by the NMB. Because the terms of new
labor agreements will be determined by collective bargaining, the Company cannot
predict the outcome of the negotiations at this time.
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The risk inherent in the Company's market risk sensitive instruments and
positions is the potential loss arising from adverse changes in the price of
fuel, foreign currency exchange rates and interest rates as discussed below. The
sensitivity analyses presented do not consider the effects that such adverse
changes may have on overall economic activity nor do they consider additional
actions management may take to mitigate its exposure to such changes. Actual
results may differ. See Note O to the Consolidated Financial Statements for
accounting policies and additional information.
AIRCRAFT FUEL. The Company's earnings are affected by changes in the price
and availability of aircraft fuel. In order to provide a measure of control over
price and supply, the Company trades and ships fuel and maintains fuel storage
facilities to support its flight operations. The Company also manages the price
risk of fuel costs primarily utilizing futures contracts traded on regulated
exchanges. Market risk is estimated as a hypothetical 10% increase in the
December 31, 1998 cost per gallon of fuel based on projected 1999 fuel usage
which would result in an increase to aircraft fuel expense of approximately $80
million in 1999, net of gains realized from fuel hedge instruments outstanding
at December 31, 1998, compared to an estimated $90 million at December 31, 1997.
As of December 31, 1998, the Company had hedged approximately 10% of its 1999
fuel requirements, including 40% of the first quarter, compared to 28% and 63%,
respectively, at December 31, 1997.
FOREIGN CURRENCY. The Company is exposed to the effect of foreign exchange
rate fluctuations on the U.S. dollar value of foreign currency-denominated
operating revenues and expenses. The Company's largest exposure comes from the
Japanese yen. From time to time, the Company uses financial instruments to hedge
its exposure to the Japanese yen. The result of a uniform 10% strengthening in
the value of the U.S. dollar from December 31, 1998 levels relative to each of
the currencies in which the Company's revenues and expenses are denominated
would result in a decrease in operating income of approximately $60 million for
the year ending December 31, 1999, net of gains realized from yen hedge
instruments outstanding at December 31, 1998, compared to an estimated $48
million decrease at December 31, 1997. This is due to the Company's foreign
currency-denominated revenues exceeding its foreign currency-denominated
expenses. The increase to other income due to the remeasurement of net foreign
currency-denominated liabilities and the increase to common stockholders' equity
deficit due to the translation of net yen-denominated liabilities resulting from
a 10% strengthening in the value of the U.S. dollar is not material for 1998 and
1997. This sensitivity analysis was prepared based upon projected foreign
currency-denominated revenues and expenses and foreign currency-denominated
assets and liabilities as of December 31, 1998 and 1997.
In 1998, the Company's yen-denominated revenues exceeded its yen-denominated
expenses by approximately 38 billion yen (approximately $286 million) and its
yen-denominated liabilities exceeded its yen-denominated assets by an average of
16.4 billion yen ($125 million). In general, each time the yen strengthens
(weakens), the Company's operating income is favorably (unfavorably) impacted
due to net yen-denominated revenue exceeding expenses and a nonoperating foreign
currency loss (gain) is recognized due to the remeasurement of net
yen-denominated liabilities. The Company's operating income was negatively
impacted by approximately $20 million due to the average yen being weaker in
1998 compared to 1997 and $70 million due to the average yen being weaker in
1997 compared to 1996. The yen to U.S. dollar exchange rate at December 31,
1998, 1997 and 1996 was 113 yen to $1, 131 yen to $1 and 116
23
<PAGE>
yen to $1, respectively. There was no material impact on 1998 earnings
associated with the Japanese yen put options purchased to hedge its 1998 net
yen-denominated cash flows. As of December 31, 1998, the Company had entered
into forward contracts to hedge approximately 35% of its 1999 yen-denominated
ticket sales, which also represents approximately 95% of the Company's excess of
yen-denominated revenues over expenses.
INTEREST. The Company's earnings are also affected by changes in interest
rates due to the impact those changes have on its interest income from cash
equivalents and short-term investments and its interest expense from floating
rate debt instruments. The Company has mitigated this risk by limiting its
floating rate indebtedness to approximately 46% and 47% of long-term debt and
capital leases at December 31, 1998 and 1997, respectively. If long-term
interest rates average 10% more in 1999 than they did during 1998, the Company's
net interest expense would increase by approximately $14 million, compared to an
estimated $7 million for 1998 measured at December 31, 1997. If short-term
interest rates average 10% more in 1999 than they did during 1998, the Company's
interest income from cash equivalents and short-term investments would increase
by approximately $3 million compared to an estimated $7 million for 1998
measured at December 31, 1997. These amounts are determined by considering the
impact of the hypothetical interest rates on the Company's floating rate
indebtedness, cash equivalent and short-term investment balances at December 31,
1998.
Market risk for fixed-rate indebtedness is estimated as the potential
increase in fair value resulting from a hypothetical 10% decrease in interest
rates and amounts to approximately $50 million during 1999, compared to an
estimated $45 million for 1998 measured at December 31, 1997 for 1998. The fair
values of the Company's indebtedness were estimated using quoted market prices
or discounted future cash flows based on the Company's incremental borrowing
rates for similar types of borrowing arrangements.
OTHER INFORMATION
INCOME TAXES. Sections 382 and 383 of the Internal Revenue Code of 1986, as
amended (the "Code"), and Treasury regulations limit the amounts of net
operating losses ("NOLs"), alternative minimum tax net operating losses
("AMTNOLs") and credits that can be used to offset taxable income (or used as a
credit) in any single tax year if the corporation experiences more than a 50%
ownership change, as defined therein, over a three-year testing period ending on
the testing date. See Note J to the Consolidated Financial Statements for
information regarding income taxes and NOLs, AMTNOLs and credits.
Management believes that an offering of outstanding common stock by existing
stockholders in November 1995 triggered an ownership change, but that no
ownership change occurred before that time. If such an ownership change did
occur as a result of the offering, management believes that, even as limited by
the Code, the Company would use the NOLs, AMTNOLs and credits significantly
earlier than their expiration, and the annual limitation would not adversely
impact the Company. However, if the Internal Revenue Service (the "IRS") were to
successfully assert that an ownership change had occurred on any date prior to
November 1995 (including August 1, 1993 when the Company entered into labor
agreements that provided stock for labor cost savings), the Company's ability to
use its NOLs, AMTNOLs and credits would be significantly impaired because the
value of NWA Corp's stock on certain prior testing dates was relatively low.
Such value would adversely affect the annual limitation.
YEAR 2000 READINESS. The Year 2000 issue is the result of computer programs
being written using two digits to identify the applicable year and not taking
into account the change in century that will occur in the year 2000. As a
result, such systems may fail completely or create erroneous results when the
year 2000 is defined by the system as "00." The Company uses a significant
number of information technology ("IT") and non-IT ("embedded operating
systems") systems that are essential to its operations. As a result, the Company
implemented a Year 2000 project to modify its computer systems to function
properly in 2000
24
<PAGE>
and in the years after that. The Year 2000 project is being coordinated through
a senior-level task force that reports periodically to senior management and the
Board of Directors.
The Company is also reviewing the Year 2000 readiness of third parties with
whom the Company's systems interface and exchange data or upon whom the
Company's business depends and is coordinating efforts with these outside third
parties to minimize the extent to which its business will be vulnerable to such
third parties' failure to remediate their own Year 2000 issues. The Company's
business is also dependent upon U.S. and foreign governmental agencies and
certain governmental organizations or entities, which provide essential aviation
industry infrastructure, such as the Federal Aviation Administration ("FAA").
There can be no assurance that the systems of such third parties on which the
Company's business relies (including those of the FAA) will be modified on a
timely basis. As part of this review, the Company is actively involved in
airline industry Year 2000 review efforts led by the Air Transport Association
and the International Air Transport Association. The Company's business,
financial condition or results of operations could be materially adversely
affected by the failure of its systems or equipment to operate properly beyond
1999, or failure of those operated by other parties such as the air traffic
control and related systems of the FAA and international aviation and local
airport authorities.
The five phases of the Company's Year 2000 project used for identifying and
modifying the various programs and systems include inventory, assessment,
conversion, testing and implementation. The Company has completed all phases for
91% of its internal IT systems and anticipates completion of the remaining
systems in the first quarter of 1999. The Company is approximately 80% completed
with the assessment phase of the impact of Year 2000 on its non-IT systems and
third party relationships, which is expected to be completed in the second
quarter of 1999 with all phases anticipated to be completed in 1999. To some
extent, the Company's readiness in this area is dependent on the readiness of
third parties.
As a precautionary measure, the Company is also developing entity-wide
contingency plans designed to allow continued operation in the event of failure
of the Company's or third parties' systems. Contingency plans are expected to be
in place by the end of the second quarter of 1999 and are expected to be
executed as necessary.
The Company has spent $25 million of its initial estimated cost of $55
million, of which $15 million has been spent and expensed during 1998. The
Company now estimates that the total project costs will be somewhat less than
the estimated $55 million. The costs associated with the Year 2000 project are
being funded through cash from operations and are not expected to have a
material effect on the Company's business, financial condition or results from
operations. Maintenance or modification costs associated with making existing
computer systems Year 2000 compliant will be expensed as incurred. A majority of
the estimated total Year 2000 compliance cost has been funded by reallocating
existing resources rather than incurring incremental costs.
The costs of the Company's Year 2000 project and the date on which the
Company believes it will be completed are based on management's best estimates
and include assumptions regarding third party modification plans. However, in
particular due to the potential impact of third party modification plans, there
can be no assurance that these estimates will be achieved and actual results
could differ materially from those anticipated.
This section captioned "Year 2000 Readiness" is a "Year 2000 Readiness
Disclosure" as defined in section 3(9) of the "Year 2000 Information and
Readiness Disclosure Act," (Public Law 105-271), enacted in October 1998.
THE EURO. Effective January 1, 1999, certain European countries adopted a
common currency, the "euro." Full conversion to the euro is scheduled to be
completed by July 1, 2002. The Company has developed a plan to modify the
Company's operating systems to properly handle the euro through the full
conversion. Costs associated with the euro project were accounted for in
accordance with the existing
25
<PAGE>
accounting policies and funded through cash from operations. Management does not
believe the implementation of this single currency plan will have a material
effect on the Company's business, financial condition or results from
operations.
U.S. TRANSPORTATION TAXES. The United States passenger ticket tax and other
transportation taxes, which were reinstated in the first quarter of 1997,
expired on September 30, 1997. The Taxpayer Relief Act enacted by Congress
revised transportation taxes and instituted new taxes for tickets for travel
from October 1, 1997 to December 31, 2007. Over a five-year period on a sliding
scale, the passenger ticket tax will be reduced from 10 percent to 7.5 percent
and a $3 per passenger segment fee will be phased in. The fee for international
arrivals and departures was increased from $6 per departure to $12 for each
arrival and departure. The departure tax on travel between the U.S. 48 states
and Alaska or Hawaii remained at $6. Additionally, a 7.5 percent tax was added
on the purchase of frequent flyer miles.
DETROIT MIDFIELD TERMINAL. In October 1996, the Company and Wayne County,
Michigan (the "County") entered into an agreement pursuant to which, subject to
the satisfaction of certain conditions set forth in the agreement, the Company
will manage and supervise the design and construction of a $1.08 billion
terminal at Detroit Metropolitan Wayne County Airport. The new terminal is
scheduled to be completed in 2001 and has been funded by the County's issuance
of airport revenue bonds payable primarily from future passenger facility
charges and federal and State of Michigan grants. The Company and the County
have entered into agreements pursuant to which the Company will lease space in
the new terminal for a term of 30 years from the date the terminal opens.
REGULATION. In April 1998, the DOT issued proposed competition guidelines,
which would severely limit major carriers' ability to compete with new entrant
carriers. In addition, the Department of Justice is investigating competition at
major hub airports. The outcomes of the DOT guidelines and the investigations
are unknown. However, to the extent that restrictions are imposed upon
Northwest's ability to respond to competition, Northwest's business may be
adversely impacted.
NEW ACCOUNTING STANDARDS. See Note A to the Consolidated Financial
Statements for recent accounting standards.
FORWARD-LOOKING STATEMENTS. Certain statements made throughout the
Management's Discussion and Analysis of Financial Condition and Results of
Operations are forward-looking and are based upon information available to the
Company on the date hereof. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. These statements deal with the
Company's expectations about the future and are subject to a number of factors
that could cause actual results to differ materially from the Company's
expectations.
It is not reasonably possible to itemize all of the many factors and
specific events that could affect the outlook of an airline operating in the
global economy. Some factors that could significantly impact expected capacity,
load factors, revenues, expenses and cash flows include the airline pricing
environment, fuel costs, labor negotiations both at the Company and other
carriers, low-fare carrier expansion, capacity decisions of other carriers,
actions of the U.S. and foreign governments, foreign currency exchange rate
fluctuation, inflation, the general economic environment in the U.S. and other
regions of the world and other factors discussed herein.
26
<PAGE>
ITEM 8: CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Stockholders and Board of Directors
Northwest Airlines Corporation
We have audited the accompanying consolidated balance sheets of Northwest
Airlines Corporation as of December 31, 1998 and 1997, and the related
consolidated statements of operations, common stockholders' equity (deficit),
and cash flows for each of the three years in the period ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Northwest
Airlines Corporation at December 31, 1998 and 1997, and the consolidated results
of its operations and its cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Minneapolis, Minnesota
January 18, 1999
27
<PAGE>
NORTHWEST AIRLINES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1998 1997
---------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents............................................................... $ 480.0 $ 740.4
Short-term investments.................................................................. 47.9 437.7
Accounts receivable, less allowance (1998--$23.5; 1997--$21.2).......................... 664.7 664.8
Flight equipment spare parts, less allowance (1998--$158.8; 1997--$148.9)............... 386.6 376.1
Deferred income taxes................................................................... 114.3 84.8
Prepaid expenses and other.............................................................. 176.6 294.0
---------- ---------
1,870.1 2,597.8
PROPERTY AND EQUIPMENT
Flight equipment........................................................................ 6,168.4 5,246.7
Less accumulated depreciation........................................................... 1,485.8 1,295.6
---------- ---------
4,682.6 3,951.1
Other property and equipment............................................................ 1,654.5 1,489.0
Less accumulated depreciation........................................................... 678.6 612.4
---------- ---------
975.9 876.6
---------- ---------
5,658.5 4,827.7
FLIGHT EQUIPMENT UNDER CAPITAL LEASES
Flight equipment........................................................................ 873.3 907.1
Less accumulated amortization........................................................... 263.3 270.0
---------- ---------
610.0 637.1
OTHER ASSETS
Investments in affiliated companies..................................................... 675.9 185.9
International routes, less accumulated amortization (1998--$263.4;
1997--$239.9)......................................................................... 704.3 727.8
Other................................................................................... 762.0 359.9
---------- ---------
2,142.2 1,273.6
---------- ---------
$ 10,280.8 $ 9,336.2
---------- ---------
---------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
28
<PAGE>
NORTHWEST AIRLINES CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1998 1997
---------- ----------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Air traffic liability.................................................................. $ 1,107.2 $ 1,222.5
Accounts payable....................................................................... 682.6 504.9
Accrued compensation and benefits...................................................... 504.2 376.5
Accrued aircraft rent.................................................................. 207.7 207.5
Accrued commissions.................................................................... 150.3 183.9
Other accrued liabilities.............................................................. 424.0 439.7
Current maturities of long-term debt................................................... 319.2 227.4
Current obligations under capital leases............................................... 57.6 55.9
Short-term borrowings.................................................................. 8.9 53.7
---------- ----------
3,461.7 3,272.0
LONG-TERM DEBT........................................................................... 3,681.5 1,841.9
LONG-TERM OBLIGATIONS UNDER CAPITAL LEASES............................................... 597.3 649.4
DEFERRED CREDITS AND OTHER LIABILITIES
Deferred income taxes.................................................................. 1,112.7 1,161.5
Long-term pension and postretirement health care benefits.............................. 500.1 407.3
Other.................................................................................. 579.4 674.1
---------- ----------
2,192.2 2,242.9
MANDATORILY REDEEMABLE PREFERRED SECURITY OF SUBSIDIARY WHICH HOLDS SOLELY NON-RECOURSE
OBLIGATION OF COMPANY--NOTE F
(Redemption value 1998--$631.8; 1997--$551.0).......................................... 564.1 486.3
REDEEMABLE STOCK
Preferred, liquidation value (1998--$263.7; 1997--$311.3).............................. 260.7 306.2
Common................................................................................. -- 848.5
---------- ----------
260.7 1,154.7
COMMON STOCKHOLDERS' EQUITY (DEFICIT)
Common stock, $.01 par value; shares authorized--315,000,000; shares issued and
outstanding (1998--108,953,764; 1997--103,780,875)................................... 1.1 1.0
Additional paid-in capital............................................................. 1,444.6 1,273.6
Accumulated deficit.................................................................... (648.5) (362.2)
Accumulated other comprehensive loss................................................... (68.1) (101.8)
Treasury stock (1998--28,978,351; 1997--6,800,000 shares repurchased and 18,177,874
shares to be repurchased)............................................................ (1,205.8) (1,121.6)
---------- ----------
(476.7) (311.0)
---------- ----------
$ 10,280.8 $ 9,336.2
---------- ----------
---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE>
NORTHWEST AIRLINES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
OPERATING REVENUES
Passenger....................................................................... $ 7,606.5 $ 8,822.1 $ 8,598.3
Cargo........................................................................... 633.5 789.4 745.8
Other........................................................................... 804.8 614.3 536.4
--------- --------- ---------
9,044.8 10,225.8 9,880.5
OPERATING EXPENSES
Salaries, wages and benefits.................................................... 3,260.6 3,023.9 2,709.4
Stock-based employee compensation............................................... -- -- 242.8
Aircraft fuel and taxes......................................................... 1,097.1 1,393.8 1,396.9
Commissions..................................................................... 691.9 855.2 868.4
Aircraft maintenance materials and repairs...................................... 761.0 620.4 556.2
Other rentals and landing fees.................................................. 450.4 456.7 454.0
Depreciation and amortization................................................... 427.0 396.0 377.7
Aircraft rentals................................................................ 345.1 358.9 346.3
Other........................................................................... 2,203.1 1,963.7 1,875.0
--------- --------- ---------
9,236.2 9,068.6 8,826.7
--------- --------- ---------
OPERATING INCOME (LOSS)........................................................... (191.4) 1,157.2 1,053.8
OTHER INCOME (EXPENSE)
Interest expense................................................................ (328.9) (244.7) (269.8)
Interest capitalized............................................................ 16.8 10.6 7.3
Interest of mandatorily redeemable preferred security holder.................... (22.5) (24.3) (27.2)
Investment income............................................................... 79.3 68.0 71.2
Foreign currency gain (loss).................................................... (21.5) 1.8 19.1
Other, net...................................................................... 38.2 16.0 18.0
--------- --------- ---------
(238.6) (172.6) (181.4)
--------- --------- ---------
INCOME (LOSS) BEFORE INCOME TAXES AND EXTRAORDINARY ITEM.......................... (430.0) 984.6 872.4
Income tax expense (benefit).................................................... (144.5) 378.8 336.3
--------- --------- ---------
INCOME (LOSS) BEFORE EXTRAORDINARY ITEM........................................... (285.5) 605.8 536.1
Loss on extinguishment of debt, net of taxes.................................... -- (9.3) --
--------- --------- ---------
NET INCOME (LOSS)................................................................. (285.5) 596.5 536.1
Preferred stock requirements.................................................... (0.8) (13.5) (37.5)
Preferred stock transaction..................................................... -- -- 74.5
--------- --------- ---------
NET INCOME (LOSS) APPLICABLE TO COMMON STOCKHOLDERS............................... $ (286.3) $ 583.0 $ 573.1
--------- --------- ---------
--------- --------- ---------
EARNINGS (LOSS) PER COMMON SHARE:
BASIC
Before effects of extraordinary item and preferred stock transaction.......... $ (3.48) $ 5.89 $ 5.05
Loss on extinguishment of debt................................................ -- (0.10) --
Preferred stock transaction................................................... -- -- .75
--------- --------- ---------
Earnings (loss) per common share.............................................. $ (3.48) $ 5.79 $ 5.80
--------- --------- ---------
--------- --------- ---------
DILUTED
Before effects of extraordinary item and preferred stock transaction.......... $ (3.48) $ 5.29 $ 4.52
Loss on extinguishment of debt................................................ -- (0.08) --
Preferred stock transaction................................................... -- -- .68
--------- --------- ---------
Earnings (loss) per common share.............................................. $ (3.48) $ 5.21 $ 5.20
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE>
NORTHWEST AIRLINES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)............................................................. $ (285.5) $ 596.5 $ 536.1
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization............................................... 427.0 396.0 377.7
Income tax expense (benefit)................................................ (144.5) 378.8 336.3
Net refunds (payments) of income taxes...................................... 7.9 (114.3) (256.6)
Pension and other postretirement benefit contributions (in excess of ) less
than expense.............................................................. (26.2) (125.8) 14.7
Stock-based employee compensation........................................... -- -- 242.8
Sale proceeds of frequent flyer miles in excess of (less than) revenue...... (78.0) 387.7 31.3
Other, net.................................................................. 68.4 (1.8) (40.2)
Changes in certain assets and liabilities:
Decrease in accounts receivable........................................... 44.3 39.5 18.6
Decrease (increase) in flight equipment spare parts....................... (46.2) (136.7) 12.2
Decrease (increase) in prepaid expenses and other......................... 91.4 (13.3) (6.6)
Increase (decrease) in air traffic liability.............................. (140.4) 108.1 91.0
Increase (decrease) in accounts payable and other liabilities............. 84.2 82.3 (60.7)
Increase in accrued compensation and benefits............................. 85.9 10.3 75.7
--------- --------- ---------
Net cash provided by operating activities............................... 88.3 1,607.3 1,372.3
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures.......................................................... (1,067.6) (724.3) (1,205.3)
Purchases of short-term investments........................................... (256.8) (632.0) (501.2)
Proceeds from maturities of short-term investments............................ 640.9 469.3 511.2
Investments in affiliated companies........................................... (414.6) (36.7) --
Other, net.................................................................... (15.0) 37.8 (46.6)
--------- --------- ---------
Net cash used in investing activities................................... (1,113.1) (885.9) (1,241.9)
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of common and preferred stock...................................... (436.7) (524.4) --
Payment of long-term debt..................................................... (1,731.8) (346.8) (487.2)
Payment of capital lease obligations.......................................... (618.5) (61.0) (63.2)
Payment of short-term notes payable........................................... -- -- (379.2)
Proceeds from long-term debt.................................................. 2,909.6 250.6 184.8
Proceeds from sale and leaseback transactions................................. 669.0 168.0 350.0
Other, net.................................................................... (27.2) (26.8) (27.1)
--------- --------- ---------
Net cash provided by (used in) financing activities..................... 764.4 (540.4) (421.9)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS................................ (260.4) 181.0 (291.5)
Cash and cash equivalents at beginning of period................................ 740.4 559.4 850.9
--------- --------- ---------
Cash and cash equivalents at end of period...................................... $ 480.0 $ 740.4 $ 559.4
--------- --------- ---------
--------- --------- ---------
Cash and cash equivalents and unrestricted short-term investments at end of
period........................................................................ $ 480.0 $ 1,039.9 $ 752.1
--------- --------- ---------
--------- --------- ---------
Available to be borrowed under credit facilities................................ $ 1,003.7 $ 1,079.2 $ 726.8
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
NORTHWEST AIRLINES CORPORATION
CONSOLIDATED STATEMENTS OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(IN MILLIONS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER
COMMON STOCK ADDITIONAL COMPREHENSIVE
-------------- PAID-IN ACCUMULATED INCOME TREASURY
SHARES AMOUNT CAPITAL DEFICIT (LOSS) STOCK TOTAL
------ ------ ---------- ----------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 1, 1996...................... 91.3 $0.9 $ 968.4 $(1,517.8) $(270.3) $ -- $ (818.8)
Net income................................... 536.1 536.1
Other comprehensive income................... 157.4 157.4
---------
Comprehensive income, net of tax........... 693.5
Acquisition of preferred stock............... 74.5 74.5
Shares earned by employees including shares
issued to employee benefit plans........... 4.8 137.5 137.5
Accrued cumulative dividends on Series A and
B Preferred Stock.......................... (36.6) (36.6)
Accretion of Series C Preferred Stock........ (0.9) (0.9)
Tax benefit related to stock issued to
employees.................................. 7.0 7.0
Series C Preferred Stock converted to Common
Stock...................................... 1.0 32.0 32.0
Other........................................ 0.5 0.1 5.1 (0.5) 4.7
------ ------ ---------- ----------- ------- --------- ---------
BALANCE DECEMBER 31, 1996.................... 97.6 1.0 1,150.0 (945.2) (112.9 ) -- 92.9
Net income................................... 596.5 596.5
Other comprehensive income................... 11.1 11.1
---------
Comprehensive income, net of tax........... 607.6
Repurchase of Common Stock................... 7.0 (273.1) (266.1)
Common Stock committed to be repurchased..... 21.9 (848.5) (826.6)
Shares issued to employee benefit plans...... 3.5 --
Accrued cumulative dividends on Series A and
B Preferred Stock.......................... (14.4) (14.4)
Accretion of Series C Preferred Stock........ (1.1) (1.1)
Tax benefit related to stock issued to
employees.................................. 29.1 29.1
Series C Preferred Stock converted to Common
Stock...................................... 1.8 57.7 57.7
Other........................................ 0.9 7.9 2.0 9.9
------ ------ ---------- ----------- ------- --------- ---------
BALANCE DECEMBER 31, 1997.................... 103.8 1.0 1,273.6 (362.2) (101.8 ) (1,121.6) (311.0)
Net loss..................................... (285.5) (285.5)
Other comprehensive income................... 33.7 33.7
---------
Comprehensive loss, net of tax............. (251.8)
Common Stock carrying value over repurchase
price...................................... 68.1 68.1
Shares issued to purchase an interest in
Continental Airlines, Inc.................. 2.6 0.1 65.4 65.5
Accretion of Series C Preferred Stock........ (0.8) (0.8)
Tax benefit related to stock issued to
employees.................................. 12.0 12.0
Series C Preferred Stock converted to Common
Stock...................................... 1.4 46.3 46.3
Common Stock held in rabbi trusts............ 31.5 (151.5) (120.0)
Other........................................ 1.2 15.8 (0.8) 15.0
------ ------ ---------- ----------- ------- --------- ---------
BALANCE DECEMBER 31, 1998.................... 109.0 $1.1 $1,444.6 $ (648.5) $(68.1 ) $(1,205.8) $ (476.7)
------ ------ ---------- ----------- ------- --------- ---------
------ ------ ---------- ----------- ------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION: Northwest Airlines Corporation ("NWA Corp.") is a
holding company whose principal indirect operating subsidiary is Northwest
Airlines, Inc. ("Northwest"). The consolidated financial statements include the
accounts of NWA Corp. and all subsidiaries (collectively, the "Company"). All
significant intercompany transactions have been eliminated. Investments in 20%
to 50% owned companies and Continental Airlines, Inc. ("Continental") are
accounted for by the equity method. Other investments are accounted for by the
cost method.
On November 20, 1998, NWA Corp. effected a holding company reorganization.
As a result, Northwest Airlines Holdings Corporation (formerly known as
Northwest Airlines Corporation and prior to the reorganization the publicly
traded holding company, "Old NWA Corp.") became a direct wholly-owned subsidiary
of NWA Corp. NWA Corp. is now the publicly traded holding company. Pursuant to
the reorganization, each share of Common Stock and Series C Preferred Stock of
Old NWA Corp. was converted into one share of Common Stock and Series C
Preferred Stock, respectively, of NWA Corp. with the same rights and privileges
as such shares of Old NWA Corp. References to NWA Corp., Common Stock and Series
C Preferred Stock for time periods prior to November 20, 1998 refer to Old NWA
Corp. and the Common Stock and Series C Preferred Stock of Old NWA Corp.,
respectively.
Certain prior year amounts have been reclassified to conform to the current
year financial statement presentation.
BUSINESS: Northwest's operations comprise more than 95% of the Company's
consolidated operating revenues and expenses. Northwest is a major air carrier
engaged principally in the commercial transportation of passengers and cargo,
directly serving more than 150 cities in 21 countries in North America, Asia and
Europe. Northwest's global airline network includes domestic hubs at Detroit,
Minneapolis/St. Paul and Memphis, an extensive Pacific route system with hubs at
Tokyo and Osaka, a trans-Atlantic alliance with KLM Royal Dutch Airlines ("KLM")
that operates through a hub in Amsterdam and a global alliance with Continental.
The year ended December 31, 1998 was affected by labor-related disruptions
which included work actions, a 30-day cooling off period, an 18-day cessation of
flight operations due to the pilots' strike during the third quarter, a
seven-day gradual resumption of flight operations and a rebuilding of traffic
demand.
FLIGHT EQUIPMENT SPARE PARTS: Flight equipment spare parts are carried at
average cost. An allowance for depreciation is provided at rates which
depreciate cost, less residual value, over the estimated useful lives of the
related aircraft.
PROPERTY, EQUIPMENT AND DEPRECIATION: Owned property and equipment are
stated at cost. Property and equipment acquired under capital leases are stated
at the lower of the present value of minimum lease payments or fair market value
at the inception of the lease. Property and equipment are depreciated to
residual values using the straight-line method over the estimated useful lives
of the assets. Commencing with the acquisition of the parent of Northwest in
1989, estimated useful lives generally range from four to 25 years for flight
equipment and three to 32 years for other property and equipment. Leasehold
improvements are generally amortized over the remaining period of the lease or
the estimated service life of the related asset, whichever is less. Property and
equipment under capital leases are amortized over the lease terms or the
estimated useful lives of the assets.
AIRFRAME AND ENGINE MAINTENANCE: Routine maintenance and airframe and
engine overhauls are charged to expense as incurred. Modifications that enhance
the operating performance or extend the
33
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
useful lives of airframes or engines are capitalized and amortized over the
remaining estimated useful life of the asset.
INTERNATIONAL ROUTES: International routes are amortized on a straight-line
basis, generally over 40 years. International operating route authorities and
alliances are regulated by governmental policy and bilateral agreements between
nations. Changes in such policies or agreements could impact Northwest.
IMPAIRMENT OF LONG-LIVED ASSETS: The Company evaluates impairment of
long-lived assets in compliance with Statement of Financial Accounting Standards
("SFAS") No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of." The Company records impairment losses on
long-lived assets used in operations when events and circumstances indicate that
the assets might be impaired and the undiscounted cash flows estimated to be
generated by those assets are less than the carrying amounts of those assets.
The impairment loss is measured by comparing the fair value of the asset to its
carrying amount.
In 1998, the Company accelerated the retirement of its seven oldest Boeing
747 aircraft and recorded a fleet disposition charge of $65.9 million in other
operating expenses. These retirements are earlier than scheduled as a result of
decreased demand in the Pacific, the timing of major overhauls and the
opportunity to accelerate the delivery of certain new Boeing 747-400 aircraft in
partial replacement of the retired aircraft. The Company considered recent
transactions involving sales of similar aircraft and market trends in aircraft
dispositions to reduce the aircraft net book value to reflect the fair market
value of these assets. The fleet disposition charge included a $13.5 million
write-down of related spare parts to their estimated fair market value.
FREQUENT FLYER PROGRAM: The estimated incremental cost of providing travel
awards earned under Northwest's WorldPerks frequent flyer program is accrued.
The Company sells mileage credits to participating companies in its frequent
flyer program. A portion of such revenue is deferred and amortized as
transportation is provided.
OPERATING REVENUES: Passenger and cargo revenues are recognized when the
transportation is provided. The air traffic liability represents the estimated
value of sold but unused tickets and is regularly evaluated by the Company.
ADVERTISING: Advertising costs, included in other operating expenses, are
expensed as incurred and were $137.3 million, $109.8 million and $120.4 million
in 1998, 1997 and 1996, respectively.
EMPLOYEE STOCK OPTIONS: The Company uses the intrinsic value method
prescribed by Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and related interpretations in accounting for employee
stock options. Under the intrinsic value method, compensation expense is
recognized only to the extent the market price of the common stock exceeds the
exercise price of the stock option at the date of the grant.
FOREIGN CURRENCY: Assets and liabilities denominated in foreign currency
are remeasured at current exchange rates with resulting gains and losses
generally included in net income. The Preferred Security (see Note F) and other
assets and liabilities of certain properties located outside of the United
States whose cash flows are primarily in the local functional currency are
translated at current exchange rates, with translation gains and losses recorded
directly to common stockholders' equity deficit.
34
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES: The Company accounts for income taxes utilizing the liability
method. Deferred income taxes are primarily recorded to reflect the tax
consequences of differences between the tax and financial reporting bases of
assets and liabilities.
USE OF ESTIMATES: The preparation of consolidated financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the amounts reported in its
consolidated financial statements and accompanying notes. Actual results could
differ from those estimates.
NEW ACCOUNTING STANDARDS: In March 1998, Statement of Position No. 98-1,
"Accounting for the Costs of Computer Software Developed for or Obtained for
Internal Use" ("SOP 98-1") was issued. SOP 98-1 defines the type of costs that
should be capitalized versus expensed as incurred. The Company adopted SOP 98-1
on January 1, 1999, which did not have a material impact on the Company's
financial condition or results of operations.
NOTE B--EARNINGS (LOSS) PER SHARE DATA
The following table sets forth the computation of basic and diluted earnings
(loss) per common share (in millions, except share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1998 1997 1996
------------ ------------- -------------
<S> <C> <C> <C>
Numerator:
Income (loss) before extraordinary item............................ $ (285.5) $ 605.8 $ 536.1
Preferred stock requirements..................................... (0.8) (13.5) (37.5)
Preferred stock transaction...................................... -- -- 74.5
------------ ------------- -------------
Income (loss) applicable to common stockholders for basic earnings
(loss) per share................................................. $ (286.3) $ 592.3 $ 573.1
Effect of dilutive securities: Series C Preferred Stock............ -- 1.1 0.9
------------ ------------- -------------
Income (loss) applicable to common stockholders after assumed
conversions for diluted earnings per share....................... $ (286.3) $ 593.4 $ 574.0
------------ ------------- -------------
------------ ------------- -------------
Denominator:
Weighted-average shares outstanding for basic earnings (loss) per
share............................................................ 82,341,741 100,616,605 98,731,917
Effect of dilutive securities:
Series C Preferred Stock......................................... -- 9,981,547 10,216,939
Employee stock options........................................... -- 1,319,177 1,482,406
Common stock repurchase obligation............................... -- 280,253 --
------------ ------------- -------------
Adjusted weighted-average shares outstanding and assumed
conversions for diluted earnings (loss) per share................ 82,341,741 112,197,582 110,431,262
------------ ------------- -------------
------------ ------------- -------------
</TABLE>
For additional disclosures regarding the outstanding Series C Preferred
Stock, the employee stock options and the limited KLM option, see Notes C, G and
H.
35
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C--LABOR AGREEMENTS AND SERIES C PREFERRED STOCK
In 1993, the Company entered into labor agreements which provided for wage
and other compensation savings (the "Actual Savings") by domestic employees,
including management, and other cost reductions which aggregated $897 million
over 36 to 39 month periods (depending on the labor group) (collectively, the
"Wage Savings period") which ended between August and November 1996. As part of
the 1993 labor agreements, the Company issued to trusts for the benefit of
participating employees 9.1 million shares of a new class of Series C
cumulative, voting, convertible, redeemable preferred stock, par value of $.01
per share (the "Series C Preferred Stock") and 17.5 million shares of Common
Stock and provided the union groups with three positions on the Board of
Directors.
Information with respect to the shares issued to trusts for the benefit of
employees is as follows (in millions):
<TABLE>
<CAPTION>
SERIES C PREFERRED STOCK
----------------------------------
SHARES SHARES FINANCIAL
TO BE SHARES HELD BY STATEMENT
ISSUED EARNED TRUSTS AMOUNT
------ ---- ------- ---------
<S> <C> <C> <C> <C>
Balance January 1, 1996........................ 4.1 6.9 4.4 $288.6
Shares earned by employees................... -- 2.2 -- 105.3
Shares issued to trusts...................... (2.6) -- 2.6 --
Series C Preferred Stock converted to Common
Stock...................................... -- -- (.8) (32.0)
Withdrawals from trusts...................... -- -- -- --
Accretion and other.......................... .2 -- -- .9
------ ---- ------- ---------
Balance December 31, 1996...................... 1.7 9.1 6.2 362.8
Shares issued to trusts...................... (1.7) -- 1.7 --
Series C Preferred Stock converted to Common
Stock...................................... -- -- (1.3) (57.7)
Withdrawals from trusts...................... -- -- -- --
Accretion.................................... -- -- -- 1.1
------ ---- ------- ---------
Balance December 31, 1997...................... -- 9.1 6.6 306.2
Series C Preferred Stock converted to Common
Stock...................................... -- -- (1.0) (46.3)
Withdrawals from trusts...................... -- -- -- --
Accretion.................................... -- -- -- .8
------ ---- ------- ---------
Balance December 31, 1998...................... -- 9.1 5.6 $260.7
------ ---- ------- ---------
------ ---- ------- ---------
<CAPTION>
COMMON STOCK
-------------------------------------
SHARES SHARES FINANCIAL
TO BE SHARES HELD BY STATEMENT
ISSUED EARNED TRUSTS AMOUNT
------ ------ ------- ---------
<S> <C> <C> <C> <C>
Balance January 1, 1996........................ 8.6 13.3 7.7 $409.8
Shares earned by employees................... -- 4.2 -- 137.5
Shares issued to trusts...................... (4.8) -- 4.8 --
Series C Preferred Stock converted to Common
Stock...................................... -- -- 1.0 32.0
Withdrawals from trusts...................... -- -- (2.3) --
Accretion and other.......................... (.3) -- -- --
------ ------ ------- ---------
Balance December 31, 1996...................... 3.5 17.5 11.2 579.3
Shares issued to trusts...................... (3.5) -- 3.5 --
Series C Preferred Stock converted to Common
Stock...................................... -- -- 1.8 57.7
Withdrawals from trusts...................... -- -- (4.2) --
Accretion.................................... -- -- -- --
------ ------ ------- ---------
Balance December 31, 1997...................... -- 17.5 12.3 637.0
Series C Preferred Stock converted to Common
Stock...................................... -- -- 1.4 46.3
Withdrawals from trusts...................... -- -- (3.4) --
Accretion.................................... -- -- -- --
------ ------ ------- ---------
Balance December 31, 1998...................... -- 17.5 10.3 $683.3
------ ------ ------- ---------
------ ------ ------- ---------
</TABLE>
NWA Corp. has authorized 25,000,000 shares of Series C Preferred Stock. The
Series C Preferred Stock ranks senior to Common Stock with respect to
liquidation and certain dividend rights. As long as the Common Stock is publicly
traded, no dividends accrue on the Series C Preferred Stock. Each share of the
Series C Preferred Stock is convertible at any time into 1.364 shares of Common
Stock. As of December 31, 1998, 3.5 million shares of Series C Preferred Stock
have been converted into Common Stock and the remaining 5.6 million shares
outstanding are convertible into 7.7 million shares of Common Stock.
All the outstanding shares of Series C Preferred Stock are required to be
redeemed in 2003 for a pro rata share of Actual Savings ($263.7 million as of
December 31, 1998). NWA Corp. has the option to
36
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE C--LABOR AGREEMENTS AND SERIES C PREFERRED STOCK (CONTINUED)
redeem such shares in cash, by the issuance of additional Common Stock, or by
the use of cash and stock. A decision to issue only additional Common Stock must
be approved by a majority of the three directors elected by the holders of the
Series C Preferred Stock. If NWA Corp. fails to redeem the Series C Preferred
Stock, dividends will accrue at the higher of (i) 12% or (ii) the highest
penalty rate on any then outstanding series of preferred stock, and the employee
unions will receive three additional Board of Directors positions. The financial
statement carrying value of the Series C Preferred Stock is being accreted over
ten years commencing August 1993 to the ultimate redemption amount. Prior to
2003, NWA Corp. at its option may redeem in whole or in part the Series C
Preferred Stock at its liquidation value.
The Company recognized stock-based compensation expense for each year based
on the values at the measurement date of the Series C Preferred Stock and the
Common Stock earned by employees. The final measurement dates for 1996 coincided
with the end of the Wage Savings period for each of the labor groups.
The Company was required to adopt the provisions of the Emerging Issues Task
Force ("EITF") Issue No. 97-14, "Accounting for Deferred Compensation
Arrangements Where Amounts Earned are Held in a Rabbi Trust" on September 30,
1998. As a result, the Company revised its consolidation of the assets and
liabilities of the non-qualified rabbi trusts established as part of the 1993
labor agreements. The 4.0 million shares of Common Stock as of December 31, 1998
that are held in the trusts are recorded similar to treasury stock and the
deferred compensation liability is recorded in other long-term liabilities. The
Company elected to record the difference between the market value of the common
shares and the cost of the shares in the trusts at the date of adoption as a
credit to common stockholders' equity deficit, net of tax. After the adoption
date, but prior to settlement through either contribution to the qualified
trusts or diversification, increases or decreases in the deferred compensation
liability will be recognized in earnings to the extent that the Common Stock
market price exceeds the average historical cost of the shares of $38.04 per
share or falls below the September 30, 1998 price of $25.06 per share,
respectively. For the purpose of computing diluted earnings per share, the
shares held by the rabbi trusts are considered potentially dilutive securities.
The Company has classified the diversified assets held by the rabbi trust as
trading and recorded them at fair market value.
Approximately 90% of the Company's employees are members of collective
bargaining units. In 1998, the Company signed new agreements with five
collective bargaining groups, including the pilot group. The durations of the
new agreements range from four to six years. In November 1998, at a
representation election, a majority of the mechanics and related employees
elected the Aircraft Mechanics Fraternal Association to be their
collective-bargaining representative. The International Association of
Machinists and Aerospace Workers ("IAM") is protesting the election and
certification of the vote is currently under review. The remaining ground
employees continue to be represented by the IAM. In 1999, the IAM ratified a new
four-year tentative agreement for the remaining ground employees. The Company is
presently in mediated negotiations with the union representing its flight
attendants, but cannot predict the ultimate outcome of the negotiations.
37
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D--LONG-TERM DEBT AND SHORT-TERM BORROWINGS
Long-term debt consisted of the following (in millions, with interest rates
as of December 31, 1998):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Revolving credit facilities due 2002, 7.6% (a)......................... $ 824.8 $ --
Unsecured notes due 2004 through 2008, 8.0% weighted average rate
(b).................................................................. 648.9 249.7
Equipment pledge notes due through 2013, 7.1% weighted average rate.... 482.5 248.4
Aircraft notes due through 2016, 6.0% weighted average rate (c)........ 362.2 --
Secured notes due through 2009, 6.5% weighted average rate (d)......... 348.9 348.9
NWA Trust No. 2 aircraft notes due through 2012, 9.8% weighted average
rate (e)............................................................. 258.3 330.9
Secured notes due through 2016, 6.1% (f)............................... 240.0 --
Unsecured notes due 1999 and 2000, 7.9% (g)............................ 237.7 --
Sale-leaseback financing obligations due through 2020, 9.9% imputed
rate (h)............................................................. 223.0 223.0
NWA Trust No. 1 aircraft notes due through 2006, 8.6% weighted average
rate (i)............................................................. 195.1 208.7
Term loans due through 2002, 7.6% weighted average rate (a)............ 160.2 150.0
Term certificates paid in 1998 (j)..................................... -- 135.0
Senior unsecured floating rate note paid in 1998....................... -- 76.0
Other.................................................................. 19.1 98.7
--------- ---------
Total long-term debt................................................... 4,000.7 2,069.3
Less current maturities.............................................. 319.2 227.4
--------- ---------
$ 3,681.5 $ 1,841.9
--------- ---------
--------- ---------
</TABLE>
(a) The Company's Credit Agreement was amended in December 1997 to increase its
existing revolving credit facility from $500 million to $675 million and to
extend the availability period to December 2002. In addition, the facility
added a new $175 million, 364-day unsecured revolving credit facility due in
December 1998. In October 1998, the Company borrowed the available $835
million under its Credit Agreement. Interest is calculated at floating rates
based on the London Interbank Offered Rate ("LIBOR") plus 2%. In December
1998, $10.2 million of the $175 million, 364-day revolver was converted into
a term loan due December 2002. The remaining $164.8 million was renewed for
another 364 days; however, to the extent this facility is not renewed for an
additional 364-day period, the Company may borrow up to the entire
non-renewed portion of the facility and all such borrowings mature in
December 2002.
In May 1998, the Company obtained a secured 364-day, $1.0 billion additional
revolving credit facility. In addition, the Company provided certain
collateral to secure its previously unsecured term loan and revolving credit
facilities under the Credit Agreement described above. Commitment fees are
payable by the Company on the unused portion of all of its revolving credit
facilities at a rate per annum equal
38
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D--LONG-TERM DEBT AND SHORT-TERM BORROWINGS (CONTINUED)
to .375% and are not considered material. At December 31, 1998, $1.0 billion
remained available to be borrowed in the aggregate under both revolving
credit facilities.
$150 million of the floating rate term loans is payable in three equal
installments beginning in 2001 with final maturity in 2002.
(b) In March 1997, the Company issued $150 million of 8.375% notes due 2004 and
$100 million of 8.70% notes due 2007. In March 1998, the Company issued $200
million of 7.625% notes due 2005 and $200 million of 7.875% notes due 2008.
Interest on the notes is payable semi-annually.
(c) During 1998 the Company secured long-term debt financing on 13 Airbus A320
aircraft delivered during the year. Interest on the notes is payable
semi-annually. The Company combined these debt financings with
fully-defeased German cross border transactions.
(d) In April 1996, the Company restructured floating rate notes with certain
manufacturers. Principal repayments are due semi-annually beginning 2001.
(e) In December 1994, the Company completed a structured aircraft financing
transaction in which 13 Airbus A320 aircraft were transferred from Northwest
(subject to existing indebtedness) to an owner trust (NWA Trust No. 2). A
limited partnership, of which Northwest is the limited partner and Norbus,
Inc. (an affiliate of Airbus Industrie A.I.E.) is the general partner, is
the sole equity participant in the owner trust. All proceeds from the
transaction were used to repay equipment pledge notes, which had previously
been issued to finance the acquisition of these aircraft by Northwest. The
aircraft were simultaneously leased back to Northwest.
Financing of $352 million was obtained through the issuance of $176 million
of 9.25% Class A Senior Aircraft Notes, $66 million of 10.23% Class B
Mezzanine Aircraft Notes, $44 million of 11.30% Class C Mezzanine Aircraft
Notes and $66 million of 13.875% Class D Subordinated Aircraft Notes. The
notes are payable semi-annually from rental payments made by Northwest under
the lease of the aircraft and are secured by the aircraft subject to the
lease as well as the lease itself.
In December 1997, the Company initiated a tender offer for the repurchase of
the 13.875% Class D Subordinated Aircraft Notes. The offer expired on
December 30, 1997 with 99% of the notes tendered. On January 2, 1998, the
notes were repurchased for $78.7 million. Consequently, a loss of $9.3
million, net of $5.4 million in income taxes, was recorded as an
extraordinary item in 1997.
(f) In August 1998, the Company borrowed $240 million under an existing credit
facility. The floating rate notes are secured by six Boeing 757 aircraft and
principal payments are due semi-annually beginning in 2008.
(g) On May 1, 1998, in conjunction with its repurchase of Common Stock from KLM,
the Company issued three senior unsecured 7.88% notes with principal amounts
of $206.0 million, $137.7 million and $100.0 million. The Company repaid the
first note on September 29, 1998; the remaining two notes are due on
September 29, 1999 and 2000, respectively. See Note G.
(h) In March 1992, the Company completed agreements with the Minneapolis/St.
Paul Metropolitan Airports Commission ("MAC") for the sale and leaseback of
various corporate assets. The sale-leaseback agreements, which are accounted
for as debt, call for increasing quarterly payments over a 30-year term and
include a provision which gives the Company the option to repurchase the
assets. The agreements with the MAC are part of a group of financing
arrangements with the State of
39
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE D--LONG-TERM DEBT AND SHORT-TERM BORROWINGS (CONTINUED)
Minnesota and other government agencies. In December 1997, the Company
prepaid $39 million of these obligations.
(i) In March 1994, Northwest consummated a financing transaction in which six
Boeing 747-200 and four Boeing 757-200 aircraft were sold to an owner trust
(NWA Trust No. 1) of which NWA Aircraft Finance, Inc., an indirect
subsidiary of the Company, is the sole equity participant. A portion of the
purchase price was financed through the issuance of $177 million of 8.26%
Class A Senior Aircraft Notes and $66 million of 9.36% Class B Subordinated
Aircraft Notes. The aircraft were simultaneously leased back to Northwest.
The notes are payable semi-annually from rental payments made by Northwest
under the lease of the aircraft and are secured by the aircraft subject to
the lease as well as the lease itself.
(j) In March 1994, Northwest agreed to sell certain receivables on an ongoing
basis to Northwest Capital Funding Corp. ("NCF"), pursuant to a receivable
financing program (the "Receivable Program"). NCF, an indirect subsidiary of
the Company, issued through a master trust floating rate Term Certificates.
The Receivable Program provided for the early retirement of the related Term
Certificates upon the occurrence of certain events, one of which occurred on
January 25, 1998. Accordingly, the Company paid these certificates in full
in 1998.
Maturities of long-term debt for the five years subsequent to December 31,
1998 are as follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
1999............................................................................... $ 319.2
2000............................................................................... 168.0
2001............................................................................... 148.0
2002............................................................................... 1,046.3
2003............................................................................... 107.9
</TABLE>
The debt and lease agreements of the Company contain certain restrictive
covenants, including limitations on indebtedness, equity redemptions and the
declaration of dividends, as well as requirements to maintain certain financial
ratios, including collateral coverage ratios. At December 31, 1998, the Company
was in compliance with the covenants of all of its debt and lease agreements.
Various assets, principally aircraft and international route authorities, having
an aggregate book value of $5.1 billion at December 31, 1998, were pledged under
various loan agreements.
Cash payments of interest, net of capitalized interest, aggregated $277.4
million in 1998, $231.3 million in 1997 and $263.3 million in 1996.
The weighted average interest rates on short-term borrowings outstanding at
December 31 were 5.99%, 6.24% and 5.69% for 1998, 1997 and 1996, respectively.
NOTE E--LEASES
The Company leases under noncancelable operating leases certain aircraft,
space in airport terminals, land and buildings at airports, ticket, sales and
reservations offices, and other property and equipment, which expire in various
years through 2027. Portions of certain facilities are subleased under
noncancelable operating leases expiring in various years through 2020.
40
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE E--LEASES (CONTINUED)
At December 31, 1998, the Company leased 113 of the 409 aircraft it
operates. Of these, 25 were capital leases and 88 were operating leases.
Expiration dates range from 1999 to 2009 for aircraft under capital leases, and
from 1999 to 2019 for aircraft under operating leases. The Company's aircraft
leases can generally be renewed for terms ranging from one to five years at
rates based on the aircraft's fair market value at the end of the lease term.
Ninety-one of the 113 aircraft lease agreements provide the Company with
purchase options at the end of the lease terms which approximate fair market
value.
Rental expense for all operating leases consisted of (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Gross rental expense................................................................. $ 629.8 $ 627.1 $ 596.5
Sublease rental income............................................................... (86.8) (79.5) (62.2)
--------- --------- ---------
Net rental expense................................................................... $ 543.0 $ 547.6 $ 534.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
At December 31, 1998, future minimum lease payments under capital leases and
noncancelable operating leases with initial or remaining terms of more than one
year were as follows (in millions):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
--------- -----------
<S> <C> <C>
1999..................................................................... $ 103.6 $ 495.8
2000..................................................................... 102.9 484.5
2001..................................................................... 103.9 472.8
2002..................................................................... 278.6 476.2
2003..................................................................... 84.5 456.7
Thereafter............................................................... 223.1 4,442.3
--------- -----------
896.6 6,828.3
Less sublease rental income.............................................. (472.6)
-----------
Total minimum operating lease payments................................... $ 6,355.7
-----------
-----------
Less amounts representing interest....................................... 241.7
---------
Present value of future minimum capital lease payments................... 654.9
Less current obligations under capital leases............................ 57.6
---------
Long-term obligations under capital leases............................... $ 597.3
---------
---------
</TABLE>
NOTE F--MANDATORILY REDEEMABLE PREFERRED SECURITY OF SUBSIDIARY WHICH HOLDS
SOLELY NON-RECOURSE OBLIGATION OF COMPANY
In October 1995, the Company completed a restructuring of its
yen-denominated non-recourse obligation secured by land and buildings the
Company owns in Tokyo. A newly formed consolidated subsidiary of the Company
(the "Subsidiary") entered into a Japanese business arrangement designated under
Japanese law as a tokumei kumiai ("TK"). Pursuant to the TK arrangement, the
holder of the non-recourse obligation restructured such obligation and then
assigned title to and ownership of such obligation to the Subsidiary as operator
under the TK arrangement in exchange for a preferred interest in the profits and
returns of capital from the business of the Subsidiary (the "Preferred
Security"). The
41
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE F--MANDATORILY REDEEMABLE PREFERRED SECURITY OF SUBSIDIARY WHICH HOLDS
SOLELY NON-RECOURSE OBLIGATION OF COMPANY (CONTINUED)
restructured non-recourse obligation is the sole asset of the Subsidiary. As a
result of this restructuring, the original holder of such non-recourse
obligation ceased to be a direct creditor of the Company and the Company's
obligation is reflected in the Company's Consolidated Balance Sheet as
"Mandatorily Redeemable Preferred Security of Subsidiary Which Holds Solely
Non-Recourse Obligation of Company." NWA Corp. has guaranteed the obligation of
the Subsidiary to distribute payments on the Preferred Security pursuant to the
TK arrangement if and to the extent payments are received by the Subsidiary.
The restructured obligation matures in three approximately equal annual
installments due in 2005, 2006 and 2007. In addition to these installments, cash
payments of interest and principal are made semi-annually throughout the term.
The rate of interest varies from period to period and is capped at 6%. The
obligation is non-recourse to the Company. The Company has the ability
(exercisable at any time after September 30, 2001) to transfer the property in
full satisfaction of all Company obligations related to the financing.
The carrying value is being accreted over 12 years from October 1995 to the
ultimate maturity value of 71.4 billion yen ($631.8 million based on the
December 31, 1998 exchange rate). Such accretion is included as a component of
"Interest of mandatorily redeemable preferred security holder" in the
Consolidated Statements of Operations.
NOTE G--REDEEMABLE STOCK
In July 1996, NWA Corp. acquired from KLM 3,691.2 shares of Series A
Preferred Stock and 2,962.8 shares of Series B Preferred Stock in exchange for
two unsecured promissory notes aggregating $379 million, both of which were
repaid December 1996. These transactions resulted in an increase to net income
applicable to common stockholders of $74.5 million.
On September 29, 1997, NWA Corp. entered into an agreement with KLM to
repurchase for $1.12 billion over three years the 25 million shares of NWA Corp.
Common Stock held by KLM. On that date, 6.8 million shares were repurchased for
$273.1 million. Concurrently with that purchase, all of KLM's existing
governance rights under various stockholder and other agreements were canceled,
and NWA Corp. and KLM entered into a customary standstill agreement. The
remaining 18.2 million shares of Common Stock to be repurchased were
reclassified to redeemable common stock from common stockholders' equity deficit
on that date. In addition, on the same day, NWA Corp. repurchased from KLM and
others all of the Series A and B Preferred Stock outstanding for $251.3 million
in cash.
On May 1, 1998, NWA Corp. purchased from KLM the remaining 18.2 million
shares of Common Stock which the Company had previously agreed to repurchase
over the three-year period. The purchase price of $780.4 million was paid with a
combination of $336.7 million cash and three senior unsecured 7.88% notes. The
$68.1 million excess of the financial statement carrying value of the redeemable
Common Stock over the repurchase price was transferred to common stockholders'
equity deficit on the same date. As of May 1, 1998, earnings (loss) per share
calculations do not include the 18.2 million shares repurchased. In certain
limited circumstances (e.g., the failure of the Northwest/KLM alliance to
maintain certain antitrust immunity or Northwest's default under the alliance
agreement), KLM will have an option to buy back from NWA Corp. up to 13.3
million shares of Common Stock.
42
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H--STOCK OPTIONS AND STOCKHOLDER RIGHTS PLAN
On April 30, 1998, NWA Corp. amended its Second Amended and Restated
Certificate of Incorporation to combine and reclassify the existing separate
classes of voting Class A and non-voting Class B Common Stock into a single
class of Common Stock.
STOCK OPTION PLANS: NWA Corp. has stock option plans for officers and key
employees. Options generally become exercisable in equal annual installments
over four or five years and expire 10 years from the date of the grant. NWA
Corp.'s policy is to grant options with the exercise price equal to the market
price of the Common Stock on the date of grant. To the extent that options are
granted with an exercise price less than the market price on the date of the
grant, compensation expense is recognized over the vesting period of the grant.
Following is a summary of stock option activity (in thousands, except per
share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ -------------------------- ------------------------
WEIGHTED-AVG WEIGHTED-AVG WEIGHTED-AVG
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ------------- ----------- ------------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year.......... 5,204 $ 27.09 4,774 $ 20.11 3,509 $ 10.56
Granted................................... 509 43.35 1,454 39.26 1,836 35.04
Forfeited................................. (485) 33.36 (154) 36.24 (118) 15.55
Exercised................................. (1,169) 13.08 (870) 7.49 (453) 7.92
--------- ----- ---------
Outstanding at end of year................ 4,059 32.41 5,204 27.09 4,774 20.11
Exercisable at end of year................ 1,910 24.35 1,894 15.55 1,907 9.16
Reserved for issuance..................... 7,948 7,948 7,948
Available for future grants............... 163 187 1,487
</TABLE>
AT DECEMBER 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------ OPTIONS EXERCISABLE
WEIGHTED-AVERAGE ------------------------------
REMAINING WEIGHTED-AVERAGE WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES SHARES CONTRACTUAL LIFE EXERCISE PRICE SHARES EXERCISE PRICE
----------- ---------------- ----------------- ----------- -----------------
<S> <C> <C> <C> <C> <C>
$4.740 to $27.375......................... 1,072 5.7 years $ 14.30 966 $ 13.04
31.875 to 39.875.......................... 2,102 8.2 35.78 800 34.57
40.000 to 64.406.......................... 885 8.8 46.34 144 43.39
</TABLE>
The weighted-average fair value of options granted during 1998, 1997 and
1996 is $17.65, $16.50 and $14.89 per option, respectively. The fair value of
each option grant is estimated as of the date of grant using the Black-Scholes
single option-pricing model assuming a weighted average risk-free interest rate
of 5.5%, 6.1% and 6.4% for 1998, 1997 and 1996, respectively, and expected lives
of six years and volatility of 30% for all years presented.
In September 1998, in conjunction with the labor agreement reached between
Northwest and the Air Line Pilots Association, International ("ALPA"), NWA Corp.
established the 1998 Pilots Stock Option Plan ("the Pilot Plan"). The Pilot Plan
has reserved for issuance 2.5 million shares of Common Stock. Options under the
Pilot Plan will be granted over a three-year period. The initial option grant
was for 1.0 million shares of Common Stock with an exercise price of $27.875 per
share. These options became exercisable on
43
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE H--STOCK OPTIONS AND STOCKHOLDER RIGHTS PLAN (CONTINUED)
November 1, 1998. The weighted average fair value of the options granted under
the Pilot Plan is $10.84. The fair value of each option grant is estimated as of
the date of grant using the Black-Scholes single option pricing model assuming a
weighted average risk-free interest rate of 4.7%, an expected life of six years
and volatility of 30%. On each of the next three anniversaries of the initial
grant date, an additional 500,000 options will be granted with an exercise price
equal to the closing market price of the Common Stock on the applicable grant
date.
Assuming the Company had accounted for its employee stock options using the
fair value method (instead of the intrinsic value method), the 1998 net loss
would have increased to $300 million, bringing the loss per share to $3.65 in
1998. The pro forma effect of SFAS 123 is immaterial to the Company's 1997 and
1996 net income and earnings per share. In addition, because the fair value
method was applied only to options granted subsequent to December 31, 1994, its
pro forma effect will not be fully reflected until 1999.
STOCKHOLDER RIGHTS PLAN: Pursuant to the Stockholder Rights Plan (the
"Rights Plan"), each share of Common Stock has attached to it a right and, until
the rights expire or are redeemed, each new share of Common Stock issued by NWA
Corp., including the shares of Common Stock into which the Series C Preferred
Stock is convertible, will include one right. Upon the occurrence of certain
events, each right entitles the holder to purchase one one-hundredth of a share
of Series D Junior Participating Preferred Stock at an exercise price of $150,
subject to adjustment. The rights become exercisable only after any person or
group (other than the trusts holding Common Stock for the benefit of employees)
acquires beneficial ownership of 19% or more (25% or more in the case of certain
Institutional Investors (as defined in the Rights Plan)) of NWA Corp.'s
"outstanding" Common Stock (as defined in the Rights Plan) or commences a tender
or exchange offer that would result in such person or group acquiring beneficial
ownership of 19% or more (25% or more in the case of certain Institutional
Investors) of NWA Corp.'s outstanding Common Stock. If any person or group
acquires beneficial ownership of 19% or more (25% or more in the case of certain
Institutional Investors) of NWA Corp.'s outstanding Common Stock, the holders of
the rights (other than the acquiring person or group) will be entitled to
receive upon exercise of the rights, Common Stock of NWA Corp. having a market
value of two times the exercise price of the right. In addition, if after the
rights become exercisable NWA Corp. is involved in a merger or other business
combination or sells more than 50% of its assets or earning power, each right
will entitle its holder (other than the acquiring person or group) to receive
common stock of the acquiring company having a market value of two times the
exercise price of the rights. The rights expire on November 16, 2005 and may be
redeemed by NWA Corp. at a price of $.01 per right prior to the time they become
exercisable.
44
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE I--ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
The following table sets forth information with respect to accumulated other
comprehensive income (loss) (in millions):
<TABLE>
<CAPTION>
FOREIGN DEFERRED MINIMUM ACCUMULATED
CURRENCY LOSS ON PENSION OTHER
TRANSLATION HEDGING LIABILITY COMPREHENSIVE
ADJUSTMENT ACTIVITIES ADJUSTMENT INCOME (LOSS)
----------- ----------- ----------- --------------
<S> <C> <C> <C> <C>
Balance at January 1, 1996................................... $ (39.3) $ -- $ (231.0) $ (270.3)
Before tax amount.......................................... (.1) -- 250.6 250.5
Tax effect................................................. -- -- (93.1) (93.1)
----------- ----------- ----------- -------
Net-of-tax amount.......................................... (.1) -- 157.5 157.4
Balance at December 31, 1996................................. (39.4) -- (73.5) (112.9)
Before tax amount.......................................... 9.2 -- 8.6 17.8
Tax effect................................................. (3.4) -- (3.3) (6.7)
----------- ----------- ----------- -------
Net-of-tax amount.......................................... 5.8 -- 5.3 11.1
Balance at December 31, 1997................................. (33.6) -- (68.2) (101.8)
Before tax amount.......................................... (10.9) (33.0) 97.5 53.6
Tax effect................................................. 4.0 12.1 (36.0) (19.9)
----------- ----------- ----------- -------
Net-of-tax amount.......................................... (6.9) (20.9) 61.5 33.7
Balance at December 31, 1998................................. $ (40.5) $ (20.9) $ (6.7) $ (68.1)
----------- ----------- ----------- -------
----------- ----------- ----------- -------
</TABLE>
NOTE J--INCOME TAXES
Income tax expense (benefit) consisted of the following (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal....................................................... $ (45.0) $ 108.5 $ 175.0
Foreign....................................................... 3.4 3.7 4.1
State......................................................... 1.0 10.9 22.3
--------- --------- ---------
(40.6) 123.1 201.4
Deferred:
Federal....................................................... (89.7) 236.8 112.1
Foreign....................................................... (3.4) -- 16.6
State......................................................... (10.8) 18.9 6.2
--------- --------- ---------
(103.9) 255.7 134.9
--------- --------- ---------
Total income tax expense (benefit).............................. $ (144.5) $ 378.8 $ 336.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
45
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J--INCOME TAXES (CONTINUED)
Reconciliation of the statutory rate to the Company's income tax expense
(benefit) is as follows (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Statutory rate applied to income before income taxes and
extraordinary item............................................ $ (150.5) $ 344.6 $ 305.3
Add (deduct):
State income tax (benefit) net of federal benefit............. (6.5) 19.2 18.5
Adjustment to valuation allowance and other income tax
accruals.................................................... 6.4 5.8 6.2
Other......................................................... 6.1 9.2 6.3
--------- --------- ---------
Total income tax expense (benefit).............................. $ (144.5) $ 378.8 $ 336.3
--------- --------- ---------
--------- --------- ---------
</TABLE>
The net deferred tax liabilities listed below include a current net deferred
tax asset of $114.3 million and $84.8 million and a long-term net deferred tax
liability of $1.11 billion and $1.16 billion as of December 31, 1998 and 1997,
respectively.
Significant components of the Company's net deferred tax liability were as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax liabilities:
Financial accounting basis of assets in excess of tax basis.......... $ 1,489.4 $ 1,452.0
Expenses other than depreciation accelerated for tax purposes........ 313.0 309.4
Other................................................................ 15.9 12.4
--------- ---------
Total deferred tax liabilities..................................... 1,818.3 1,773.8
Deferred tax assets:
Pension and postretirement benefits.................................. 84.7 128.3
Expenses accelerated for financial reporting purposes................ 547.9 409.3
Leases capitalized for financial reporting purposes.................. 80.4 105.1
Alternative minimum tax credit carryforwards......................... 103.2 54.4
Other tax credit carryforwards....................................... 3.7 --
--------- ---------
Total deferred tax assets.......................................... 819.9 697.1
--------- ---------
Net deferred tax liability............................................. $ 998.4 $ 1,076.7
--------- ---------
--------- ---------
</TABLE>
During 1996, the Company utilized all of its regular net operating loss
carryforwards ("NOLs"). For tax purposes, the Company utilized NOLs of
approximately $121.8 million, $684.4 million and $394.4 million in 1996, 1995
and 1994, respectively, and alternative minimum tax net operating loss
carryforwards ("AMTNOLs") of $105.1 million and $446.7 million in 1995 and 1994,
respectively. The Company has alternative minimum tax credits of approximately
$103.2 million available for carryforward to future years' tax returns. The
alternative minimum tax credit has an unlimited carryforward period. In 1996,
the Company utilized its remaining foreign tax credit carryforward available for
regular tax purposes. In 1995, the Company utilized its remaining AMTNOL
carryforward, as well as its remaining investment tax credit
46
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE J--INCOME TAXES (CONTINUED)
carryforward and its remaining foreign tax credit carryforward available for
alternative minimum tax purposes. During 1998, the Company generated $3.4
million of foreign tax credit for both regular and alternative minimum tax
purposes and $.3 million of general business credit. These credits are available
for carryforward at December 31, 1998.
Sections 382 and 383 of the Internal Revenue Code of 1986, as amended (the
"Code"), and Treasury regulations limit the amounts of NOLs, AMTNOLs and credits
that can be used to offset taxable income (or used as a credit) in any single
tax year if the corporation has more than a 50% ownership change (as defined in
the Code) over a three-year testing period ending on the testing date. The
annual limitation on the amount of such NOLs, AMTNOLs and credits is calculated
in part based on the value of NWA Corp.'s stock. Management believes that an
offering of outstanding Common Stock by existing stockholders in November 1995
triggered an ownership change, but that no ownership change occurred before that
time. If such an ownership change did occur as a result of the offering,
management believes that, even as limited by the Code, the Company would use the
NOLs, AMTNOLs and credits significantly earlier than their expiration and the
annual limitations would not adversely impact the Company. However, if the IRS
were to successfully assert that an ownership change had occurred on any date
prior to November 1995, (including August 1, 1993 when the Company entered into
labor agreements that provided stock for labor cost savings), the Company's
ability to use its NOLs, AMTNOLs and credits would be significantly impaired
because the value of NWA Corp.'s stock on certain prior testing dates was
relatively low. Such value would adversely affect the annual limitation
described above.
NOTE K--COMMITMENTS
The Company's firm aircraft orders for 102 new aircraft as of December 31,
1998, adjusted to reflect a January 1999 revised delivery schedule, includes
seven Airbus A320 aircraft in 1999, 50 Airbus A319 aircraft (ten per year
beginning in 1999), 25 Boeing 757-200 aircraft from 2004 through 2006, 16 Airbus
A330 aircraft (eight each in 2004 and 2005) and four Boeing 747-400 aircraft in
1999. Committed expenditures for these aircraft and related equipment, including
estimated amounts for contractual price escalations and predelivery deposits,
will be approximately: $963 million in 1999, $290 million in 2000, $363 million
in 2001, $498 million in 2002, $466 million in 2003 and $3.01 billion from 2004
to 2006.
The Company has substitution rights with respect to the Airbus A330 aircraft
and has the option to purchase four Boeing 747-400 aircraft in 2002. The Company
also has options to purchase 50 additional Airbus A319 and/or A320 aircraft for
delivery from 2000 through 2004 and 50 roll-over options which replace the
initial 50 options and would be assigned delivery slots commencing in December
2004 as the initial 50 options are exercised.
Consistent with prior practice, the Company intends to finance its aircraft
deliveries through a combination of internally generated funds, debt and lease
financing. Financing has been arranged for the committed Airbus A320 and A319
aircraft deliveries and is available for use at the option of the Company. The
Company plans on financing its four Boeing 747-400 aircraft to be delivered in
1999 with enhanced equipment trust certificates.
NOTE L--LITIGATION
The Company is involved in a variety of legal actions relating to antitrust,
contract, trade practice, environmental and other legal matters relating to the
Company's business. While the Company is unable to predict the ultimate outcome
of these legal actions, it is the opinion of management that the disposition of
47
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE L--LITIGATION (CONTINUED)
these matters will not have a material adverse effect on the Company's
Consolidated Financial Statements taken as a whole.
NOTE M--PENSION AND OTHER POSTRETIREMENT HEALTH CARE BENEFITS
The Company has several noncontributory pension plans covering substantially
all of its employees. The benefits for these plans are based primarily on years
of service and/or employee compensation. It is the Company's policy to annually
fund at least the minimum contribution as required by the Employee Retirement
Income Security Act of 1974. In 1998, 1997 and 1996, the Company made
contributions of $150 million, $133 million and $85 million, respectively, in
excess of its minimum requirement.
The Company sponsors various contributory and noncontributory medical,
dental and life insurance benefit plans covering certain eligible retirees and
their dependents. The expected future cost of providing such postretirement
benefits is accrued over the service life of active employees. Retired employees
are not offered Company-paid medical and dental benefits after age 64, with the
exception of certain employees who retired prior to 1987 and receive lifetime
Company-paid medical and dental benefits. Prior to age 65, the retiree share of
the cost of medical and dental coverage is based on a combination of years of
service and age at retirement. Medical and dental benefit plans are unfunded and
costs are paid as incurred. The pilot group is provided Company-paid life
insurance coverage in amounts which decrease based on age at retirement and age
at time of death.
The following is a reconciliation of the beginning and ending balances of
the benefit obligation and the fair value of plan assets (in millions):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION:
Benefit obligation at beginning of year............................ $ 4,251.3 $ 3,699.0 $ 347.1 $ 313.6
Service cost....................................................... 132.7 113.2 12.4 10.3
Interest cost...................................................... 309.6 286.4 25.0 23.8
Amendments......................................................... 180.2 (.6) 6.1 --
Actuarial gain..................................................... 316.9 308.1 4.8 14.6
Foreign exchange gain (loss)....................................... 7.0 (11.6) -- --
Benefits paid...................................................... (176.4) (143.2) (18.8) (15.2)
--------- --------- --------- ---------
Benefit obligation at end of year.................................. 5,021.3 4,251.3 376.6 347.1
--------- --------- --------- ---------
CHANGE IN PLAN ASSETS:
Fair value of plan assets at beginning of year..................... 3,758.1 3,008.7 5.3 5.1
Actual return on plan assets....................................... 608.2 623.6 .3 .4
Employer contributions............................................. 184.9 269.4 18.7 15.0
Benefits paid and other............................................ (176.6) (143.6) (18.8) (15.2)
--------- --------- --------- ---------
Fair value of plan assets at end of year........................... 4,374.6 3,758.1 5.5 5.3
--------- --------- --------- ---------
Funded status........................................................ (646.7) (493.2) (371.1) (341.8)
Unrecognized net actuarial loss...................................... 363.7 324.7 86.9 85.0
Unrecognized prior service cost...................................... 337.5 181.9 6.2 --
--------- --------- --------- ---------
Net amount recognized................................................ $ 54.5 $ 13.4 $ (278.0) $ (256.8)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
48
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Amounts recognized in the Consolidated Balance Sheets as of December 31 were
as follows (in millions):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- --------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Prepaid benefit cost................................................... $ 195.4 $ 125.4 $ -- $ --
Accrued benefit liability.............................................. (287.4) (256.6) (278.0) (256.8)
Intangible asset....................................................... 135.9 36.4 -- --
Accumulated other comprehensive income................................. 10.6 108.2 -- --
--------- --------- --------- ---------
Net amount recognized.................................................. $ 54.5 $ 13.4 $ (278.0) $ (256.8)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The projected benefit obligation, accumulated benefit obligation and fair
value of plan assets for the pension plans with accumulated benefit obligations
in excess of plan assets were $451.4 million, $271.8 million and $2.7 million,
respectively, as of December 31, 1998 and $1.28 billion, $1.19 billion and $1.03
billion, respectively, as of December 31, 1997.
Weighted-average assumptions for pension and other benefits as of December
31 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Discount rate....................................................... 6.9% 7.1% 7.6%
Rate of future compensation increase................................ 3.9% 3.5% 3.5%
Expected long-term return on plan assets............................ 10.5% 10.5% 10.5%
</TABLE>
For measurement purposes, a 6% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999. The rate was assumed
to decrease gradually to 4.5 percent for 2002 and remain at that level
thereafter.
The net periodic cost of defined benefit plans included the following (in
millions):
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------------- -------------------------------
1998 1997 1996 1998 1997 1996
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Service cost............................................... $ 132.7 $ 113.2 $ 115.7 $ 12.4 $ 10.3 $ 10.3
Interest cost.............................................. 309.6 286.4 267.2 25.0 23.8 22.1
Expected return on plan assets............................. (356.5) (301.2) (256.8) (.4) (.4) (.4)
Amortization of prior service cost......................... 20.2 20.3 20.2 -- -- --
Recognized net actuarial loss.............................. 25.7 17.2 38.8 2.9 2.1 3.2
Other events............................................... 4.7 2.2 -- -- -- --
--------- --------- --------- --------- --------- ---------
Net periodic benefit cost.................................. $ 136.4 $ 138.1 $ 185.1 $ 39.9 $ 35.8 $ 35.2
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
Assumed health care cost trend rates have a significant impact on the
amounts reported for the health care plans. A one-percentage point change in
assumed health care cost trend rates would have the following effects (in
millions):
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
--------------- ---------------
<S> <C> <C>
Effect on total of service and interest cost components........ $ 5.8 $ (4.9)
Effect on accumulated postretirement benefit obligations....... 48.8 (41.5)
</TABLE>
49
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE N--RELATED PARTY TRANSACTIONS
On November 20, 1998, the Company issued 2.6 million shares of Common Stock
and paid $399 million in cash to acquire the beneficial ownership of 8.7 million
shares of Class A Common Stock of Continental. These shares represent 13.5% of
Continental's outstanding common stock and, together with additional Continental
shares for which the Company holds a limited voting proxy, 50.3% of its fully
diluted voting power as of December 31, 1998.
In connection with the Company's investment in Continental and Northwest's
alliance with Continental, the Company entered into agreements with Continental
which contain certain restrictions on the Company's ability to vote shares of
Continental common stock, to acquire additional shares of Continental common
stock and to affect the composition and conduct of Continental's Board of
Directors for a ten-year period. Due to the restrictions in these agreements,
the Company will account for its investment under the equity method. The Company
will recognize its interest in Continental's earnings on a one-quarter lag. The
difference between the cost of the Company's investment and the proportionate
share of the underlying equity of Continental of $312 million will be amortized
over 40 years.
In a related transaction, Northwest and Continental entered into a 13-year
global strategic commercial alliance that connects the two carriers' networks
and includes extensive code-sharing, frequent flyer program reciprocity and
other cooperative activities. The two airlines have no plans to merge their
operations and will retain separate boards, management and headquarters. In
December 1998, Northwest and Continental began implementing their alliance.
Since then they have initiated code-sharing (the joint designation of flights
under the Northwest "NW" code and the Continental "CO" code) to several points
in Asia and to many domestic cities. Northwest anticipates that it will add
additional code-sharing with Continental in 1999; however, further international
code-sharing is subject to certain regulatory approvals. Other joint activities
anticipated to be implemented include airport facility coordination, joint
purchasing and certain coordinated sales programs.
The Company has an investment in WORLDSPAN, an affiliate that provides
computer reservations services, which it accounts for using the equity method.
The Company recorded expenses for certain reservation system services provided
by this affiliate of $83.0 million, $78.6 million and $77.1 million in 1998,
1997 and 1996, respectively.
The Company owns 28.5% of the common stock of Mesaba Holdings, Inc., the
holding company of Mesaba Aviation, Inc. ("Mesaba"), which operates as a
Northwest Airlink. The Company also has warrants in Mesaba Holdings, Inc. stock
and if the Company were to exercise all its warrants when fully vested, its
ownership would increase to 40.9% as of December 31, 1998.
Northwest and Mesaba signed a ten-year Airline Services Agreement ("ASA")
effective July 1, 1997 under which Northwest determines Mesaba's commuter
aircraft scheduling and fleet composition. As of December 31, 1998, the Company
has leased 48 Saab 340 aircraft which are in turn subleased to Mesaba. The lease
agreements provide the Company with renewal options ranging from one to five
years and purchase options at the end of the lease or renewal term which
approximate fair market value.
In addition, as of December 31, 1998, the Company has leased or subleased 18
Avro Regional Jet aircraft to Mesaba under a Regional Jet Services Agreement
consummated in October 1996. The Company has agreed to lease 18 additional Avro
Regional Jet aircraft to Mesaba, with ten scheduled for delivery in 1999 and
eight in 2000. Committed expenditures for these aircraft, including contractual
price escalations, are approximately $225 million in 1999 and $175 million in
2000.
50
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE N--RELATED PARTY TRANSACTIONS (CONTINUED)
On April 1, 1997, the Company, purchased all of the outstanding stock of
Express Airlines I, Inc. and an affiliate ("Express") and their operating
results are included in the Company's consolidated financial statements
commencing on that date. Express is a regional carrier that provides passenger
traffic to Northwest at Memphis.
NOTE O--RISK MANAGEMENT AND FINANCIAL INSTRUMENTS
Effective October 1, 1998, the Company adopted SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires the Company to
recognize all derivatives on the balance sheet at fair value. The Company uses
derivatives as cash flow hedges to manage the price risk of fuel and its
exposure to foreign currency fluctuations. SFAS No. 133 requires that for cash
flow hedges, which hedge the exposure to variable cash flows of a forecasted
transaction, the effective portion of the derivative's gain or loss be initially
reported as a component of other comprehensive income in the equity section of
the balance sheet and subsequently reclassified into earnings when the
forecasted transaction affects earnings. The ineffective portion of the
derivative's gain or loss is reported in earnings immediately. The cumulative
effect of adoption was immaterial.
RISK MANAGEMENT: The Company uses derivative financial instruments to
manage specific risks and does not hold or issue them for trading purposes. The
notional amounts of financial instruments summarized below did not represent
amounts exchanged between parties and, therefore, are not a measure of the
Company's exposure resulting from its use of derivatives.
FOREIGN CURRENCY: The Company is exposed to the effect of foreign exchange
rate fluctuations on the U.S. dollar value of foreign currency-denominated
operating revenues and expenses. The Company's largest exposure comes from the
Japanese yen. In 1998, the Company's yen-denominated revenues exceeded its
yen-denominated expenses by approximately 38 billion yen. From time to time, the
Company uses forward contracts, collars or put options to hedge a portion of its
anticipated yen-denominated ticket sales. The changes in market value of such
instruments have historically been highly effective at offsetting exchange rate
fluctuations in yen-denominated ticket sales.
At December 31, 1998, the Company recorded $15.0 million of unrealized
losses in accumulated other comprehensive loss as a result of forward contracts
to sell 47.5 billion yen ($405.8 million) at an average forward rate of 117 with
various settlement dates through November 1999. Hedging gains or losses are
recorded in passenger revenue when transportation is provided. These forward
contracts hedge approximately 35% of the Company's anticipated 1999
yen-denominated ticket sales, which also represents approximately 95% of the
Company's excess of yen-denominated revenues over expenses.
Counterparties to these financial instruments expose the Company to credit
loss in the event of nonperformance, but the Company does not expect any of the
counterparties to fail to meet their obligations. The amount of such credit
exposure is generally the unrealized gains, if any, in such contracts. To manage
credit risks, the Company selects counterparties based on credit ratings, limits
exposure to a single counterparty and monitors the market position with each
counterparty. It is the Company's policy to participate in foreign currency
hedging transactions with a maximum span of 12 months.
FUEL: The Company is exposed to the effect of changes in the price and
availability of aircraft fuel. In order to provide a measure of control over
price and supply, the Company trades and ships fuel and maintains fuel storage
facilities to support its flight operations. To further manage the price risk of
fuel
51
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE O--RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (CONTINUED)
costs, the Company primarily utilizes futures contracts traded on regulated
exchanges. The changes in market value of such contracts have historically been
highly effective at offsetting fuel price fluctuations. It is the Company's
policy to participate in hedging transactions with a maximum span of 12 months.
At December 31, 1998, the Company recorded $5.9 million of unrealized losses
in accumulated other comprehensive loss as a result of the fuel futures
contracts, which if realized, will be recorded in fuel expense when the related
fuel inventory is utilized throughout 1999. As of December 31, 1998, the Company
had hedged approximately 10% of its 1999 fuel requirements, including 40% for
the first quarter.
FAIR VALUES OF FINANCIAL INSTRUMENTS: The financial statement carrying
values equal the fair values of the Company's cash and cash equivalents and
short-term investments. As of December 31, these amounts were (in millions):
<TABLE>
<CAPTION>
CASH AND CASH SHORT-TERM INVESTMENTS
EQUIVALENTS
------------------------ ------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Held-to-maturity debt securities:
Commercial paper................................................. $ 320.4 $ 372.4 $ 19.5 $ 176.3
Other............................................................ 109.1 281.1 22.8 122.1
Available-for-sale debt securities................................. 27.3 68.8 5.6 139.3
Cash............................................................... 23.2 18.1 -- --
----------- ----------- ----- -----------
$ 480.0 $ 740.4 $ 47.9 $ 437.7
----------- ----------- ----- -----------
----------- ----------- ----- -----------
</TABLE>
The financial statement carrying values and estimated fair values of the
Company's financial instruments, including current maturities, as of December 31
were (in millions):
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Long-Term Debt..................................................... $ 4,000.7 $ 4,074.2 $ 2,069.3 $ 2,239.7
Mandatorily Redeemable Preferred Security of Subsidiary............ 564.1 519.6 486.3 434.1
Series C Preferred Stock........................................... 260.7 196.0 306.2 432.9
Redeemable Common Stock............................................ -- -- 848.5 767.7
</TABLE>
The Company considers all unrestricted investments with a remaining maturity
of three months or less on their acquisition date to be cash equivalents. The
Company classifies investments with a remaining maturity of more than three
months on their acquisition date that are expected to be sold or called by the
issuer within the next year, and those temporarily restricted, as short-term
investments. Purchases of short-term investments classified as
available-for-sale securities during 1997 were $63.1 million and proceeds from
sales of such securities during 1998 and 1997 were $139.3 and $74.5 million,
respectively. At December 31, 1998 and 1997, short-term investments included
$47.9 and $138.2 million, respectively, of temporarily restricted investments.
The temporarily restricted investments were pledged as collateral under various
agreements.
The fair values of the Company's long-term debt were estimated using quoted
market prices, where available. For long-term debt, Preferred Security and
redeemable common stock not actively traded, fair
52
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE O--RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (CONTINUED)
values were estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of securities.
The fair value of the Series C Preferred Stock shares is based on the assumed
conversion to Common Stock and valuing such shares at the closing quoted market
price for Common Stock.
NOTE P--SEGMENT INFORMATION
The Company is managed as one cohesive business unit, of which revenues are
derived primarily from the commercial transportation of passengers and cargo.
Geographic operating revenues are based on allocation guidelines provided by the
U.S. Department of Transportation, which classifies flights between the U.S. and
foreign destinations into regions, and thus, differs from the definition of
foreign operations under generally accepted accounting principles. The following
table shows the operating revenues for each region (in millions):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1998 1997 1996
--------- ---------- ---------
<S> <C> <C> <C>
Domestic.................................................. $ 6,093.0 $ 6,793.0 $ 6,492.7
Pacific, principally Japan................................ 2,015.7 2,670.9 2,699.1
Atlantic.................................................. 936.1 761.9 688.7
--------- ---------- ---------
Total operating revenues.................................. $ 9,044.8 $ 10,225.8 $ 9,880.5
--------- ---------- ---------
--------- ---------- ---------
</TABLE>
53
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE Q--QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited quarterly results of operations for the years ended December 31,
1998 and 1997, are summarized below (in millions, except per share amounts):
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1998:
Operating revenues................................................. $ 2,428.5 $ 2,476.0 $ 1,928.1 $ 2,212.2
Operating income (loss)............................................ 156.4 120.2 (275.8) (192.2)
Net income (loss).................................................. $ 71.0 $ 48.6 $ (223.8) $ (181.3)
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic earnings (loss) per common share............................. $ .72 $ .56 $ (2.91) $ (2.31)
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted earnings (loss) per common share........................... $ .66 $ .51 $ (2.91) $ (2.31)
--------- --------- --------- ---------
--------- --------- --------- ---------
1997:
Operating revenues................................................. $ 2,375.5 $ 2,557.6 $ 2,801.4 $ 2,491.3
Operating income................................................... 135.0 291.1 503.8 227.3
Income before extraordinary item................................... 64.6 136.2 290.3 114.7
Net loss on extinguishment of debt................................. -- -- -- (9.3)
Net income......................................................... $ 64.6 $ 136.2 $ 290.3 $ 105.4
--------- --------- --------- ---------
--------- --------- --------- ---------
Basic earnings per common share:
Before effect of extraordinary item.............................. $ .59 $ 1.29 $ 2.80 $ 1.18
Net loss on extinguishment of debt............................... -- -- -- (.09)
--------- --------- --------- ---------
Earnings per common share........................................ $ .59 $ 1.29 $ 2.80 $ 1.09
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted earnings per common share:
Before effect of extraordinary item.............................. $ .53 $ 1.16 $ 2.53 $ 1.06
Net loss on extinguishment of debt............................... -- -- -- (.09)
--------- --------- --------- ---------
Earnings per common share........................................ $ .53 $ 1.16 $ 2.53 $ .97
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
The sum of the quarterly earnings per share amounts does not equal the
annual amount reported since per share amounts are computed independently for
each quarter and for the full year based on respective weighted average common
shares outstanding and other dilutive potential common shares.
54
<PAGE>
NORTHWEST AIRLINES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE R--CONDENSED CONSOLIDATED FINANCIAL INFORMATION OF NORTHWEST AIRLINES, INC.
Northwest Airlines Holdings Corporation and its wholly-owned subsidiary,
Wings Acquisition Corp., were formed and incorporated by a group of investors in
order to acquire all of the outstanding stock of NWA Inc. (the "Acquisition"),
the parent company of Northwest Airlines, Inc. In 1989, Wings Acquisition Corp.
was merged with and into NWA Inc., with NWA Inc. being the surviving entity. The
Acquisition was recorded using the purchase method of accounting and,
accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed based on their estimated fair market value at the date of
Acquisition, determined primarily by independent appraisals.
After reflecting these values in the financial statements of Northwest,
condensed financial information of Northwest consists of the following (in
millions):
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Operating revenues............................................................. $ 8,642.7 $ 9,882.9 $ 9,651.3
Operating expenses............................................................. 8,862.2 8,773.9 8,641.7
--------- --------- ---------
Operating income (loss)........................................................ (219.5) 1,109.0 1,009.6
Other income (expense)......................................................... (239.4) (212.9) (183.6)
--------- --------- ---------
Income (loss) before income taxes and extraordinary item....................... (458.9) 896.1 826.0
Income tax expense (benefit)................................................... (159.3) 342.6 308.8
--------- --------- ---------
Income (loss) before extraordinary item........................................ (299.6) 553.5 517.2
Loss on extinguishment of debt................................................. -- (9.3) --
--------- --------- ---------
Net income (loss).............................................................. $ (299.6) $ 544.2 $ 517.2
--------- --------- ---------
--------- --------- ---------
</TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET DATA
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Current assets............................................................................. $ 1,601.9 $ 2,015.0
Noncurrent assets.......................................................................... 7,242.4 6,114.6
Current liabilities........................................................................ 3,598.8 3,164.7
Long-term debt and obligations under capital leases........................................ 3,955.2 2,016.9
Deferred credits and other liabilities..................................................... 1,001.2 1,191.0
Mandatorily redeemable preferred security of subsidiary.................................... 564.1 486.3
</TABLE>
55
<PAGE>
ITEM 7A. QUALITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is set forth under "Market Risk Sensitive
Instruments and Positions" in "Item 7--Management's Discussion and Analysis of
Financial Condition and Results of Operations," and is incorporated herein by
reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item will be set forth under the heading
"Election of Directors-Information Concerning Director-Nominees" to be included
in the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders
filed with the Commission, and is incorporated herein by reference. The
information regarding executive officers is included in Part I of this report
under the caption "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item will be set forth under the headings
"Election of Directors-- Compensation of Directors", "Election of
Directors--Compensation Committee Interlocks and Insider Participation" and
"Executive Compensation" to be included in the Company's Proxy Statement for the
1999 Annual Meeting of Stockholders filed with the Commission, and is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item will be set forth under the heading
"Beneficial Ownership of Securities" to be included in the Company's Proxy
Statement for the 1999 Annual Meeting of Stockholders filed with the Commission,
and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item will be set forth under the headings
"Election of Directors-- Compensation Committee Interlocks and Insider
Participation" and "Election of Directors--Related Party Transactions" to be
included in the Company's Proxy Statement for the 1999 Annual Meeting of
Stockholders filed with the Commission, and is incorporated herein by reference.
56
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
The following is an index of the financial statements, schedule and exhibits
included in this Report.
(A) 1. FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Consolidated Balance Sheets--December 31, 1998 and December 31, 1997............................. 28
Consolidated Statements of Operations--For the years ended December 31, 1998, 1997 and 1996...... 30
Consolidated Statements of Cash Flows--For the years ended December 31, 1998, 1997 and 1996...... 31
Consolidated Statements of Common Stockholders' Equity (Deficit)--For the years ended December
31, 1998, 1997 and 1996........................................................................ 32
Notes to Consolidated Financial Statements....................................................... 33
2. FINANCIAL STATEMENT SCHEDULE:
Schedule II--Valuation and Qualifying Accounts--For the years ended December 31, 1998, 1997 and
1996........................................................................................... S-1
</TABLE>
Schedules not included have been omitted because they are not applicable or
because the required information is included in the consolidated financial
statements of notes thereto.
3. EXHIBITS
The following is an index of the exhibits included in this Report or
incorporated herein by reference.
<TABLE>
<C> <S>
2.1 Amended and Restated Agreement and Plan of Merger among Northwest
Airlines Corporation, Northwest Airlines Holdings Corporation, and
Newbridge Merger Corporation, dated as of October 30, 1998.
3.1 Restated Certificate of Incorporation of Northwest Airlines
Corporation (filed as Exhibit 4.1 to the Registration Statement on
Form S-3, File No. 333-69655 (the "S-3"), and incorporated herein by
reference).
3.2 Amended and Restated Bylaws of Northwest Airlines Corporation (filed
as Exhibit 4.2 to the S-3 and incorporated herein by reference).
3.3 Restated Certificate of Incorporation of Northwest Airlines, Inc.
(filed as Exhibit 3.3 to Northwest's Registration Statement on Form
S-3, File No. 33-74772 (the "Debt S-3"), and incorporated herein by
reference).
3.4 Bylaws of Northwest Airlines, Inc. (filed as Exhibit 3.4 to the Debt
S-3 and incorporated herein by reference).
4.1 Certificate of Designation of Series C Preferred Stock of Northwest
Airlines Corporation (included in Exhibit 3.1).
4.2 Certificate of Designation of Series D Junior Participating Preferred
Stock of Northwest Airlines Corporation (included in Exhibit 3.1).
4.3 Rights Agreement dated as of November 20, 1998 between Northwest
Airlines Corporation and Norwest Bank Minnesota, N.A., as Rights Agent
(filed as Exhibit 1 to NWA Corp.'s Form 8-A filed November 20, 1998
and incorporated herein by reference).
</TABLE>
57
<PAGE>
<TABLE>
<C> <S>
4.4 The registrant hereby agrees to furnish to the Commission, upon
request, copies of certain instruments defining the rights of holders
of long-term debt of the kind described in Item 601 (b) (4) of
Regulation S-K.
9.1 Northwest Airlines/Air Partners Voting Trust Agreement among
Continental Airlines, Inc., Northwest Airlines Corporation, Newbridge
Parent Corporation, Air Partners, L.P. and Wilmington Trust Company,
dated November 20, 1998 (filed as Exhibit 2.4 of NWA Corp.'s Current
Report on Form 8-K dated November 20, 1998 and incorporated herein by
reference).
10.1 Investment Agreement among Northwest Airlines Corporation, Newbridge
Parent Corporation, Air Partners, L.P., the Partners of Air Partners,
L.P. signatory thereto, Bonderman Family Limited Partnership, 1992
Air, Inc. and Air Saipan, Inc., dated as of January 25, 1998 (without
exhibits and schedules) (filed as Exhibit 2.1 to NWA Corp.'s Current
Report on Form 8-K dated January 25, 1998 and incorporated herein by
reference).
10.2 Amendment No. 1 to the Investment Agreement among Northwest Airlines
Corporation, Newbridge Parent Corporation, Air Partners, L.P., the
Partners of Air Partners, L.P. signatory thereto, Bonderman Family
Limited Partnership, Air Saipan, Inc. and 1992 Air, Inc., dated as of
February 27, 1998 (filed as Exhibit 2.3 to NWA Corp.'s Current Report
on Form 8-K dated March 2, 1998 and incorporated herein by reference).
10.3 Amendment No. 2 to the Investment Agreement among Northwest Airlines
Corporation, Newbridge Parent Corporation, Air Partners, L.P., the
Partners of Air Partners, L.P. signatory thereto, 1998 CAI Partners,
L.P., Bonderman Family Limited Partnership, 1992 Air, Inc. and Air
Saipan, Inc., dated as of November 20, 1998 (filed as Exhibit 2.3 to
NWA Corp.'s Current Report on Form 8-K dated November 20, 1998 and
incorporated herein by reference).
10.4 Governance Agreement among Northwest Airlines Corporation, Newbridge
Parent Corporation and Continental Airlines, Inc., dated as of January
25, 1998 (filed as Exhibit 2.2 to NWA Corp.'s Current Report on Form
8-K dated January 25, 1998 and incorporated herein by reference).
10.5 First Amendment to the Governance Agreement, among Continental
Airlines, Inc., Northwest Airlines Corporation and Newbridge Parent
Corporation, dated as of March 2, 1998 (filed as Exhibit 2.2 to NWA
Corp.'s Current Report on Form 8-K dated March 2, 1998 and
incorporated herein by reference).
10.6 Second Amendment to the Governance Agreement among Continental
Airlines, Inc., Northwest Airlines Corporation and Newbridge Parent
Corporation, dated as of November 20, 1998 (filed as Exhibit 2.1 to
NWA Corp.'s Current Report on Form 8-K dated November 20, 1998 and
incorporated herein by reference).
10.7 Supplemental Agreement, among Continental Airlines, Inc., Northwest
Airlines Corporation and Newbridge Parent Corporation, dated as of
November 20, 1998 (filed as Exhibit 2.2 to NWA Corp.'s Current Report
on Form 8-K dated November 20, 1998 and incorporated herein by
reference).
10.8 Standstill Agreement between Northwest Airlines Corporation and David
Bonderman, Bonderman Family Limited Partnership, Lectair Partners, Eli
Broad, Donald Strum, 1992 Air GP and 1992 Air, Inc. (collectively the
"Holders"), dated as of November 20, 1998.
10.9 Registration Rights Agreement among Northwest Airlines Corporation,
the Holders and 1992 Air, Inc., as the representative of the Holders,
dated November 20, 1998.
10.10 Assignment Agreement, among Northwest Airlines Corporation, Newbridge
Parent Corporation, Air Partners, L.P., the Partners of Air Partners,
L.P. signatory thereto, Bonderman Family Limited Partnership, Air
Saipan, Inc., 1992 Air, Inc. and Coulco, Inc., dated as of February
27, 1998.
</TABLE>
58
<PAGE>
<TABLE>
<C> <S>
10.11 Second Amended and Restated Investor Stockholders' Agreement dated as
of December 23, 1993 among NWA Corp. and the Original Investors named
therein ("Second Amended and Restated Stockholders' Agreement") (filed
as Exhibit 4.9 to the Registration Statement on Form S-1, File No.
33-74210 (the "S-1"), and incorporated herein by reference).
10.12 Supplement dated as of December 23, 1993 to Second Amended and
Restated Stockholders' Agreement (filed as Exhibit 4.11 to NWA Corp.'s
Annual Report on Form 10-K for the year ended December 31, 1994 (the
"10-K") and incorporated herein by reference).
10.13 Amendment dated as of December 14, 1994 to Second Amended and Restated
Stockholders' Agreement (filed as Exhibit 4.13 to the 10-K and
incorporated herein by reference).
10.14 Amendment dated as of January 6, 1995 to Second Amended and Restated
Stockholders' Agreement (filed as Exhibit 4.14 to the 10-K and
incorporated herein by reference).
10.15 Amendment dated as of January 25, 1995 to Second Amended and Restated
Stockholders' Agreement (filed as Exhibit 4.15 to the 10-K and
incorporated herein by reference).
10.16 Amendment dated as of October 23, 1995 to the Second Amended and
Restated Stockholders' Agreement (filed as Exhibit 4.11 to the
Registration Statement on Form S-3, File No. 33-98494, and
incorporated herein by reference).
10.17 Amendment to Second Amended and Restated Investor Stockholders'
Agreement dated September 29, 1997 (filed as Exhibit 10.7 to NWA
Corp.'s Quarterly Report on Form 10-Q for the quarter ended September
30, 1997 and incorporated herein by reference).
10.18 Acknowledgment of Northwest Airlines Corporation regarding assumption
of obligations as successor under the Second Amended and Restated
Investor Stockholders' Agreement, dated November 20, 1998.
10.19 Amended and Restated Standstill Agreement between Koninklijke
Luchtvaart Maatschappij N.V. and Northwest Airlines Corporation, dated
May 1, 1998 (filed as Exhibit 10.2 of NWA Corp.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 and incorporated herein
by reference).
10.20 Common Stock Repurchase Agreement between Northwest Airlines
Corporation and Koninklijke Luchtvaart Maatschappij N.V., dated
September 29, 1997 (filed as Exhibit 10.2 to NWA Corp.'s Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997 and
incorporated herein by reference).
10.21 Accelerated Common Stock Repurchase Agreement between Northwest
Airlines Corporation and Koninklijke Luchtraart Maatschappij N.V.,
dated as of May 1, 1998 (filed as Exhibit 10.1 to NWA Corp.'s
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998 and
incorporated herein by reference).
10.22 Stockholders' Agreement, dated as of September 9, 1994, among NWA
Corp., the Original Investors named therein and the Unions named
therein (the "Stockholders' Agreement") (filed as Exhibit 4.13 to the
Registration Statement on Form S-4, File No. 33-87250, and
incorporated herein by reference).
10.23 Amendment dated as of October 3, 1994 to Stockholders' Agreement
(filed as Exhibit 4.12 to the 10-K and incorporated herein by
reference).
10.24 Amendment dated as of December 14, 1994 to the Stockholders' Agreement
(filed as Exhibit 4.22 to the 10-K and incorporated herein by
reference).
10.25 Amendment dated as of January 25, 1995 to the Stockholders' Agreement
(filed as Exhibit 4.23 to the 10-K and incorporated herein by
reference).
</TABLE>
59
<PAGE>
<TABLE>
<C> <S>
10.26 Amendment dated as of November 1, 1995 to the Stockholders' Agreement
(filed as Exhibit 4.12 to the Registration Statement on Form S-3, File
No. 33-98494, and incorporated herein by reference).
10.27 First Amended and Restated Common Stock Registration Rights Agreement
among NWA Corp., the holders of the Series C Preferred Stock and the
Original Investors named therein (filed as Exhibit 4.18 to the 10-K
and incorporated herein by reference).
10.28 Acknowledgement of Northwest Airlines Corporation regarding assumption
of obligations as successor under the First Amended and Restated
Common Stock Registration Rights Agreement, dated November 20, 1998.
10.29 Registration Participation Agreement dated as of October 20, 1995
among the Unions named therein, holders of Series C Preferred Stock
and NWA Corp. (filed as Exhibit 10.14 to NWA Corp.'s Annual Report on
Form 10-K for the year ended December 31, 1995 and incorporated herein
by reference).
10.30 Special Facilities Lease between Charter County of Wayne, Michigan and
Republic Airlines, Inc. dated December 1, 1985 and Guarantee by and
between Northwest (as successor to Republic) and Manufacturers
National Bank of Detroit (filed as Exhibit 10.6 to the S-1 and
incorporated herein by reference).
10.31 Indenture of Lease Agreement dated October 5, 1961 and related
amendments, between the Board of County Road Commissioner of the
County of Wayne, Michigan and Northwest, as successor to North Central
Airlines, Inc. (filed as Exhibit 10.7 to the S-1 and incorporated
herein by reference).
10.32 Amendatory Agreement between The Charter County of Wayne, Michigan and
Northwest dated as of October 8, 1996 (filed as Exhibit 10.1 to NWA
Corp's Quarterly Report on Form 10-Q for the quarter ended September
30, 1996 (the "10-Q") and incorporated herein by reference).
10.33 First Amended and Restated Airport Agreement between The Charter
County of Wayne, Michigan and Northwest dated as of October 10, 1996
(filed as Exhibit 10.2 to the 10-Q and incorporated herein by
reference).
10.34 First Amendment to First Amended and Restated Airport Agreement
between The Charter County of Wayne, Michigan and Northwest, dated as
of June 26, 1998.
10.35 Second Amended and Restated Airport Agreement between The Charter
County of Wayne, Michigan and Northwest dated as of October 10, 1996
(filed as Exhibit 10.3 to the 10-Q incorporated herein by reference).
10.36 First Amendment to Second Amended and Restated Airport Agreement
between The Charter County of Wayne, Michigan and Northwest, dated as
of September 1997.
10.37 Second Amendment to Second Amended and Restated Airport Agreement
between The Charter County of Wayne, Michigan and Northwest, dated as
of June 26, 1998.
10.38 Airport Terminal Building Lease for Minneapolis-St. Paul International
Airport dated as of June 18, 1964 and related amendments entered into
by and between The Minneapolis-St. Paul Metropolitan Airports
Commission and Northwest, as successor to Northwest Orient Airlines,
Inc. (filed as Exhibit 10.8 to the S-1 and incorporated herein by
reference).
10.39 Master Financing Agreement dated as of March 29, 1992 among Northwest
Airlines Corporation, Northwest Airlines, Inc. and the State of
Minnesota (filed as Exhibit 10.9 to the S-1 and incorporated herein by
reference).
</TABLE>
60
<PAGE>
<TABLE>
<C> <S>
10.40 Equity Letter Agreement dated as of August 1, 1993 between Northwest
Airlines, Inc. and The Air Line Pilots Association International
(filed as Exhibit 10.13 to the S-1 and incorporated herein by
reference).
10.41 Equity Letter Agreement dated as of August 1, 1993 between Northwest
Airlines, Inc. and The International Association of Machinists and
Aerospace Workers (filed as Exhibit 10.14 to the S-1 and incorporated
herein by reference).
10.42 Equity Letter Agreement dated as of August 1, 1993 between Northwest
Airlines, Inc. and The International Brotherhood of Teamsters (filed
as Exhibit 10.15 to the S-1 and incorporated herein by reference).
10.43 Equity Letter Agreement dated as of August 1, 1993 between Northwest
Airlines, Inc. and The Transport Workers Union of America (filed as
Exhibit 10.16 to the S-1 and incorporated herein by reference).
10.44 Equity Letter Agreement dated as of August 1, 1993 between Northwest
Airlines, Inc. and the Airline Technical Support Association (filed as
Exhibit 10.17 to the S-1 and incorporated herein by reference).
10.45 Equity Letter Agreement dated as of August 1, 1993 between Northwest
Airlines, Inc. and The Northwest Airlines Meteorologists Association
(filed as Exhibit 10.18 to the S-1 and incorporated herein by
reference).
10.46 Amendment dated as of December 14, 1994 to the Equity Letter
Agreements listed as Exhibits 10.26 through 10.31 (filed as Exhibit
10.19 to the 10-K and incorporated herein by reference).
10.47 Credit Agreement among Northwest Airlines Corporation, NWA Inc.,
Northwest Airlines, Inc. and various lending institutions named
therein dated as of December 15, 1995, as amended and restated as of
October 16, 1996 and as further amended and restated as of December
29, 1997 (filed as Exhibit 10.3 to NWA Corp.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 and incorporated herein
by reference).
10.48 First Amendment to Credit Agreement among Northwest Airlines
Corporation, NWA Inc., Northwest Airlines, Inc. and various lending
institutions named therein dated as of January 23, 1998 (filed as
Exhibit 10.4 to NWA Corp.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by reference).
10.49 Temporary Amendment to Credit Agreement among Northwest Airlines
Corporation, NWA Inc., Northwest Airlines, Inc. and various lending
institutions named therein dated as of May 12, 1998 (filed as Exhibit
10.5 to NWA Corp.'s Quarterly Report on Form 10-Q for the quarter
ended June 30, 1998 and incorporated herein by reference).
10.50 Amendment and Consent to First Credit Agreement among Northwest
Airlines Corporation, Northwest Airlines Holdings Corporation, NWA
Inc., Northwest Airlines, Inc. and various lending institutions named
therein dated as of November 12, 1998.
10.51 Amendment to Credit Agreement among Northwest Airlines Corporation,
Northwest Airlines Holdings Corporation, NWA Inc., Northwest Airlines,
Inc. and various lending institutions named therein dated as of
January 27, 1999.
10.52 Aircraft Mortgage and Security Agreement between Northwest Airlines,
Inc. and Bankers Trust Company, as Collateral Agent, dated as of May
12, 1998 (filed as Exhibit 10.6 to NWA Corp.'s Quarterly Report on
Form 10-Q for the quarter ended June 30, 1998 and incorporated herein
by reference).
10.53 First Amendment to First Aircraft Mortgage and Security Agreement
between Northwest Airlines, Inc. and Bankers Trust Company, as
Collateral Agent, dated as of November 12, 1998.
</TABLE>
61
<PAGE>
<TABLE>
<C> <S>
10.54 Slot Security Agreement between Northwest Airlines, Inc. and Bankers
Trust Company, as Collateral Agent, dated as of May 12, 1998 (filed as
Exhibit 10.7 to NWA Corp.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by reference).
10.55 First Amendment to Slot Security Agreement between Northwest Airlines,
Inc. and Bankers Trust Company, as Collateral Agent, dated as of
November 12, 1998.
10.56 Credit Agreement among Northwest Airlines Corporation, Northwest
Airlines Holdings Corporation, NWA Inc., Northwest Airlines, Inc. and
various lending institutions named therein dated as of May 12, 1998
and as amended and restated as of February 9, 1999.
10.57 Route Security Agreement between Northwest Airlines, Inc. and the
Chase Manhattan Bank, as Collateral Agent dated as May 12, 1998 (filed
as Exhibit 10.11 to NWA Corp.'s Quarterly Report on Form 10-Q for the
quarter ended June 30, 1998 and incorporated herein by reference).
10.58 Purchase Agreement No. 1630 between Northwest Airlines, Inc. and The
Boeing Company ("Boeing") dated December 1, 1989 and related letter
agreements relating to the purchase of 747-400 aircraft (filed as
Exhibit 10.34 to the S-1 and incorporated herein by reference).
10.59 Supplemental Agreement No. 4 to Purchase Agreement No. 1630, dated as
of February 3, 1995, and related letter agreements between Boeing and
Northwest Airlines, Inc. (filed as Exhibit 10.34 to the 10-K and
incorporated herein by reference; the Commission has granted
confidential treatment for certain portions of this document).
10.60 Purchase Agreement No. 1631 between Northwest Airlines, Inc. and
Boeing and related letter agreements relating to the acquisition of
757 aircraft (filed as Exhibit 10.35 to the S-1 and incorporated
herein by reference).
10.61 Supplemental Agreement No. 4 to Purchase Agreement No. 1631, dated as
of February 3, 1995, and related letter agreements between Boeing and
Northwest Airlines, Inc. (filed as Exhibit 10.36 to the 10-K and
incorporated herein by reference; the Commission has granted
confidential treatment for certain portions of this document).
10.62 Supplemental Agreement No. 5 to Purchase Agreement No. 1631, dated as
of February 17, 1995, and related letter agreements between Boeing and
Northwest Airlines, Inc. (filed as Exhibit 10.37 to the 10-K and
incorporated herein by reference; the Commission has granted
confidential treatment for certain portions of this document).
10.63 Airbus A330 Purchase Agreement dated February 10, 1989 and related
letter agreements between AVSA, S.A.R.L. and Northwest Aircraft Inc.
(filed as Exhibit 10.36 to the S-1 and incorporated herein by
reference).
10.64 Amendment No. 5 to A330 Purchase Agreement among AVSA, S.A.R.L. and
Northwest Aircraft Inc. (filed as Exhibit 10.4 to the 10-Q and
incorporated herein by reference; the Commission has granted
confidential treatment for certain portions of this document).
10.65 A319-100 Purchase Agreement dated as of September 19, 1997 between
AVSA, S.A.R.L. and Northwest Airlines, Inc. (filed as Exhibit 10.1 to
NWA Corp.'s Form 10-Q for the quarter ended September 30, 1997 and
incorporated herein by reference; the Commission has granted
confidential treatment for certain portions of this document).
*10.66 Employment Agreement with Richard H. Anderson dated as of September 1,
1996.
*10.67 Employment Agreement with Douglas M. Steenland dated as of September
1, 1996 (filed as Exhibit 10.54 to NWA Corp.'s Annual Report on Form
10-K for the year ended December 31, 1997 and incorporated herein by
reference).
</TABLE>
62
<PAGE>
<TABLE>
<C> <S>
*10.68 Key Employee Annual Cash Incentive Program (filed as Exhibit 10.42 to
the S-1 and incorporated herein by reference).
*10.69 Northwest Officers Excess Benefit Plan (filed as Exhibit 10.43 to the
S-1 and incorporated herein by reference).
*10.70 1990 Stock Option Plan for Key Employees of the Company (filed as
Exhibit 10.44 to the S-1 and incorporated herein by reference).
*10.71 1994 Northwest Airlines Corporation Stock Incentive Plan, as amended
(filed as Exhibit 10.5 to the 10-Q and incorporated herein by
reference).
*10.72 1996 Northwest Airlines Corporation Retention and Long-Term Incentive
Compensation Plan (filed as Exhibit 10.53 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995 and
incorporated herein by reference).
*10.73 Amendment No. 1 to 1996 Northwest Airlines Corporation Retention and
Long-Term Incentive Compensation Plan (filed as Exhibit 10.62 to NWA
Corp's Annual Report on Form 10-K for the year ended December 31, 1997
and incorporated herein by reference) .
*10.74 Amendment No. 2 to 1996 Northwest Airlines Corporation Retention and
Long-Term Incentive Compensation Plan.
*10.75 Unit Award Agreement with John H. Dasburg dated as of January 26, 1996
(filed as Exhibit 10.54 to the Company's Annual Report on Form 10-K
for the year ended December 31, 1995 and incorporated herein by
reference).
*10.76 Northwest Airlines, Inc. Supplemental Executive Retirement Plan (1995
Statement) (filed as Exhibit 10.61 to NWA Corp.'s Annual Report on
Form 10-K for the year ended December 31, 1996 and incorporated herein
by reference).
*10.77 Letter agreements dated December 20, 1996 and March 14, 1996 with John
H. Dasburg with respect to participation in the Northwest Airlines,
Inc. Supplemental Executive Retirement Program (filed as Exhibit 10.62
to NWA Corp.'s Annual Report on Form 10-K for the year ended December
31, 1996 and incorporated herein by reference).
*10.78 Form of Non-Qualified Stock Option Agreement and Form of Amendment
thereto for executive officers under the 1994 NWA Corp. Stock
Incentive Plan, as amended (filed as Exhibit 10.63 to NWA Corp.'s
Annual Report on Form 10-K for the year ended December 31, 1996 and
incorporated herein by reference).
12.1 Computation of Ratio of Earnings to Fixed Charges.
12.2 Computation of Ratio of Earnings to Fixed Charges and Preferred Stock
Requirements.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
27.1 Financial Data Schedule for the year ended December 31, 1998.
27.2 Financial Data Schedules for the year ended December 31, 1997 and the
quarters ended March 31, 1997, June 30, 1997 and September 30, 1997.
27.3 Financial Data Schedules for the quarters ended March 31, 1998, June
30, 1998 and September 30, 1998.
</TABLE>
- ------------------------
* Compensatory plans in which the directors and executive officers of NWA
Corp. participate.
(B) REPORTS ON FORM 8-K:
Form 8-K dated November 20 , 1998--Closing of the acquisition of
Continental Class A Common Stock
63
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this 25th day of March,
1999.
<TABLE>
<S> <C> <C>
NORTHWEST AIRLINES CORPORATION
By /s/ ROLF S. ANDRESEN
-----------------------------------------
Rolf S. Andresen
VICE PRESIDENT-FINANCE & CHIEF ACCOUNTING
OFFICER (PRINCIPAL ACCOUNTING OFFICER)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 25th day of March, 1999 by the following
persons on behalf of the registrant and in the capacities indicated.
<TABLE>
<S> <C>
/s/ JOHN H. DASBURG /s/ MARVIN L. GRISWOLD
- ----------------------------------- -----------------------------------
John H. Dasburg Marvin L. Griswold
PRESIDENT, CHIEF EXECUTIVE OFFICER & DIRECTOR
DIRECTOR (PRINCIPAL EXECUTIVE
OFFICER)
/s/ MICKEY P. FORET
- ----------------------------------- -----------------------------------
Mickey P. Foret Dennis F. Hightower
EXECUTIVE VICE PRESIDENT & CHIEF DIRECTOR
FINANCIAL OFFICER (PRINCIPAL
FINANCIAL OFFICER)
/s/ ROLF S. ANDRESEN /s/ GEORGE J. KOURPIAS
- ----------------------------------- -----------------------------------
Rolf S. Andresen George J. Kourpias
VICE PRESIDENT-FINANCE & CHIEF DIRECTOR
ACCOUNTING OFFICER (PRINCIPAL
ACCOUNTING OFFICER)
/s/ GARY L. WILSON /s/ FREDERIC V. MALEK
- ----------------------------------- -----------------------------------
Gary L. Wilson Frederic V. Malek
CHAIRMAN OF THE BOARD DIRECTOR
/s/ RICHARD C. BLUM /s/ WALTER F. MONDALE
- ----------------------------------- -----------------------------------
Richard C. Blum Walter F. Mondale
DIRECTOR DIRECTOR
/s/ ELAINE L. CHAO /s/ V.A. RAVINDRAN
- ----------------------------------- -----------------------------------
Elaine L. Chao V.A. Ravindran
DIRECTOR DIRECTOR
/s/ ALFRED A. CHECCHI /s/ MICHAEL G. RISTOW
- ----------------------------------- -----------------------------------
Alfred A. Checchi Michael G. Ristow
DIRECTOR DIRECTOR
/s/ DORIS KEARNS GOODWIN /s/ LEO M. VAN WIJK
- ----------------------------------- -----------------------------------
Doris Kearns Goodwin Leo M. van Wijk
DIRECTOR DIRECTOR
</TABLE>
64
<PAGE>
NORTHWEST AIRLINES CORPORATION
SCHEDULE II--VALUATION OF QUALIFYING ACCOUNTS AND RESERVES
(IN MILLIONS)
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- ---------------------------------------------------- ----------- ---------------------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
ADDITIONS
----------------------------
<CAPTION>
CHARGED TO
BALANCE AT CHARGED TO OTHER BALANCE AT
BEGINNING COSTS AND ACCOUNTS DEDUCTIONS END OF
DESCRIPTION OF PERIOD EXPENSES --DESCRIBE --DESCRIBE PERIOD
- ---------------------------------------------------- ----------- ------------- ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Allowances deducted from asset accounts:
Allowance for doubtful accounts................. $ 21.2 $ 12.1 $ -- $ 9.8(1) $ 23.5
Accumulated allowance for depreciation of flight
equipment spare parts......................... 148.9 36.8 4.1(2) 31.0(3) 158.8
YEAR ENDED DECEMBER 31, 1997
Allowances deducted from asset accounts:
Allowance for doubtful accounts................. 19.7 11.6 -- 10.1(1) 21.2
Accumulated allowance for depreciation of flight
equipment spare parts......................... 127.3 26.1 5.0(2) 9.5(3) 148.9
YEAR ENDED DECEMBER 31, 1996
Allowances deducted from asset accounts:
Allowance for doubtful accounts................. 21.5 6.1 -- 7.9(1) 19.7
Accumulated allowance for depreciation of flight
equipment spare parts......................... 111.8 21.9 2.7(2) 9.1(3) 127.3
</TABLE>
- ------------------------
(1) Uncollectible accounts written off, net of recoveries
(2) Interaccount transfers
(3) Dispositions and write-offs
S-1
<PAGE>
EXHIBIT 2.1
AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER, dated as of
October 30, 1998 (this "AGREEMENT"), among NORTHWEST AIRLINES CORPORATION, a
Delaware corporation ("PARENT," or, with regard to the period upon and after
the Effective Time of the Merger (as hereinafter defined), the "SURVIVING
CORPORATION"), NEWBRIDGE PARENT CORPORATION, a Delaware corporation ("HOLDCO
SUB"), which is a direct wholly owned subsidiary of Parent, and NEWBRIDGE
MERGER CORPORATION, a Delaware corporation ("MERGER SUB"), which is a direct
wholly owned subsidiary of Holdco Sub and an indirect wholly owned subsidiary
of Parent (Parent and Merger Sub, collectively, the "CONSTITUENT
CORPORATIONS," and each, a "CONSTITUENT CORPORATION").
W I T N E S S E T H :
WHEREAS, Parent is a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "DGCL") and is
authorized to issue a total of 360,020,000 shares, consisting of: (i)
315,000,000 shares of Common Stock, par value $.01 per share ("PARENT COMMON
STOCK"); (ii) 45,020,000 shares of preferred stock ("PARENT PREFERRED
STOCK"), par value $.01 per share, of which (A) 25,000,000 shares have been
designated Series C Preferred Stock, par value $.01 per share ("PARENT SERIES
C PREFERRED STOCK"); and (B) 3,000,000 shares have been designated Series D
Junior Participating Preferred Stock, par value $.01 per share ("PARENT
SERIES D PREFERRED STOCK") (all classes of preferred stock, collectively,
"PARENT PREFERRED STOCK"). As of the close of business on August 31, 1998,
there were (i) 81,246,799 shares of Parent Common Stock issued and
outstanding (the "OUTSTANDING PARENT COMMON SHARES"); (ii) (A) 5,680,991
shares of Parent Series C Preferred Stock issued and outstanding (the
"OUTSTANDING PARENT SERIES C SHARES"); and (B) no shares of Parent Series D
Preferred Stock issued and outstanding; (iii) 24,977,874 shares of Parent
Common Stock held in the treasury of Parent (the "TREASURY PARENT COMMON
SHARES"); (iv) 5,391,311 shares of Parent Common Stock reserved for issuance
upon exercise of stock options of Parent outstanding or which may be granted
pursuant to employee stock option and similar plans; and (v) 10,435,231
shares of Parent Common Stock reserved for issuance upon the conversion of
Parent Series C Preferred Stock;
WHEREAS, Merger Sub is a corporation organized and existing under
the DGCL and is authorized to issue a total of 1,000 shares, in a single
class of common stock, $.01 par value per share ("MERGER SUB COMMON STOCK"),
of which, as of the date hereof, 1,000 shares are issued and outstanding (the
"OUTSTANDING MERGER SUB COMMON SHARES") (as of the date hereof, Holdco Sub
holds of record the Outstanding Merger Sub Common Shares) and no shares are
issued but not outstanding;
WHEREAS, Holdco Sub is a corporation organized and existing under
the DGCL and is authorized to issue a total of 1,000 shares of Common Stock,
par value $.01 per share ("HOLDCO SUB COMMON STOCK"), and prior to the
Effective Time of the Merger will be authorized to issue a total of
360,020,000 shares, consisting of: (i) 315,000,000 shares of Holdco Sub
Common Stock; (ii) 45,020,000 shares of preferred stock, par value $.01 per
share ("HOLDCO SUB PREFERRED STOCK"), of which (A) 25,000,000 shares will
constitute, prior to the Effective Time of the Merger a series of Holdco Sub
Preferred Stock, identical to Parent Series C Preferred Stock, having the
designation "Series C Preferred Stock" ("HOLDCO SUB
<PAGE>
2
SERIES C PREFERRED STOCK"); and (B) 3,000,000 shares will constitute prior to
the Effective Time of the Merger a series of Holdco Sub Preferred Stock,
identical to Parent Series D Preferred Stock, having the designation "Series
D Preferred Stock" ("HOLDCO SUB SERIES D PREFERRED STOCK"). As of the date
hereof, there are 1,000 shares issued and outstanding of Holdco Sub Common
Stock (the "OUTSTANDING HOLDCO SUB COMMON SHARES");
WHEREAS, the respective Boards of Directors of Parent, Merger Sub
and Holdco Sub have determined that it is advisable and in the best interests
of each of Parent, Merger Sub and Holdco Sub and their respective
stockholders that Merger Sub be merged with and into Parent in accordance
with the terms and conditions of this Agreement (the "MERGER"), and
accordingly the Boards of Directors of each of Parent, Merger Sub and Holdco
Sub have approved and authorized this Agreement and the Merger;
WHEREAS, it is contemplated that the Merger will be effected in
accordance with Section 251(g) of the DGCL, and it is a condition to the
consummation of the Merger that Simpson Thacher & Bartlett ("ST&B"), tax
counsel to Parent, will, based on appropriate representations and warranties
of parties to the Investment Agreement (as hereinafter defined) and certain
stockholders of such parties, render an opinion (the "TAX OPINION") to the
effect that the Merger and the exchange of shares of capital stock of Parent
for shares of capital stock of Holdco Sub shall be a transaction described in
Section 351(a) and/or Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "CODE"), and that no income or gain will be recognized by Parent
or Holdco Sub or their respective stockholders as a result of the Merger and
the Exchange (as defined in the Investment Agreement); and
WHEREAS, Parent, Holdco Sub, Air Partners, L.P., a Texas limited
partnership (the "PARTNERSHIP"), the partners (the "PARTNERS") of the
Partnership identified on the signature pages of the Investment Agreement (as
hereinafter defined), Bonderman Family Limited Partnership, a Texas limited
partnership ("TRANSFEROR I"), 1992 Air, Inc., a Texas corporation
("TRANSFEROR II"), and Air Saipan, Inc., a CNMI corporation ("TRANSFEROR III"
and, collectively with Transferor I and Transferor II, the "TRANSFERORS")
have entered into an Investment Agreement, dated as of January 25, 1998, as
amended by Amendment No. 1, dated as of February 27, 1998 (the "INVESTMENT
AGREEMENT"), pursuant to which Parent and Holdco Sub have agreed, among other
things, that Holdco Sub will, subject to and in accordance with the terms and
conditions set forth therein, issue shares of Holdco Sub Common Stock, (i) to
certain Partners in exchange for such Partners' respective partnership
interests in the Partnership and (ii) to certain Transferors in exchange for
all the shares of Class A Common Stock, par value $.01 per share, of
Continental Airlines, Inc., a Delaware corporation, held by such Transferors;
NOW, THEREFORE, in consideration of the premises, the mutual
agreements, promises, covenants, representations, warranties, acknowledgments
and other terms, conditions, and provisions set forth herein, and other good
and valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, the parties agree as follows:
<PAGE>
3
ARTICLE I.
THE MERGER
1.1 THE MERGER; FILING AND EFFECTIVE TIME. Subject to and in
accordance with the terms and conditions of this Agreement and the DGCL, this
Agreement and the certificates attached hereto of the respective secretaries
of Parent and Merger Sub as Exhibits A and B, duly executed shall be filed
with the Secretary of State of the State of Delaware (the "DELAWARE SECRETARY
OF STATE") by the Surviving Corporation at or as soon as practicable after
the Closing (as defined below). The Merger shall become effective at the
time when this Agreement is so filed with the Delaware Secretary of State
(the "EFFECTIVE TIME OF THE MERGER").
1.2 CLOSING. Subject to and in accordance with the terms and
conditions of this Agreement, the closing of the Merger (the "CLOSING") shall
take place as soon as practicable after satisfaction of the latest to occur
of the conditions set forth in Article V hereof (the "CLOSING DATE"), at the
offices of Simpson Thacher & Bartlett, 425 Lexington Avenue, New York, New
York 10017, unless another date or place is agreed to in writing by the
parties hereto.
1.3 EFFECT OF THE MERGER. The Merger shall have the effects set
forth in Section 259 of the DGCL.
1.4 CERTIFICATE OF INCORPORATION OF THE SURVIVING CORPORATION.
The Second Amended and Restated Certificate of Incorporation of Parent as in
effect immediately prior to the Effective Time of the Merger (the "PARENT
CHARTER") shall be the certificate of incorporation of the Surviving
Corporation (the "SURVIVING CORPORATION CHARTER"), except that the following
amendments thereto are to be effected by the Merger upon the Effective Time
of the Merger:
A. the Surviving Corporation Charter shall be amended by striking
Article FIRST thereof in its entirety and inserting in lieu thereof the
following: "FIRST: The name of the Corporation is Northwest Airlines
Holdings Corporation (hereinafter called the "Corporation").";
B. the Surviving Corporation Charter shall be amended by deleting
Article FOURTH thereof in its entirety and inserting in lieu thereof the
following: "FOURTH: The total number of shares of stock which the
Corporation has authority to issue is 1,000 shares of Common Stock, par
value $0.01 each."; and
C. the Surviving Corporation Charter shall be amended by adding and
inserting, immediately following Article THIRTEENTH thereof, a new Article
FOURTEENTH thereof, to read in its entirety as follows:
FOURTEENTH: Any act or transaction by or involving the Corporation
that requires for its adoption under the Delaware General Corporation
Law or this
<PAGE>
4
Restated Certificate of Incorporation the approval of the
stockholders of the Corporation shall, pursuant to subsection (g)
of Section 251 of the Delaware General Corporation Law, require, in
addition, the approval of the stockholders of Northwest Airlines
Corporation, a Delaware corporation, or any successor thereto by
merger, by the same vote as is required by the Delaware General
Corporation Law and/or by this Restated Certificate of
Incorporation.
1.5 BYLAWS OF THE SURVIVING CORPORATION. The bylaws of Parent as
in effect immediately prior to the Effective Time of the Merger (the "PARENT
BYLAWS") shall be and continue in full force and effect as the bylaws of the
Surviving Corporation upon and after the Effective Time of the Merger, unless
and until duly amended, altered, changed, repealed, and/or supplemented in
accordance with the DGCL (which power and right to amend, alter, change,
repeal, and/or supplement, at any time and from time to time after the
Effective Time of the Merger, are hereby expressly reserved).
1.6 DIRECTORS OF THE SURVIVING CORPORATION. The respective
members constituting the whole Board of Directors of Parent (the "PARENT
BOARD") immediately prior to the Effective Time of the Merger shall be and
continue as the respective members constituting the whole Board of Directors
of the Surviving Corporation upon and after the Effective Time of the Merger,
until such members' respective successors are elected and qualified or until
such members' earlier death, resignation, disqualification or removal and
unless and until the number of members shall be duly increased or decreased
in accordance with the DGCL (which power and right to increase or decrease,
at any time and from time to time after the Effective Time of the Merger, are
hereby expressly reserved).
1.7 OFFICERS OF THE SURVIVING CORPORATION. Each person serving as
an officer of Parent immediately prior to the Effective Time of the Merger
shall be and continue as an officer of the Surviving Corporation, holding the
same office or offices, upon and after the Effective Time of the Merger,
until such person's successor is chosen and qualified or until such person's
earlier death, resignation, disqualification, or removal (which power and
right to remove are hereby expressly reserved).
1.8 FURTHER ASSURANCES. At any time and from time to time upon
and after the Effective Time of the Merger, as and when required or deemed
desirable by the Surviving Corporation or its successors or assigns, there
shall be executed, acknowledged, certified, sealed, delivered, filed, and/or
recorded, in the name and on behalf of any and each Constituent Corporation,
such deeds, contracts, consents, certificates, notices, and other documents
and instruments, and there shall be done or taken or caused to be done or
taken, in the name and on behalf of any and each Constituent Corporation,
such further and other things and actions as shall be appropriate, necessary,
or convenient to acknowledge, vest, effect, perfect, conform of record, or
otherwise confirm the Surviving Corporation's (or its successors' or
assigns') right, title, and interest in and to, and possession of, all the
property, interests, assets, rights, privileges, immunities, powers,
franchises, and authority of each Constituent Corporation held immediately
prior to the Effective Time of the Merger, and otherwise to carry out and
effect the intent and purposes of this Agreement and the Merger.
<PAGE>
5
The officers and directors of the Surviving Corporation (or its successors or
assigns), and each of them, upon and after the Effective Time of the Merger,
are and shall be fully authorized, in the name and on behalf of each
Constituent Corporation, to do and take and cause to be done and taken any
and all such things and actions, and to execute, acknowledge, certify, seal,
deliver, file, and/or record any and all such deeds, contracts, consents,
certificates, notices, and other documents and instruments.
ARTICLE II.
EFFECT OF THE MERGER ON
THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
2.1 EFFECT ON CAPITAL STOCK. Upon and as of the Effective Time of
the Merger, by virtue of the Merger and without any action on the part of the
holders of the respective shares:
A. CONVERSION OF PARENT SHARES.
1. Each outstanding share of Parent Common Stock shall be
converted into the right to receive one validly issued, fully paid and
nonassessable share of Holdco Sub Common Stock; each of the Treasury
Parent Common Shares shall be converted into the right to receive one
validly issued, fully paid and nonassessable share of Holdco Sub Common
Stock; and the Outstanding Parent Common Shares and the Treasury Parent
Common Shares shall be canceled and cease to exist.
2. Each of the Outstanding Parent Series C Preferred Shares shall
be converted into the right to receive one validly issued, fully paid
and nonassessable share of Holdco Sub Series C Preferred Stock (with
rights to accrued, accumulated and unpaid dividends on each Outstanding
Parent Series C Preferred Share (the "SERIES C ACCUMULATED DIVIDENDS")
being preserved, unimpaired, unchanged, and unaffected by such
conversion in the Merger, such Series C Accumulated Dividends carrying
over and pertaining to and being accrued, accumulated, and unpaid
dividends on each such share of Holdco Sub Series C Preferred Stock, and
each such share of Holdco Sub Series C Preferred Stock carrying and
having such Series C Accumulated Dividends as accrued, accumulated, and
unpaid dividends thereon, notwithstanding that such dividends shall have
accrued and accumulated from a date prior to the issuance of such shares
of Holdco Sub Series C Preferred Stock) and such Outstanding Parent
Series C Preferred Shares shall no longer be outstanding and
automatically shall be canceled and cease to exist.
B. CONVERSION OF MERGER SUB SHARES. Each Outstanding Merger Sub
Common Share shall be converted into one validly issued, fully paid and
nonassessable share of Common Stock, par value $.01 per share ("SURVIVING
CORPORATION COMMON STOCK"), of the Surviving Corporation, to be issued and
deemed to have been issued by the Surviving Corporation automatically and
immediately upon and as of the Effective Time of the Merger);
<PAGE>
6
the capital of the Surviving Corporation in respect of each share of
Surviving Corporation Common Stock to be an amount equal to the par value
thereof as permitted under the DGCL and such Outstanding Merger Sub Common
Shares shall be canceled and cease to exist.
2.2 NOTIFICATION OF TRANSFER AGENT. Prior to the Closing Date,
Holdco Sub and Parent shall notify their respective transfer agents of the
conversions of shares of Parent stock and of shares of Merger Sub stock and
the cancellation of shares of Holdco Sub stock pursuant to Section 2.1 hereof.
2.3 STOCK CERTIFICATES. Upon and as of the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of either
of the Constituent Corporations or Holdco Sub, the holders of the respective
shares, or any other person:
A. HOLDCO SUB. The shares of Holdco Sub Common Stock and the shares
of Holdco Sub Preferred Stock into which the Outstanding Parent Common
Shares, the Outstanding Parent Series C Shares and the Treasury Parent
Common Shares shall have been converted pursuant to Section 2.1 hereof
shall be represented and evidenced by the same stock certificates that
previously represented and evidenced such Outstanding Parent Common Shares,
Outstanding Parent Series C Shares and such Treasury Parent Common Shares;
and
B. PARENT. Holdco Sub, as the holder of the certificate that
immediately prior to the Effective Time of the Merger evidenced the
Outstanding Merger Sub Common Shares (such certificate, the "MERGER SUB
COMMON STOCK CERTIFICATE") may, at such holder's option, surrender the same
to the Surviving Corporation for cancellation, and such holder shall be
entitled to receive from the Surviving Corporation in exchange therefor a
certificate representing and evidencing the shares of Surviving Corporation
Common Stock into which such holder's Outstanding Merger Sub Common Shares
shall have been converted, and, until surrendered, the Merger Sub Common
Stock Certificate shall represent and evidence the shares of Surviving
Corporation Common Stock into which the Outstanding Merger Sub Common
Shares theretofore represented and evidenced thereby shall have been
converted.
ARTICLE III.
ADDITIONAL AGREEMENTS
3.1 DIRECTORS AND OFFICERS OF HOLDCO SUB UPON THE EFFECTIVE TIME
OF THE MERGER.
A. DIRECTORS. As of the Effective Time of the Merger:
(i) the number of members constituting the whole Board of Directors
of Holdco Sub (the "HOLDCO SUB BOARD") shall be equal to the number of
members
<PAGE>
7
constituting the whole Parent Board immediately prior to the Effective
Time of the Merger; and
(ii) the Holdco Sub Board shall consist of the persons serving as
members of the Parent Board immediately prior to the Effective Time of the
Merger.
B. OFFICERS. As of the Effective Time of the Merger, the officers
of Holdco Sub shall be the persons serving as officers of Parent immediately
prior to the Effective Time of the Merger.
3.2 HOLDCO SUB CERTIFICATE OF INCORPORATION. As of the Effective
Time of the Merger, the certificate of incorporation of Holdco Sub shall be
in the form attached hereto as Exhibit C (the "HOLDCO SUB CHARTER").
3.3 HOLDCO SUB BYLAWS. As of the Effective Time of the Merger,
the bylaws of Holdco Sub shall be in the form attached hereto as Exhibit D.
To that end, prior to the Effective Time of the Merger, to the extent
necessary to give effect to the intent of the preceding sentence, Holdco Sub
shall take all requisite action to cause the bylaws of Holdco Sub, as the
same theretofore may have been amended, altered, changed and/or supplemented,
to be duly amended and restated in accordance with the DGCL as of or prior to
the Effective Time of the Merger, such that the Holdco Sub Bylaws shall be
amended and restated to be in the form of Exhibit D attached hereto and as so
amended and restated shall be and remain the bylaws of Holdco Sub upon and
after the Effective Time of the Merger, unless and until thereafter duly
amended, altered, changed, repealed and/or supplemented in accordance with
the DGCL (which power and right to amend, alter, change, repeal, and/or
supplement, at any time and from time to time after the Effective Time of the
Merger, are hereby expressly reserved).
3.4 CONSENT. Each of Parent, Merger Sub, and Holdco Sub shall
promptly apply for or otherwise seek, and use its best efforts to obtain, all
consents and approvals required to be obtained by it for consummation of the
Merger.
3.5 NO PARENT STOCKHOLDER MEETING; MERGER SUB STOCKHOLDER WRITTEN
CONSENT. The parties understand and acknowledge that it is contemplated that
the Merger will be effected in accordance with Section 251(g) of the DGCL and
that no vote of Parent's stockholders adopting, approving or authorizing this
Agreement or the Merger will be required under the DGCL. Holdco Sub, in its
capacity as the sole stockholder of Merger Sub, as promptly as practicable
after the date hereof, shall execute and deliver to Merger Sub a written
consent in lieu of a stockholder meeting adopting, approving and authorizing
this Agreement and the Merger, in accordance with Section 228 of the DGCL.
3.6 EMPLOYEE AND DIRECTOR PARENT STOCK OPTIONS. Upon and as of
the Effective Time of the Merger and in connection with the Merger, to the
fullest extent permitted by applicable law, Holdco Sub shall assume all of
Parent's obligations, and Parent shall have no further obligations, with
respect to (i) any then-outstanding option to acquire
<PAGE>
8
shares of Parent Common Stock issued under Parent's 1990 Stock Option Plan
for Key Employees of Northwest Airlines Corporation, 1994 Northwest Airlines
Corporation Stock Incentive Plan and The Northwest Airlines Corporation 1998
Pilots Stock Option Plan that theretofore shall not have expired or been duly
exercised by the holders thereof (each, if any, a "PARENT OPTION") and (ii)
any award of phantom stock units issued under Parent's 1996 Retention and
Long Term Incentive Compensation Plan and Agreement Evidencing Grant of
Phantom Stock Units to John H. Dasburg (each, if any, a "PARENT AWARD"), and
the due exercise of rights under (i) any such Parent Option shall entitle the
holder thereof to acquire, upon the same terms and conditions that were
applicable under the corresponding Parent Option, a number of shares of
Holdco Sub Common Stock identical to the class and number of shares of Parent
Common Stock that were subject to such corresponding Parent Option (a "HOLDCO
SUB OPTION") and (ii) any such Parent Award shall entitle the holder thereof
to receive a payment in cash upon the same terms and conditions that were
applicable under the corresponding Parent Award equal to the fair market
value of the identical number of shares of Holdco Sub Common Stock as shares
of Parent Common Stock. Parent and Holdco Sub agree to take all corporate
and other action as shall be necessary to effectuate the foregoing, and
Parent shall use its best efforts to obtain, if required, prior to the
Closing Date, such consent of each holder of a Parent Option and Parent Award
as shall be necessary to effectuate the foregoing. Holdco Sub shall take all
corporate and other action necessary to reserve and make available for
issuance upon the due exercise of rights under the Holdco Sub Options a
sufficient number of shares of Holdco Sub Common Stock, and as soon as
practicable following the Effective Time of the Merger, shall provide to the
record holders of the Holdco Sub Options appropriate notice of such holder's
rights thereunder.
3.7 OUTSTANDING HOLDCO SUB COMMON SHARES. Upon and as of the
Effective Time of the Merger, Parent shall surrender to Holdco Sub the
certificate representing the Outstanding Holdco Sub Common Shares, and the
Outstanding Holdco Sub Common Shares shall be retired as permitted under the
DGCL and resume the status of authorized and unissued shares of Holdco Sub
Common Stock.
3.8 HOLDCO SUB STOCKHOLDERS' RIGHTS PLAN. Effective not later
than the Effective Time of the Merger, (a) the Holdco Sub Board shall adopt
and approve a stockholders' rights plan having substantially the same terms
and conditions as the Rights Agreement, dated as of November 16, 1995 (the
"RIGHTS AGREEMENT"), between Parent and Norwest Bank Minnesota, N.A., as
Rights Agent, and (b) the Parent Board shall adopt and approve an amendment
to the Rights Agreement which shall cause the Rights (as defined therein) to
expire immediately prior to the Effective Time of the Merger.
<PAGE>
9
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF PARENT. Parent hereby
represents and warrants:
A. ORGANIZATION. It is duly organized, validly existing and in good
standing as a corporation under the laws of the State of Delaware.
B. POWER AND AUTHORITY. It has corporate power and authority to
enter into, execute, deliver and perform its obligations under this
Agreement.
C. CAPITAL STOCK. The numbers of authorized shares of Parent Common
Stock, Parent Series C Preferred Stock and Parent Series D Preferred Stock,
the numbers of Outstanding Parent Common Shares and outstanding shares of
Parent Series C Preferred Stock, and the number of Treasury Parent Common
Shares are as set forth in the first recital to this Agreement.
4.2 REPRESENTATIONS AND WARRANTIES OF MERGER SUB. Merger Sub hereby
represents and warrants:
A. ORGANIZATION. It is duly organized, validly existing and in good
standing as a corporation under the laws of the State of Delaware.
B. POWER AND AUTHORITY. It has corporate power and authority to
enter into, execute, deliver and (subject to stockholder approval) perform
its obligations under this Agreement.
C. CAPITAL STOCK. The number of authorized shares of Merger Sub
Common Stock, the number of Outstanding Merger Sub Common Shares, and the
number of shares of Merger Sub Common Stock issued but not outstanding, are
as set forth in the second recital to this Agreement.
4.3 REPRESENTATIONS AND WARRANTIES OF HOLDCO SUB. Holdco Sub hereby
represents and warrants:
A. ORGANIZATION. It is duly organized, validly existing, and in good
standing as a corporation under the laws of the State of Delaware.
B. POWER AND AUTHORITY. It has corporate power and authority to
enter into, execute, deliver and perform its obligations under this
Agreement.
C. CAPITAL STOCK. As of the date hereof, the numbers of authorized
and issued shares of Holdco Sub Common Stock is as set forth in the third
recital to this Agreement. The numbers of authorized shares of Holdco Sub
Common Stock, Holdco
<PAGE>
10
Sub Series C Preferred Stock and Holdco Sub Series D Preferred Stock,
and the numbers of Outstanding Holdco Sub Common Shares and outstanding
shares of Holdco Sub Preferred Stock, in each case immediately prior to
the Effective Time of the Merger, will be as set forth in the third
recital to this Agreement.
ARTICLE V.
CONDITIONS PRECEDENT
5.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligations of each party under this Agreement shall be
subject to the satisfaction at or prior to the Closing of the following
conditions:
A. STOCKHOLDER APPROVALS. This Agreement shall have been approved
and adopted by the written consent of the holder of the Outstanding Merger
Sub Common Shares.
B. GOVERNMENTAL APPROVALS. All authorizations, consents, orders, or
approvals of, or declarations or filings with, or expiration of waiting
periods imposed by, any foreign, federal, state or local government or any
court, administrative agency or commission or other governmental agency or
authority, whether domestic or foreign (a "GOVERNMENTAL AUTHORITY"),
necessary for the consummation of the transactions contemplated by this
Agreement, including, but not limited to, such requirements under
applicable state securities laws and the Securities Exchange Act of 1934,
as amended, shall have occurred or been filed or obtained, other than
filings relating to the Merger or affecting Holdco Sub's ownership of
Parent or any of its subsidiaries or any of their properties.
C. LEGAL ACTION. No temporary restraining order, preliminary or
permanent injunction, or other order issued by any court of competent
jurisdiction or other Governmental Authority (an "INJUNCTION") preventing
the consummation of the Merger shall be in effect, nor shall any proceeding
brought by any Governmental Entity seeking any of the foregoing be pending.
In the event an Injunction shall have been issued, each party agrees to use
its reasonable best efforts to have the Injunction lifted.
D. STATUTES. No statute, rule or regulation shall have been enacted
by any Governmental Authority that would make the consummation of the
Merger illegal.
E. TAX OPINION; PARENT BOARD DETERMINATION. ST&B shall have issued
the Tax Opinion and the Parent Board shall not have altered or rescinded
its determination that Parent's stockholders will not recognize gain or
loss for United States federal income tax purposes as a result of the
Merger.
<PAGE>
11
F. REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties made by each party herein shall remain true, complete and
accurate at the Closing Date as if made on and as of the Closing Date.
G. CLOSING UNDER THE INVESTMENT AGREEMENT. The Closing (as such term
is defined in the Investment Agreement) shall have occurred or be occurring
concurrently with the Merger.
ARTICLE VI.
TERMINATION, AMENDMENT AND WAIVER
6.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time of the Merger, whether before or after approval
by the stockholders of Merger Sub of this Agreement and the Merger:
A. by mutual written consent of the parties; or
B. by any party if the Closing under the Investment Agreement shall
not have occurred on or prior to the first anniversary of the date of this
Agreement.
When action is taken to terminate this Agreement pursuant to this Section, it
shall be necessary for such action to be authorized by the Board of Directors
of the party taking such action and for such party then to notify in writing
the other parties of such action.
6.2 EVENT OF TERMINATION. In the event of termination of this
Agreement as provided in Section 6.1 hereof, this Agreement shall forthwith
become void and there shall be no liability or obligation on the part of any
party or its officers or directors to the other parties.
6.3 EXPENSES. All costs and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expense.
6.4 AMENDMENT. Subject to Section 251(d) of the DGCL, this
Agreement may be amended by the parties hereto, by action taken by their
respective Boards of Directors, at any time before or after approval by the
stockholders of Merger Sub of this Agreement and the Merger. This Agreement
may not be amended except by an instrument in writing signed on behalf of
each of the parties hereto.
<PAGE>
12
ARTICLE VII.
GENERAL PROVISIONS
7.1 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally or mailed by
registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be
specified by like notice):
A. If to Holdco Sub or Merger Sub:
2700 Lone Oak Parkway
Eagan, Minnesota 55121
Attention: Executive Vice President, General Counsel and
Secretary
Fax: (612) 726-7123
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn: Robert L. Friedman, Esq.
Fax: (212) 455-2502
B. If to Parent:
2700 Lone Oak Parkway
Eagan, Minnesota 55121
Attention: Executive Vice President, General Counsel and
Secretary
Fax: (612) 726-7123
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn: Robert L. Friedman, Esq.
Fax: (212) 455-2502
7.2 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal, or incapable of being enforced by any rule of
law or public policy, all other terms, conditions, and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
<PAGE>
13
affected in any manner adverse to any party. Upon such determination that
any term or other provision is invalid, illegal, or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the extent possible.
7.3 ENTIRE AGREEMENT. This Agreement, including the Exhibits
attached hereto, constitutes the entire agreement among the parties regarding
the subject matter hereof, and supersedes all prior agreements and
undertakings, both written and oral, among the parties or any of them
regarding such subject matter.
7.4 ASSIGNMENT. This Agreement shall not be assigned by operation
of law or otherwise.
7.5 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this
Agreement, except as otherwise expressly provided herein, is intended to or
shall confer upon any other person any right, benefit, or remedy of any
nature whatsoever under or by reason of this Agreement.
7.6 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, it being understood
that all parties need not sign the same counterpart.
7.7 GOVERNING LAW. This Agreement shall be governed in all
respects, including validity, interpretation, and effect, by the laws of the
State of Delaware.
7.8 AGREEMENT. Upon and after the Effective Time of the Merger,
an executed counterpart of this Agreement shall be on file at an office of
the Surviving Corporation, located at 2700 Lone Oak Parkway, Eagan, Minnesota
55121, and a copy of this Agreement shall be furnished by the Surviving
Corporation, on request and without cost, to any stockholder of any
Constituent Corporation.
7.9 CERTIFICATES OF SECRETARIES. The certificates of the
respective secretaries of Parent and Merger Sub to be attached hereto are
hereby incorporated by reference and shall be deemed on and part of this
Agreement.
[Rest of page intentionally left blank.]
<PAGE>
14
IN WITNESS WHEREOF, the parties hereto have executed, delivered and
entered into this Agreement as of the day and year first written above.
NORTHWEST AIRLINES CORPORATION
By: /s/ Douglas M. Steenland
------------------------------------------
Name:
Title:
NEWBRIDGE MERGER CORPORATION
By: /s/ Douglas M. Steenland
------------------------------------------
Name:
Title:
NEWBRIDGE PARENT CORPORATION
By: /s/ Douglas M. Steenland
------------------------------------------
Name:
Title:
<PAGE>
Exhibit 10.8
STANDSTILL AGREEMENT
STANDSTILL AGREEMENT, dated as of November 20, 1998 (this
"AGREEMENT"), between NORTHWEST AIRLINES CORPORATION, a Delaware corporation
("NORTHWEST"), and the persons identified on the signature pages hereof (each a
"HOLDER" and, collectively, the "HOLDERS").
W I T N E S S E T H :
WHEREAS, pursuant to an Investment Agreement, dated as of January 25,
1998, as amended by Amendment No. 1, dated as of February 27, 1998, and
Amendment No. 2, dated as of November 20, 1998 (the "INVESTMENT AGREEMENT";
capitalized terms used but not defined herein have the meanings assigned to such
terms in the Investment Agreement), among Northwest, Northwest Airlines Holdings
Corporation, a Delaware corporation ("HOLDINGS"), Air Partners, L.P. (the
"PARTNERSHIP"), 1998 CAI Partners, L.P., a Texas limited partnership, and the
Holders, Northwest and Holdings are acquiring the Partners' interests in the
Partnership concurrently with the execution of this Agreement; and
WHEREAS, Northwest and the Holders are entering into this Agreement to
establish certain arrangements with respect to the shares of Northwest's Common
Stock, par value $.01 per share (the "NORTHWEST COMMON STOCK"), issued by
Northwest to the Holders pursuant to the Investment Agreement, as well as
certain restrictions in respect of the capital stock of Northwest, corporate
governance and other related corporate matters;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
Section 1. DEFINED TERMS. Unless otherwise defined herein:
"GROUP" means two or more Persons acquiring, holding, voting or
disposing of securities which would constitute a "person" within the
meaning of Section 13(d)(3) of the Exchange Act of 1934, as amended.
"NORTHWEST BOARD OF DIRECTORS" shall mean the board of directors of
Northwest or any successor thereof.
"NORTHWEST COMBINED VOTING POWER" at any measurement date shall mean
the total number of votes which could have been cast in an election of
members of the Northwest Board of Directors had a meeting of the
stockholders of Northwest (or any successor thereof) been duly held based
upon a record date as of the measurement date if all Northwest Voting
Securities then outstanding and entitled to vote at such meeting were
present and voted to the fullest extent possible at such meeting.
<PAGE>
2
"NORTHWEST VOTING SECURITIES" shall mean, collectively, (i) the
Northwest Common Stock, (ii) any other securities entitled, or that may be
entitled, to vote generally for the election of members of the Northwest
Board of Directors and (iii) any other securities, warrants or options or
rights of any nature (whether or not issued by Northwest) that are
convertible into, exchangeable for, or exercisable for, or otherwise give
the holder thereof any rights in respect of (whether or not subject to the
passage of time, contingencies or contractual restrictions or any
combination thereof), any security described in clause (i) or (ii) of this
definition; PROVIDED that rights issued pursuant to the Rights Agreement,
dated as of November 20, 1998 (as amended, supplemented or otherwise
modified from time to time), between Northwest and Norwest Bank Minnesota,
N.A., or any other stockholder rights plan shall not be deemed to be
Northwest Voting Securities.
"REORGANIZATION TRANSACTION" means (i) any merger, consolidation,
recapitalization, liquidation or other business combination transaction
involving Northwest or any of its subsidiaries (or any successors to any of
such entities), (ii) any tender offer or exchange offer for any securities
of Northwest or any of its subsidiaries (or any successors to any of such
entities) or (iii) any sale or other disposition of assets of Northwest or
any of its subsidiaries (or any successors to any of such entities) in a
single transaction or in a series of related transactions in each of the
foregoing cases constituting individually or in the aggregate 5% or more of
the assets of Northwest (or any successor), or 5% or more of the then
outstanding Northwest Voting Securities.
"STANDSTILL PERIOD" shall mean the period commencing on the Closing
Date and continuing until the earlier of (a) the fifth anniversary of the
Closing Date, (b) the date on which Gary L. Wilson, Alfred A. Checchi and
Richard C. Blum have, directly or indirectly, sold, transferred, assigned
or otherwise disposed of, in the aggregate since the Closing Date, 60% or
more of the aggregate Northwest Voting Securities owned by Gary L. Wilson,
Alfred A. Checchi and Richard C. Blum on the Closing Date and (c) the
occurrence of a breach by Northwest or Holdings of any material obligations
under the Investment Agreement or the Registration Rights Agreement which
breach shall have a material adverse effect on the rights of the Partners
and the Transferors as a whole with respect to the Northwest Common Stock
held by them; PROVIDED, in the case of this clause (c), that the Partners'
Representative shall have notified Northwest of such breach in writing with
sufficient detail to allow Northwest to cure such breach and Northwest
shall have failed to cure such breach within 30 days following receipt of
such notice.
Section 2. COVENANTS WITH RESPECT TO NORTHWEST VOTING SECURITIES AND
OTHER MATTERS.
2.1 ACQUISITION OF NORTHWEST VOTING SECURITIES. During the
Standstill Period, no Holder will, or will cause any of its affiliates to,
directly or indirectly, acquire, offer to acquire, agree to acquire, become the
beneficial owner of or obtain any rights in respect of any
<PAGE>
3
Northwest Voting Securities to the extent that such acquisition would result
in the Northwest Voting Securities beneficially owned by the Holders
(including by any Group of which any Holder is a member) representing, in the
aggregate, more than 10% of the Northwest Combined Voting Power, whether by
purchase or otherwise, or take any action in furtherance thereof; PROVIDED,
that (i) no Holder shall be deemed to be in breach of this obligation, or be
obliged to dispose of any Northwest Voting Securities, to the extent that
such percentage limit is exceeded as a result of a repurchase of any
Northwest Voting Securities by Northwest or any of its affiliates, and (ii)
no Holder shall be prohibited from buying Northwest Voting Securities
directly from Northwest.
2.2 DISPOSITION OF NORTHWEST VOTING SECURITIES. Until the earlier of
the termination of the Standstill Period and such time as 1992 Air, Inc. (or its
successor) no longer has the right to designate an individual to be elected or
appointed to the Northwest Board of Directors as set forth in Section 4.1(b) of
the Investment Agreement, no Holder will, or will cause any of its affiliates
to, directly or indirectly, sell, transfer any beneficial interest in, pledge,
hypothecate or otherwise dispose of any Northwest Voting Securities in any
transaction that to the knowledge of such Holder would result in a transfer,
pledge, hypothecation or other disposition to any Person or Group that would
have, upon consummation of such sale, transfer, pledge, hypothecation or other
disposition, directly or indirectly, beneficial ownership of or the right to
acquire beneficial ownership of such number of Northwest Voting Securities as
represent more than 5% of the Northwest Combined Voting Power; PROVIDED, that
each Holder shall be permitted to sell, transfer or otherwise dispose of
Northwest Voting Securities (a) to one or more of its affiliates that is
directly or indirectly controlled by it, (b) to any one or more of Gary L.
Wilson, Alfred A. Checchi and Richard C. Blum, (c) to any Person who (i) is
principally engaged in the business of managing investment funds for
unaffiliated securities investors, (ii) acquires such Voting Securities from the
Holder in the ordinary course of such Person's business and not with the purpose
nor the effect, either alone or in concert with any Person, of exercising the
power to direct or cause the direction of the management and policies of the
Company or of otherwise changing or influencing the control of the Company, nor
in connection with or as a participant in any transaction having such purpose or
effect, including any transaction subject to Rule 13d-3(b) of the Exchange Act,
and (iii) if such Person is a Person included in Rule 13d-1(a) of the Exchange
Act, such Person is not obligated to, and does not, file a Schedule 13D (and
instead files a Schedule 13G) with respect to the Voting Securities of
Northwest, (d) pursuant to a tender or exchange offer for Northwest Voting
Securities which is not opposed by the Northwest Board of Directors, (e) in a
merger transaction or (f) by testamentary devise; PROVIDED, that in the case of
clauses (a) and (f) the transferee shall agree in writing to be bound by the
terms of this Agreement; PROVIDED, FURTHER, that no sales, transfers or other
dispositions to any Person or Group pursuant to clause (c) may occur if to the
knowledge of such Holder such Person or Group would have, upon consummation of
such sale, transfer or other disposition, directly or indirectly, beneficial
ownership of or the right to acquire beneficial ownership of such number of
Northwest Voting Securities as represent more than 14.9% of the Northwest
Combined Voting Power.
<PAGE>
4
2.3 PROXY SOLICITATIONS, VOTING, ETC. (a) During the Standstill
Period, no Holder will, or will cause any of its affiliates to, directly or
indirectly, solicit proxies, assist any other Person in any way, directly or
indirectly, in the solicitation of proxies, or otherwise become a "participant"
in a "solicitation," or assist any "participant" in a "solicitation" (as such
terms are defined in Rule 14a-1 of Regulation 14A under the Exchange Act as in
effect on the date of this Agreement) in opposition to the recommendation or
proposal of the Northwest Board of Directors, or submit any proposal for the
vote of stockholders of Northwest or any successor thereof or recommend or
request or induce or attempt to induce any other Person to take any such
actions, or seek to advise, encourage or influence any other Person with respect
to the voting of Northwest Voting Securities, unless in each case it obtains the
prior approval of the Northwest Board of Directors to do so as evidenced by a
formal resolution adopted by the Northwest Board and recorded in its minutes.
(b) In furtherance of each of the Holders' obligations pursuant to
Section 2.3(a), during the Standstill Period each of the Holders shall, and
shall cause its affiliates to, at any annual or special meeting of stockholders
at which members of the Northwest Board of Directors are to be elected or in
connection with a solicitation of consents through which members of the
Northwest Board of Directors are to be elected, vote or cause to be voted (or
give or cause to be given a written consent or proxy with respect to) all
Northwest Voting Securities beneficially owned by it in favor of the election to
the Northwest Board of Directors of the individuals recommended by the Northwest
Board of Directors; PROVIDED, that if the right of Transferor II to designate a
nominee to the Northwest Board of Directors pursuant to Section 4.1(b)(ii) of
the Investment Agreement is still in effect and Northwest has failed to ensure
that a Transferor II Designee is elected to the Northwest Board of Directors,
then the Holders and its affiliates shall not be obligated to vote (or to give a
written consent or proxy with respect to) the Northwest Voting Securities
beneficially owned by them in accordance with this sentence.
2.4 NO VOTING TRUSTS, POOLING AGREEMENTS, OR FORMATION OF GROUPS.
During the Standstill Period, no Holder will, or will cause any of its
affiliates to, directly or indirectly, join in or in any other way participate
in a pooling agreement, syndicate, voting trust or other Group with respect to
Northwest Voting Securities, or enter into any agreement or arrangement or
otherwise act in concert with any other Person, for the purpose of acquiring,
holding, voting or disposing of Northwest Voting Securities; PROVIDED, that the
Holders shall not be prohibited from entering into such agreements or
understandings, or engaging in such conduct, among themselves or with any one or
more of Gary L. Wilson, Alfred A. Checchi and Richard C. Blum.
2.5 LIMITATIONS ON PROPOSALS. During the Standstill Period, no
Holder will, or will cause any of its affiliates to, directly or indirectly,
initiate, propose or otherwise solicit stockholders for the approval of one or
more stockholder proposals with respect to Northwest or any successor thereof or
any affiliate thereof or induce or attempt to induce any other Person to (a)
initiate any stockholder proposal, (b) other than in accordance with Section
4.1(b)(i) of the Investment Agreement, seek election to or seek to place a
representative on the
<PAGE>
5
Northwest Board of Directors or equivalent governing body of any successor
thereof or any affiliate thereof (except to the extent expressly invited to
do so by the Northwest Board of Directors) or (c) seek removal of any member
of the Northwest Board of Directors or equivalent governing body of any
successor thereof or any affiliate thereof; PROVIDED, that clauses (b) and
(c) of this Section 2.5 shall not apply in the event that the right of
Transferor II to designate a nominee to the Northwest Board of Directors
pursuant to Section 4.1(b)(ii) of the Investment Agreement is still in effect
and Northwest has failed to ensure that a Transferor II Designee is elected
to the Northwest Board of Directors.
2.6 LIMITATION ON VARIOUS OTHER ACTIONS. During the Standstill
Period, no Holder will, or will cause any of its affiliates to, take any
action, alone or in concert with any other Person, (a) to seek to effect a
change in control of Northwest, its successors or any of its affiliates, (b)
to seek to effect a Reorganization Transaction with respect to Northwest, its
successors or any of its affiliates, (c) to seek to effect any control or
influence over the management of Northwest, its successors or any of its
affiliates, the Northwest Board of Directors or the policies of Northwest,
its successors or any of its affiliates, (d) to advise, assist or encourage
or finance (or assist or arrange financing to or for) any other Person in
connection with any of the matters restricted by, or to otherwise seek to
circumvent the limitations of the provisions of, Section 2 of this Agreement
(any such action described in clause (a), (b), (c) or (d) of this Section
2.6, a "NORTHWEST TRANSACTION PROPOSAL"), (e) to present to Northwest, its
stockholders or any third party any proposal that can reasonably be expected
to result in a Northwest Transaction Proposal or in an increase in the
Northwest Combined Voting Power represented by Northwest Voting Securities
beneficially owned in the aggregate by the Holders and their respective
successors or any of their affiliates that would be prohibited by Section
2.1, (f) to publicly suggest or announce its willingness or desire to engage
in a transaction or group of transactions or have another Person engage in a
transaction or group of transactions that would result in (i) a Northwest
Transaction Proposal or (ii) an increase in the Northwest Combined Voting
Power represented by Northwest Voting Securities beneficially owned in the
aggregate by the Holders and their respective successors or any of their
affiliates that would be restricted by Section 2.1, (g) to initiate, request,
induce, encourage or attempt to induce or give encouragement to any other
Person to initiate, or otherwise provide assistance to any Person who has
made or is contemplating making, any proposal that can reasonably be expected
to result in (i) a Northwest Transaction Proposal or (ii) an increase in the
Northwest Combined Voting Power represented by Northwest Voting Securities
beneficially owned in the aggregate by the Holders and their respective
successors or any of their affiliates that would be restricted by Section
2.1, or (h) to request a waiver, modification or amendment (an "AMENDMENT")
of any of the provisions of Section 2 of this Agreement; PROVIDED, HOWEVER,
that this subclause (h) shall not apply to any Holder's request for any such
Amendment so long as (1) such request is made in writing delivered only to
the Chief Executive Officer and the General Counsel of Northwest and (2) such
Holder and the Partner's Representative keep confidential and refrain from
disclosing to any other Person (including any member of the media but
excluding other Holders, it being understood that such other Holders shall
also be bound by this proviso) the fact that the Holder or the Partner's
Representative has made such a request, that discussions or negotiations are
taking place or
<PAGE>
6
have taken place concerning any such request or the subject matter thereof or
any of the terms, conditions or other facts with respect to any possible
Amendment.
2.7 REPRESENTATION. During the Standstill Period, each Holder shall,
if requested by Northwest, be present, in person or represented by proxy, at all
meetings of stockholders of Northwest at which members of the Northwest Board of
Directors are to be elected so that all Northwest Voting Securities beneficially
owned by such Holder shall be counted for the purpose of determining the
presence of a quorum at such meetings and for voting such securities.
2.8 NO RESTRICTIONS ON DIRECTORS OF THE COMPANY. Notwithstanding
anything to the contrary in this Agreement, it is understood and agreed that no
provision of this Agreement shall in any way limit or restrict the actions of
any Person to the extent such Person is acting in such Person's capacity as a
director on the Board of Directors of the Company, and nothing in this Agreement
is intended to, or shall be deemed to, restrict the exercise of fiduciary duties
by any such Person in such capacity.
Section 3. TERM OF AGREEMENT. This Agreement shall terminate on the
last day of the Standstill Period.
Section 4. REMEDIES. Each of the Holders acknowledges and agrees
that (i) the provisions of this Agreement are reasonable and necessary to
protect the proper and legitimate interests of Northwest, and (ii) Northwest
would be irreparably damaged in the event 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 Northwest shall be entitled
to preliminary and permanent injunctive relief to prevent breaches of the
provisions of this Agreement by any Holder without the necessity of proving
actual damages or of posting any bond, and to enforce specifically the terms and
provisions hereof and thereof, which rights shall be cumulative and in addition
to any other remedy to which Northwest may be entitled hereunder or at law or
equity.
<PAGE>
7
Section 5. GENERAL PROVISIONS.
5.1 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 a binding agreement when one or more counterparts have been signed
by each party and delivered to the other parties.
5.2 NOTICES. All notices, requests, demands or other communications
provided herein shall be made in writing and shall be deemed to have been duly
given if delivered as follows:
If to Northwest:
2700 Lone Oak Parkway
Eagan, Minnesota 55121
Attention: Executive Vice President,
General Counsel and Secretary
Fax: (612) 726-7123
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3954
Attention: Robert L. Friedman, Esq.
Fax: (212) 455-2502
If to the Holders:
1992 Air, Inc.
201 Main Street, Suite 2420
Fort Worth, Texas 76102
Attention: James J. O'Brien
Fax: (817) 878-9280
<PAGE>
8
with a copy to:
Kelly, Hart & Hallman
201 Main Street
Fort Worth, Texas 76102
Attention: Clive D. Bode, Esq.
F. Richard Bernasek
Fax: (817) 878-9280
or to such other address as any party shall have specified by notice in writing
to the other parties. All such notices, requests, demands and communications
shall be deemed to have been received on (i) the date of delivery if sent by
messenger, (ii) on the Business Day following the Business Day on which
delivered to a recognized courier service if sent by overnight courier or (iii)
on the date received, if sent by fax.
5.3 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AS APPLIED TO CONTRACTS
ENTERED INTO AND TO BE PERFORMED IN NEW YORK.
5.4 INTERPRETATION. When a reference is made in this Agreement to a
Section, such reference shall be to a Section of this Agreement unless otherwise
indicated. The titles 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 Ainclude,@ Aincludes@ or
Aincluding@ are used in this Agreement, they shall be deemed to be followed by
the words Awithout limitation.@
5.5 SUCCESSORS AND ASSIGNS. Neither this Agreement nor any of the
rights, interests or obligations under this Agreement shall be assigned, in
whole or in part, by operation of law or otherwise by any of the parties without
the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
5.6 ENTIRE AGREEMENT; NO ORAL WAIVER; CONSTRUCTION. This
Agreement and the other agreements and documents contemplated hereby and
thereby constitute the entire agreement among the parties pertaining to the
subject matter hereof and supersede all prior and contemporaneous agreements,
understandings and representations, whether oral or written, of the parties
in connection therewith. No covenant or condition or representation not
expressed in this Agreement shall affect or be effective to interpret, change
or restrict this Agreement. No prior drafts of this Agreement and no words
or phrases from any such prior drafts shall be admissible into evidence in
any action, suit or other proceeding involving this Agreement or the
transactions contemplated hereby. This Agreement may not be changed or
terminated orally, nor shall any change, termination or attempted waiver of
any of the provisions of this Agreement be binding on any party unless in
writing signed by the parties hereto. No modification, waiver, termination,
rescission, discharge or cancellation of this Agreement and
<PAGE>
9
no waiver of any provision of or default under this Agreement shall affect
the right of any party thereafter to enforce any other provision or to
exercise any right or remedy in the event of any other default, whether or
not similar. This Agreement has been negotiated by the parties hereto and
their respective legal counsel, and legal or equitable principles that might
require the construction of this Agreement against the party drafting this
Agreement will not apply in any construction or interpretation of this
Agreement.
5.7 SEVERABILITY. If any provision of this Agreement shall be
declared by any court of competent jurisdiction to be illegal, void or
unenforceable, all other provisions of this Agreement shall not be affected and
shall remain in full force and effect.
5.8 NO THIRD-PARTY RIGHTS. Nothing in this Agreement, expressed or
implied, shall or is intended to confer upon any Person other than the parties
hereto or their respective successors or assigns, any rights or remedies of any
nature or kind whatsoever under or by reason of this Agreement.
5.9 SUBMISSION TO JURISDICTION. Each of the parties hereto hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to or arising from this Agreement, or for recognition
and enforcement of any judgment in respect thereof, to the non-exclusive
general jurisdiction of the courts of the United States of America sitting
in the Southern District of New York or, in the absence of Federal
jurisdiction, the Commercial Part of the Supreme Court of the State of New
York for New York County, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to its
address set forth in Section 5.2; and
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other appropriate jurisdiction.
5.10 FURTHER ASSURANCES. From time to time, at the reasonable
request of the other party hereto and without further consideration, each party
hereto shall execute and deliver such additional documents and take all such
further action as may be necessary or desirable to consummate and make
effective, in the most expeditious manner practicable, the transactions
contemplated by this Agreement.
<PAGE>
10
[Rest of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, the parties have executed, delivered and entered
into this Agreement as of the day and year first above written.
NORTHWEST AIRLINES CORPORATION
By: /s/ Douglas M. Steenland
-----------------------------------------
Name: Douglas M. Steenland
Title: Executive Vice President,
General Counsel and Secretary
THE HOLDERS:
DAVID BONDERMAN
BONDERMAN FAMILY LIMITED
PARTNERSHIP
LECTAIR PARTNERS
ELI BROAD
DONALD STURM
1992 AIR GP
1992 AIR, INC.
AIR II GENERAL, INC.
By: 1992 AIR GP, as attorney-in-fact for
the foregoing
By: 1992 Air, Inc., a Texas corporation,
managing partner
By: /s/ James J. O'Brien
----------------------------
Name: James J. O'Brien
Title: Vice President
<PAGE>
Exhibit 10.9
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT, dated as of November 20, 1998 (this
"AGREEMENT"), among NORTHWEST AIRLINES CORPORATION, a Delaware corporation
("NORTHWEST"), the persons identified on the signature pages hereof (the
"HOLDERS") and 1992 Air, Inc., a Texas corporation, as representative of the
Holders (the "HOLDERS' REPRESENTATIVE").
W I T N E S S E T H :
WHEREAS, pursuant to an Investment Agreement, dated as of January 25,
1998, as amended by Amendment No. 1, dated as of February 27, 1998, and
Amendment No. 2, dated as of November 20, 1998 (the "INVESTMENT AGREEMENT";
capitalized terms used but not defined herein have the meanings assigned to such
terms in the Investment Agreement), among Northwest, Northwest Airlines Holdings
Corporation, a Delaware corporation ("HOLDINGS"), the Partnership, the Cash
Electing Partners (as defined therein), the Share Electing Partners (as defined
therein), CAIPar (as defined therein) and the Transferors (as defined therein),
Northwest and Holdings are acquiring from (i) the Cash Electing Partners and the
Share Electing Partners their interests in the Partnership and (ii) the
Transferors the shares of Company Class A Common Stock owned by the Transferors
concurrently with the execution of this Agreement; and
WHEREAS, Northwest, the Holders and the Holders' Representative are
entering into this Agreement to establish certain arrangements with respect to
the shares of Northwest Common Stock issued by Northwest to the Holders pursuant
to the Investment Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto hereby agree as follows:
1. DEFINITIONS. Unless otherwise defined herein:
"ASSOCIATE" shall have the meaning ascribed to such term in Rule 12b-2
under the Exchange Act.
"HOLDER" shall mean any party hereto (other than Northwest), and their
permitted successors and assigns, and any Person who becomes a party hereto.
"NORTHWEST COMMON STOCK" shall mean the Common Stock, par value $.01
per share, of Northwest.
<PAGE>
2
"REGISTRABLE SECURITIES" shall mean (i) any Northwest Common Stock
issued to the Holders pursuant to the Investment Agreement or (ii) any
securities which have been or may be issued or distributed in respect of any
shares covered by clause (i) by way of stock dividend or stock split or other
distribution, recapitalization or reclassification. As to any particular
Registrable Securities, once issued such Securities shall cease to be
Registrable Securities when (v) based on an opinion of counsel or a no-action
letter of the SEC, in either case reasonably acceptable to Northwest and the
Holders' Representative, all such Securities are immediately eligible for sale
pursuant to Rule 144 (or any successor provision) under the Securities Act, (w)
such Securities shall have been sold pursuant to Rule 144 (or any successor
provision) under the Securities Act, (x) a registration statement with respect
to the sale of such Securities shall have become effective under the Securities
Act and such Securities shall have been disposed of in accordance with such
registration statement, (y) such Securities shall have been otherwise
transferred, new certificates for them not bearing a legend restricting further
transfer shall have been delivered by Northwest, and subsequent disposition of
them shall not require registration or qualification of them under the
Securities Act or any state securities or blue sky law then in force or (z) such
Securities shall have ceased to be outstanding.
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance with this Agreement, including, without limitation,
(i) all SEC and securities exchange or National Association of Securities
Dealers, Inc. registration and filing fees, (ii) all fees and expenses of
complying with securities or blue sky laws (including fees and disbursements of
counsel for the underwriters in connection with blue sky qualifications of the
Registrable Securities), (iii) all printing, messenger and delivery expenses,
(iv) all fees and expenses incurred in connection with the listing of the
Registrable Securities on any securities exchange pursuant to Section 4(h), (v)
the fees and disbursements of counsel for Northwest and of its independent
public accountants, including the expenses of any special audits and/or "cold
comfort" letters required by or incident to such performance and compliance,
(vi) the reasonable fees and disbursements of one counsel, other than
Northwest's counsel, selected by the Holders of a majority of the Registrable
Securities being registered to represent all Holders of the Registrable
Securities being registered in connection with each such registration (it being
understood that any Holder may, at its own expense, retain separate counsel to
represent it in connection with such registration), and (vii) any fees and
disbursements of underwriters customarily paid by the issuers or sellers of
securities, and the reasonable fees and expenses of any special experts retained
in connection with the requested registration; PROVIDED, that Registration
Expenses shall exclude all underwriting discounts and commissions, selling or
placement agent or broker fees and commissions, transfer taxes, if any, and the
fees and disbursements of counsel for the Holders other than the one firm
referred to in clause (vi) above.
"SEC" shall mean the Securities and Exchange Commission, or any
successor governmental body or agency.
<PAGE>
3
2. INCIDENTAL REGISTRATIONS.
(a) RIGHT TO INCLUDE REGISTRABLE SECURITIES. Each time Northwest
proposes to register the Northwest Common Stock under the Securities Act (other
than a registration on Form S-4 or S-8, or any successor or other forms
promulgated for similar purposes), whether or not for sale for its own account,
pursuant to a registration statement on which it is permissible to register
Registrable Securities for sale to the public under the Securities Act, it will
give prompt written notice to the Holders' Representative of its intention to do
so and of the Holders' rights under this Section 2. Upon the written request of
the Holders' Representative made in good faith on behalf of any Holders and made
within 15 days after the receipt of any such notice (which request shall specify
the number of Registrable Securities intended to be disposed of by each Holder),
Northwest will use its best efforts to effect the registration under the
Securities Act of all Registrable Securities which Northwest has been so
requested to register by the Holders' Representative; PROVIDED, that (i) if, at
any time after giving written notice of its intention to register any securities
and prior to the effective date of the registration statement filed in
connection with such registration, Northwest shall determine for any reason not
to proceed with the proposed registration, Northwest may, at its election, give
written notice of such determination to the Holders' Representative and
thereupon shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation to
pay the Registration Expenses in connection therewith), and (ii) if such
registration involves an underwritten offering by Northwest (underwritten, at
least in part, by Persons who are not affiliates or associates of Northwest or
any Holder), all Holders requesting to the Holders' Representative to have
Registrable Securities included in Northwest's registration must sell their
Registrable Securities to such underwriters who shall have been selected by
Northwest on the same terms and conditions as apply to Northwest, with such
differences, including any with respect to indemnification and contribution, as
may be customary or appropriate in combined primary and secondary offerings. If
a proposed registration pursuant to this Section 2(a) involves such an
underwritten public offering, any Holder making a request to the Holders'
Representative under this Section 2(a) in connection with such registration may
elect in writing, prior to the effective date of the registration statement
filed in connection with such registration, to withdraw such request from the
Holders' Representative and not to have such securities registered in connection
with such registration.
(b) EXPENSES. Northwest will pay all Registration Expenses in
connection with each registration of Registrable Securities requested pursuant
to this Section 2, regardless of whether such registration statement becomes
effective, and the Holders' on whose behalf Registrable Securities are being
sold shall pay all underwriting discounts and commissions, selling or placement
agent or broker fees and commissions, and transfer taxes, if any, relating to
the sale or disposition of such Holders' Registrable Securities pursuant to a
registration statement effected pursuant to this Section 2.
(c) PRIORITY IN INCIDENTAL REGISTRATIONS. If a registration pursuant
to this Section 2 involves an underwritten offering by Northwest (as described
in Section 2(a)(ii)) and the managing underwriter with respect to such offering
advises Northwest in writing that, in its
<PAGE>
4
opinion, the number of securities (including all Registrable Securities)
which Northwest, the Holders and any other Persons intend to include in such
registration exceeds the largest number of securities which can be sold in
such offering without having an adverse effect on the offering of securities
as contemplated by Northwest (including the price at which Northwest proposes
to sell such securities), then Northwest will include in such registration
(i) first, all the securities proposed to be sold by any Person exercising a
"demand" registration right pursuant to a registration rights agreement with
Northwest, (ii) second, all the securities Northwest proposes to sell for its
own account, and (iii) third, the number of Registrable Securities which the
Holders' Representative has requested to be included in such registration and
which, in the opinion of such managing underwriter, can be sold without
having the adverse effect referred to above, such reduced number of
Registrable Securities to be allocated pro rata among Holders that have made
a request to the Holders' Representative on the basis of the relative number
of shares of Registrable Securities then held by each such Holder (provided
that any shares thereby allocated to any such Holder that exceed such
Holder's request will be reallocated among the remaining requesting Holders
in like manner).
(d) CUSTODY AGREEMENT AND POWER OF ATTORNEY. Upon Northwest's
request, the Holders' Representative, on behalf of the Holders, will execute and
deliver a custody agreement and power of attorney in form and substance
reasonably satisfactory to Northwest with respect to the Registrable Securities
to be registered pursuant to this Section 2 (a "CUSTODY AGREEMENT AND POWER OF
ATTORNEY"). The Custody Agreement and Power of Attorney will provide, among
other things, that the Holders will deliver to and deposit in custody with the
custodian and attorney-in-fact named therein a certificate or certificates
representing such shares of Registrable Securities (duly endorsed in blank by
the registered owner or owners thereof or accompanied by duly executed stock
powers in blank) and irrevocably appoint said custodian and attorney-in-fact as
the Holder's agent and attorney-in-fact with full power and authority to act
under the Custody Agreement and Power of Attorney on behalf of the Holders with
respect to the matters specified therein.
(e) OTHER AGREEMENTS. Each Holder and the Holders' Representative
agree that they will execute such other agreements as Northwest may reasonably
request to further accomplish the purposes of this Section 2.
3. SHELF REGISTRATIONS.
(a) REQUIRED SHELF REGISTRATIONS. Northwest shall file with the SEC
and use its reasonable best efforts to have declared effective as promptly as
practicable after the Closing a shelf registration statement (the "SHELF
REGISTRATION STATEMENT") on an appropriate form that shall include all
Registrable Securities, and may include securities of Northwest for sale for
Northwest's own account (the "REQUIRED SHELF REGISTRATION"). Notwithstanding
anything else contained in this Agreement, Northwest shall be obligated to keep
such Shelf Registration Statement effective until the earliest of (i) such time
as (x) no Holder is an "affiliate" of Northwest for purposes of Rule 144 under
the Securities Act or (y) if earlier, such time as each Holder that could be
considered an affiliate of Northwest owns a number of Registrable Securities
that could at that time be sold in a single transaction under Rule 144(e)
<PAGE>
5
under the Securities Act (provided, that a written opinion of counsel for
Northwest to the effect set forth in clause (x) or (y) shall constitute
conclusive evidence of the satisfaction of such conditions), (ii) such time
as all Registrable Securities have been sold or disposed of thereunder or
sold, transferred or otherwise disposed of to a Person that is not a Holder
and (iii) such time as all securities that were Registrable Securities on the
date hereof have ceased to be Registrable Securities (the earliest of (i),
(ii) and (iii) being the "SHELF TERMINATION DATE"); PROVIDED, HOWEVER, that
the Shelf Termination Date shall be delayed to the extent required to permit
dealers to comply with the applicable prospectus delivery requirements of
Section 4(3) of the Securities Act and Rule 174 thereunder. After the date
that is 90 days following the execution of this Agreement, on two occasions,
but only once within any 12 month period, if requested by a Holder or Holders
holding 25% or more of the Registrable Securities, the Holders'
Representative shall have the right pursuant to this Section 3(a) to request
that Northwest assist it in conducting an underwritten public offering of the
Registrable Securities (each an "UNDERWRITTEN OFFERING"); PROVIDED, that such
Holder or Holders shall not have such right if the aggregate number of shares
of Registrable Securities the subject of such request is less than 1,000,000
shares (as appropriately adjusted in respect of any stock splits,
subdivisions, combinations and similar transactions). Any Holder making a
request to the Holders' Representative in connection with an Underwritten
Offering may elect in writing, prior to the date of the prospectus relating
to any such Underwritten Offering, to withdraw such Holder's Registrable
Securities from such Underwritten Offering and not to have such securities
registered in connection with such registration (it being understood that any
such withdrawal shall not reinstate or give rise to any additional rights to
an Underwritten Offering). In connection with each Underwritten Offering,
Northwest shall use its reasonable best efforts to assist the Holders'
Representative in the marketing of the Registrable Securities (including,
without limitation, to the extent reasonably consistent with work
commitments, and upon reasonable notice, using reasonable efforts to have
officers of Northwest attend meetings with analysts or investors on no more
than two days scheduled in connection with such Underwritten Offering, and so
long as such meetings are held in Minnesota, Chicago, Boston or New York),
with all out-of-pocket costs and expenses incurred by Northwest or such
officers in connection with such attendance or assistance to be paid by the
Holders.
(b) EXPENSES. (i) Northwest will pay all Registration Expenses in
connection with the registrations of Registrable Securities pursuant to this
Section 3 upon the written request of the Holders' Representative, and (ii) the
Holders on whose behalf Registrable Securities are being sold shall pay all
underwriting discounts and commissions, and transfer taxes, if any, relating to
the sale or disposition of such Holder's Registrable Securities pursuant to the
Shelf Registration Statement; PROVIDED that the amount paid by the requesting
Holders pursuant to clause (ii) above shall be paid pro rata among all
requesting Holders on the basis of the relative number of shares of Registrable
Securities then held by each such Holder.
(c) EFFECTIVE REGISTRATION STATEMENT. A registration requested
pursuant to this Section 3 will not be deemed to have been effected unless it
has become effective; PROVIDED, that if, within 60 days after it has become
effective, the offering of Registrable Securities pursuant to such registration
is interfered with by any stop order, injunction or other
<PAGE>
6
order or requirement of the SEC or other governmental agency or court, such
registration will be deemed not to have been effected.
(d) SELECTION OF UNDERWRITERS. Holder's Representative has the right
to select the investment banker or bankers and managers to administer an
Underwritten Offering which shall be a "bulge bracket" New York based investment
banker or bankers and managers; PROVIDED, HOWEVER, that such investment banker
or bankers and managers shall be reasonably satisfactory to Northwest.
(e) PRIORITY IN UNDERWRITTEN OFFERINGS. If the managing underwriter
advises Northwest in writing that, in its opinion, the number of securities
requested to be included in an Underwritten Offering (including securities of
Northwest which are not Registrable Securities) exceeds the largest number of
securities which can be sold in such Underwritten Offering, Northwest will
include in such Underwritten Offering only the Registrable Securities requested
to be included in such registration. In the event that the number of
Registrable Securities requested to be included in an Underwritten Offering
exceeds the number which, in the opinion of such managing underwriter, can be
sold, the number of such Registrable Securities to be included in such
Underwritten Offering shall be allocated pro rata among all requesting Holders
on the basis of the relative number of shares of Registrable Securities then
held by each such Holder (provided that any shares thereby allocated to any such
Holder that exceed such Holder's request shall be reallocated among the
remaining requesting Holders in like manner). In the event that the number of
Registrable Securities requested to be included in such Underwritten Offering is
less than the number which, in the opinion of the managing underwriter, can be
sold, Northwest may include in such registration the securities Northwest
proposes to sell up to the number of securities that, in the opinion of the
managing underwriter, can be sold.
(f) CERTAIN DELAY RIGHTS. Notwithstanding any other provision of
this Agreement to the contrary, if at any time while the Shelf Registration
Statement is effective Northwest provides a certificate of the chief financial
officer or chief executive officer of Northwest to the Holders' Representative
to the effect that in Northwest's good faith and reasonable judgment the sale of
Registrable Securities covered by the Shelf Registration Statement or the
disclosure of information therein or in any related prospectus or prospectus
supplement would materially interfere with any acquisition, financing or other
material event or transaction in connection with which a registration of
securities under the Securities Act for the account of Northwest is then
intended or the public disclosure of which at the time would be materially
prejudicial to Northwest (a "DISADVANTAGEOUS CONDITION") for sales of
Registrable Securities thereunder to then be permitted, and setting forth the
general reasons for such determination, Northwest may refrain from maintaining
current the prospectus contained in the Shelf Registration Statement until such
Disadvantageous Condition no longer exists (notice of which Northwest shall
promptly deliver to the Holders' Representative). With respect to each Holder,
upon the receipt by the Holders' Representative of any such notice of a
Disadvantageous Condition such Holder shall (i) forthwith discontinue use of the
prospectus and any prospectus supplement under such Shelf Registration Statement
and shall suspend sales of Registrable Securities until such Disadvantageous
Condition no longer exists and (ii) as
<PAGE>
7
applicable, if so directed by Northwest by notice to the Holders'
Representative as aforesaid, such Holder will deliver to Northwest all
copies, other than permanent file copies then in such Holder's possession, of
the prospectus and prospectus supplements then covering such Registrable
Securities at the time of receipt of such notice.
4. REGISTRATION PROCEDURES. If and whenever Northwest is required
to use its best efforts to effect or cause the registration of any Registrable
Securities under the Securities Act as provided in this Agreement, Northwest
will, as expeditiously as possible:
(a) prepare and file with the SEC a registration statement with
respect to such Registrable Securities on any form for which Northwest then
qualifies or which counsel for Northwest shall deem appropriate, and which
form shall be available for the sale of the Registrable Securities in
accordance with the intended methods of distribution thereof, and use its
best efforts to cause such registration statement to become and remain
effective; PROVIDED, that such registration statement shall include a "Plan
of Distribution" section including sales of Registrable Securities in
ordinary market transactions and underwritten offerings, as well as typical
hedging transactions; and PROVIDED FURTHER that Northwest may discontinue
any registration of its securities which is being effected pursuant to
Section 2 at any time prior to the effective date of the registration
statement relating thereto;
(b) prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for a
period of (i) in the case of registrations pursuant to Section 2(a), 180
days or such lesser period of time as Northwest or any Holder may be
required under the Securities Act to deliver a prospectus in connection
with any sale of Registrable Securities and (ii) in the case of
registrations pursuant to Section 3(a), until the Shelf Termination Date,
and to comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
Holders set forth in such registration statement; PROVIDED, that before
filing a registration statement pursuant to Section 3 or any prospectus
naming the Holders, or any amendments or supplements thereto, Northwest
will furnish to the Holders' Representative and its counsel copies of all
documents proposed to be filed and will provide the Holders' Representative
and its counsel the opportunity to comment thereon (it being understood
that no information with respect to a Holder will be included in such
registration statement or prospectus if the Holders' Representative or its
counsel reasonably objects on such Holder's behalf);
(c) furnish to the Holders' Representative such number of copies of
such registration statement and of each amendment and supplement thereto
(in each case including all exhibits), such number of copies of the
prospectus included in such registration statement (including each
preliminary prospectus and summary prospectus and prospectus supplement, as
applicable), in conformity with the requirements of the Securities Act, and
such other documents as the Holders' Representative may
<PAGE>
8
reasonably request in order to facilitate the disposition of the
Registrable Securities by the Holders;
(d) use its best efforts to register or qualify such Registrable
Securities covered by such registration statement under such other
securities or blue sky laws of such jurisdictions as the Holders'
Representative shall reasonably request, and do any and all other acts and
things which may be reasonably necessary or advisable to enable the Holders
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by the Holders, except that Northwest shall not for any
such purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction where, but for the requirements of this
Section 4(d), it would not be obligated to be so qualified, to subject
itself to taxation in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(e) use its best efforts to cause such Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the Holders to consummate the disposition of such Registrable Securities;
(f) notify the Holders' Representative, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act
within the appropriate period mentioned in Section 4(b), of Northwest's
becoming aware that the prospectus included in such registration statement,
as then in effect, includes an untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the circumstances
then existing, and at the request of the Holders' Representative prepare
and furnish to the Holders' Representative a reasonable number of copies of
an amended or supplemental prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances then
existing;
(g) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable (but not more than 18 months)
after the effective date of the registration statement, an earnings
statement which shall satisfy the provisions of Section 11(a) of the
Securities Act and the rules and regulations promulgated thereunder;
(h) (i) use its best efforts to cause all such Registrable Securities
to be listed on any securities exchange on which the Northwest Common Stock
is then listed, if such Registrable Securities are not already so listed
and if such listing is then permitted under the rules of such exchange, and
(ii) provide a transfer agent and registrar for
<PAGE>
9
such Registrable Securities covered by such registration statement no later
than the effective date of such registration statement;
(i) in the case of an Underwritten Offering, enter into such
customary agreements (including an underwriting agreement in customary
form) and take such other actions as (x) the Holders' Representative or (y)
the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;
(j) in the case of an Underwritten Offering, obtain a "cold comfort"
letter or letters from Northwest's independent public accountants in
customary form and covering matters of the type customarily covered by
"cold comfort" letters as the Holders' Representative shall reasonably
request; and
(k) in the case of an Underwritten Offering, make available for
inspection by representatives of the Holders of the Registrable Securities
to be sold in such Underwritten Offering, by any underwriter participating
in any disposition to be effected pursuant to such registration statement
and by any attorney, accountant or other agent retained by such Holders or
any such underwriter, such financial and other records, corporate documents
and properties of Northwest as are customarily made available in connection
with a "due diligence" investigation for an underwritten secondary
offering, and cause all of Northwest's (and its subsidiaries) officers and
accountants to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection with such
registration statement as is customarily made available in connection with
a "due diligence" investigation for an underwritten secondary offering;
PROVIDED, HOWEVER, that the foregoing shall not require Northwest to
provide access to (or copies of) any competitively sensitive information
relating to Northwest or its subsidiaries or their respective businesses;
PROVIDED FURTHER, however that (i) each Holder and the underwriters and
their respective counsel, accountants and other agents shall have entered
into a confidentiality agreement reasonably acceptable to Northwest and
(ii) the Holders and the underwriters and their respective counsel,
accountants and other agents shall use their reasonable best efforts to
minimize the disruption to Northwest's business and coordinate any such
investigation of the books, records and properties of Northwest and any
such discussions with Northwest's officers and accountants so that all such
investigations occur at the same time and all such discussions occur at the
same time.
Northwest may require each Holder of Registrable Securities as to
which any registration is being effected and the Holders' Representative to
furnish Northwest with such information regarding such Holder and the Holders'
Representative, respectively, and pertinent to the disclosure requirements
relating to the registration and the distribution of such securities as
Northwest may from time to time reasonably request in writing.
<PAGE>
10
Each Holder of Registrable Securities agrees that, upon receipt of any
notice from Northwest or the Holders' Representative of the happening of any
event of the kind described in Section 4(f), such Holder will forthwith
discontinue disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such Holder's receipt of
the copies of the supplemented or amended prospectus contemplated by Section
4(f), and, if so directed by Northwest, such Holder will deliver to Northwest
(at Northwest's expense) all copies, other than permanent file copies then in
such Holder's possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event Northwest or the
Holders' Representative shall give any such notice, the period mentioned in
Section 4(b)(i) shall be extended by the number of days during the period from
the date of the giving of such notice pursuant to Section 4(f) and through the
date when each seller of Registrable Securities covered by such registration
statement shall have received the copies of the supplemented or amended
prospectus contemplated by Section 4(f).
5. INDEMNIFICATION.
(a) INDEMNIFICATION BY NORTHWEST. In the event of any registration
of any securities of Northwest under the Securities Act pursuant to Section 2 or
3, Northwest hereby indemnifies and agrees to hold harmless, to the extent
permitted by law, the Holders' Representative, each Holder of Registrable
Securities covered by such registration statement, each affiliate of such Holder
and their respective directors and officers or general and limited partners (and
the directors, officers, affiliates and controlling Persons thereof), each other
Person who participates as an underwriter in the offering or sale of such
securities and each other Person, if any, who controls such Holder or any such
underwriter within the meaning of the Securities Act (collectively, the
"INDEMNIFIED PARTIES"), against any and all losses, claims, damages or
liabilities, joint or several, and expenses to which such Indemnified Party may
become subject under the Securities Act, common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof, whether or not such Indemnified Party is a party thereto) arise
out of or are based upon (i) any untrue statement or alleged untrue statement of
any material fact contained in any registration statement under which such
securities were registered under the Securities Act, any preliminary, final or
summary prospectus contained therein, or any amendment or supplement thereto, or
(ii) any omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances then existing, and Northwest will reimburse
such Indemnified Party for any legal or other expenses reasonably incurred by it
in connection with investigating or defending any such loss, claim, liability,
action or proceeding; PROVIDED, that Northwest shall not be liable to any
Indemnified Party in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of or is based upon any untrue statement or alleged untrue statement or
omission or alleged omission made in such registration statement, in any such
preliminary, final or summary prospectus, or any amendment or supplement thereto
(i) following notice by Northwest to such Indemnified Party of any
Disadvantageous Condition or otherwise pursuant to Section 4(f) if such
Indemnified Party uses the prospectus in effect at the time of such notice,
unless Northwest has delivered a notice
<PAGE>
11
that such Disadvantageous Condition or other circumstance no longer exists or
(ii) in reliance upon and in conformity with written information with respect
to such Indemnified Party furnished to Northwest by such Indemnified Party
for use in the preparation thereof; and PROVIDED, FURTHER, that Northwest
will not be liable to any Person who participates as an underwriter in the
offering or sale of Registrable Securities or any other Person, if any, who
controls such underwriter within the meaning of the Securities Act, under the
indemnity agreement in this Section 5(a) with respect to any preliminary
prospectus or the final prospectus or the final prospectus as amended or
supplemented, as the case may be, to the extent that any such loss, claim,
damage or liability of such underwriter or controlling Person results from
the fact that such underwriter sold Registrable Securities to a person to
whom there was not sent or given, at or prior to the written confirmation of
such sale, a copy of the final prospectus (including any documents
incorporated by reference therein) or of the final prospectus as then amended
or supplemented (including any documents incorporated by reference therein),
whichever is most recent, if Northwest has previously furnished copies
thereof to such underwriter. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such Holder or
any Indemnified Party and shall survive the transfer of such securities by
such Holder.
(b) INDEMNIFICATION BY THE HOLDERS AND UNDERWRITERS. Northwest may
require, as a condition to including any Registrable Securities in any
registration statement filed in accordance with Section 2 or 3 herein, or in
connection with any Underwritten Offering, that Northwest shall have received an
undertaking reasonably satisfactory to it from the Holder of such Registrable
Securities or any underwriter to indemnify and hold harmless (in the same manner
and to the same extent as set forth in Section 5(a)) Northwest, all other
prospective Holders or any underwriter, as the case may be, and any of their
respective affiliates, directors, officers and controlling Persons, with respect
to any statement or alleged statement in or omission or alleged omission from
such registration statement, any preliminary, final or summary prospectus
contained therein, or any amendment or supplement, if such statement or alleged
statement or omission or alleged omission was made in reliance upon and in
conformity with written information with respect to such Holder or the Holders'
Representative or underwriter furnished to Northwest by such Holder or
underwriter expressly for use in the preparation of such registration statement,
preliminary, final or summary prospectus or amendment or supplement, or a
document incorporated by reference into any of the foregoing. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of Northwest or any of the Holders, or any of their respective
affiliates, directors, officers or controlling Persons and shall survive the
transfer of such securities by such Holder.
(c) NOTICES OF CLAIMS, ETC. Promptly after receipt by an indemnified
party hereunder of written notice of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 5, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, give written notice to the
latter of the commencement of such action; PROVIDED, that the failure of the
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under Section 5(a) or 5(b), except to the
extent that the indemnifying party is
<PAGE>
12
actually prejudiced by such failure to give notice. In case any such action
is brought against an indemnified party, unless in such indemnified party's
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying
party will be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified to the extent
that it may wish, with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof
other than reasonable costs of investigation. If, in such indemnified
party's reasonable judgment, having common counsel would result in a conflict
of interest between the interests of such indemnified and indemnifying
parties, then such indemnified party may employ separate counsel reasonably
acceptable to the indemnifying party to represent or defend such indemnified
party in such action, it being understood, however, that the indemnifying
party shall not be liable for the reasonable fees and expenses of more than
one separate firm of attorneys at any time for all such indemnified parties
(and not more than one separate firm of local counsel at any time for all
such indemnified parties) in such action. No indemnifying party will consent
to entry of any judgment or enter into any settlement which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to
such indemnified party of a release from all liability in respect of such
claim or litigation.
(d) CONTRIBUTION. If recovery is not available under the foregoing
indemnification provisions of this Section 5 for any reason other than as
expressly specified therein, the parties entitled to indemnification by the
terms thereof shall be entitled to contribution to liabilities and expenses
except to the extent that contribution is not permitted under Section 11(f) of
the Securities Act. In determining the amount of contribution to which the
respective parties are entitled, there shall be considered the relative benefits
received by each party from the offering of the Registrable Securities (taking
into account the portion of the proceeds received by each), the parties'
relative knowledge and access to information concerning the matter with respect
to which the claim was asserted, the opportunity to correct and prevent any
misstatement or omission and any other equitable considerations appropriate
under the circumstances. The amount paid or payable by a party under this
Section 5(d) as a result of the losses, claims, damages, liabilities and
expenses referred to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such party in connection with any investigation
or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5 were determined by PRO RATA allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding anything in this Section 5 to the contrary, no indemnifying
party (other than Northwest) shall be required pursuant to this Section 5 to
contribute any amount in excess of the gross proceeds received by such
indemnifying party from the sale of Registrable Securities in the offering to
which the losses, claims, damages or liabilities of the indemnified parties
relate. No Person guilty of fraudulent misrepresentation
<PAGE>
13
(within the meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any Person who was not guilty of such fraudulent
misrepresentation.
(e) NON-EXCLUSIVITY. The obligations of the parties under this
Section 5 shall be in addition to any liability which any party may otherwise
have to any other party.
(f) RULE 144. Northwest covenants that it will file the reports
required to be filed by it under the Securities Act and the Exchange Act and the
rules and regulations adopted by the SEC thereunder (or, if Northwest is not
required to file such reports, it will, upon the request of the Holders'
Representative or any Holder of Registrable Securities, make publicly available
such information), all to the extent required from time to time to enable such
Holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (ii) any
similar rule or regulation hereafter adopted by the SEC.
6. MISCELLANEOUS.
(a) HOLDBACK AGREEMENT. If any registration of Registrable
Securities shall be in connection with an underwritten public offering, each
Holder of Registrable Securities agrees not to effect any public sale or
distribution (except in connection with such underwritten public offering),
including any sale pursuant to Rule 144 under the Securities Act, of any equity
securities of Northwest, or of any security convertible into or exchangeable or
exercisable for any equity security of Northwest (in each case, other than as
part of such underwritten public offering), during the seven days prior to, and
during the 90-day period (or such lesser period as the managing underwriters may
permit) beginning on, the effective date of such registration, and Northwest
hereby also so agrees.
(b) AMENDMENTS AND WAIVERS. This Agreement may be amended and
Northwest may take any action herein prohibited, or omit to perform any act
herein required to be performed by it, only if Northwest shall have obtained the
written consent to such amendment, action or omission to act, of the Holders'
Representative. Each Holder of any shares of Registrable Securities agrees to
be bound by any consent given by the Holders' Representative in this Section
6(b).
(c) SUCCESSORS, ASSIGNS AND TRANSFEREES. Neither this Agreement nor
any of the rights, interests or obligations under this Agreement shall be
assigned, in whole or in part, by operation of law or otherwise by any of the
parties without the prior written consent of the other parties; PROVIDED that
each Holder may assign any of its rights and obligations hereunder to any of its
respective affiliates that is directly or indirectly controlled by it. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. In addition, and whether or
not any express assignment shall have been made, the provisions of this
Agreement which are for the benefit of the parties hereto other than Northwest
and the Holders' Representative shall also be for the benefit of and
<PAGE>
14
enforceable by any subsequent Holder of any shares of Registrable Securities,
subject to the provisions contained herein.
(d) NOTICES. All notices, requests, demands or other communications
provided herein shall be made in writing and shall be deemed to have been duly
given if delivered as follows:
If to Northwest:
2700 Lone Oak Parkway
Eagan, MN 55121
Attention: Executive Vice President,
General Counsel and Secretary
Fax: (612) 726-7123
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3954
Attention: Robert L. Friedman, Esq.
Fax: (212) 455-2502
If to the Holders or the Holders' Representative:
201 Main Street, Suite 2420
Forth Worth, Texas 76102
Attention: James J. O'Brien
Fax: (817) 871-4010
with a copy to:
Kelly, Hart & Hallman
201 Main Street
Fort Worth, TX 76102
Attention: Clive D. Bode, Esq.
F. Richard Bernasek, Esq.
Fax: (817) 878-9280
or to such other address as either party shall have specified by notice in
writing to the other party. All such notices, requests, demands and
communications shall be deemed to have been received on (i) the date of delivery
if sent by messenger, (ii) on the Business Day following the Business Day on
which delivered to a recognized courier service if sent by overnight courier or
(iii) on the date received, if sent by fax.
<PAGE>
15
(e) INTERPRETATION. When a reference is made in this Agreement to a
Section, such reference shall be to a Section to this Agreement unless otherwise
indicated. The 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."
(f) SEVERABILITY. If any provision of this Agreement shall be
declared by any court of competent jurisdiction to be illegal, void or
unenforceable, all other provisions of this Agreement shall not be affected and
shall remain in full force and effect.
(g) 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 a binding agreement when one or more counterparts have been signed
by each party and delivered to the other parties.
(h) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AS APPLIED TO CONTRACTS
ENTERED INTO AND TO BE PERFORMED IN NEW YORK.
(i) REMEDIES. Each of the parties hereto acknowledges and agrees
that (i) the provisions of this Agreement are reasonable and necessary to
protect the proper and legitimate interests of the parties hereto, and (ii) the
other parties hereto would be irreparably damaged in the event 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
parties hereto shall be entitled to preliminary and permanent injunctive relief
to prevent breaches of the provisions of this Agreement by the other parties
hereto without the necessity of proving actual damages or of posting any bond,
and to enforce specifically the terms and provisions hereof and thereof, which
rights shall be cumulative and in addition to any other remedy to which the
parties hereto may be entitled hereunder or at law or equity.
(j) SUBMISSION TO JURISDICTION. Each of the parties hereto hereby
irrevocably and unconditionally:
(i) submits for itself and its property in any legal action
or proceeding relating to or arising from this Agreement, or for
recognition and enforcement of any judgment in respect thereof, to the
non-exclusive general jurisdiction of the courts of the United States of
America sitting in the Southern District of New York or, in the absence of
federal jurisdiction, the Commercial Part of the Supreme Court of the State
of New York for New York County and appellate courts from any thereof;
(ii) consents that any such action or proceeding may be
brought in such courts and waives any objection that it may now or
hereafter have to the venue of any such action or proceeding in any such
court or that such action or proceeding was brought in an inconvenient
court and agrees not to plead or claim the same;
<PAGE>
16
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to its address set forth in Section 6(d); and
(iv) agrees that nothing herein shall affect the right to
effect service of process in any other manner permitted by law or shall
limit the right to sue in any other appropriate jurisdiction.
(k) FURTHER ASSURANCES. From time to time, at the reasonable request
of any other party hereto and without further consideration, each party hereto
shall execute and deliver such additional documents and take all such further
action as may be necessary or desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement.
(l) NO THIRD-PARTY RIGHTS. Nothing in this Agreement, expressed or
implied, shall or is intended to confer upon any Person other than the parties
hereto or their respective successors or assigns, any rights or remedies of any
nature or kind whatsoever under or by reason of this Agreement.
(m) ENTIRE AGREEMENT; NO ORAL WAIVER; CONSTRUCTION. This Agreement
and the other agreements and documents contemplated hereby and thereby
constitute the entire agreement among the parties pertaining to the subject
matter hereof and supersede all prior and contemporaneous agreements,
understandings and representations, whether oral or written, of the parties in
connection therewith. No covenant or condition or representation not expressed
in this Agreement shall affect or be effective to interpret, change or restrict
this Agreement. No prior drafts of this Agreement and no words or phrases from
any such prior drafts shall be admissible into evidence in any action, suit or
other proceeding involving this Agreement or the transactions contemplated
hereby. This Agreement may not be changed or terminated orally, nor shall any
change, termination or attempted waiver of any of the provisions of this
Agreement be binding on any party unless in writing signed by the parties
hereto. No modification, waiver, termination, rescission, discharge or
cancellation of this Agreement and no waiver of any provision of or default
under this Agreement shall affect the right of any party thereafter to enforce
any other provision or to exercise any right or remedy in the event of any other
default, whether or not similar. This Agreement has been negotiated by the
parties hereto and their respective legal counsel, and legal or equitable
principles that might require the construction of this Agreement against the
party drafting this Agreement will not apply in any construction or
interpretation of this Agreement.
(n) NONCONTRAVENTION OF OTHER AGREEMENTS. Notwithstanding any other
provision of this Agreement to the contrary, no Holder shall have any right to
sell, transfer or otherwise dispose of any Registrable Securities in
contravention of the Investment Agreement, the Standstill Agreement, the Voting
Trust Agreement and the transactions contemplated thereby.
<PAGE>
17
(o) HOLDER'S AGENT. Each Holder hereby appoints the Holders'
Representative as its agent and attorney-in-fact for purposes of the delivery
and receipt of all notices and requests pursuant to this Agreement.
Northwest may give notice to any Holder hereunder by giving such notice
directly to such Holder. Alternatively, Northwest may request that the
Holders' Representative deliver to each Holder any notice given by Northwest
hereunder, in which event the Holders' Representative will promptly so give
such notice to each Holder. Prompt delivery by the Holders' Representative to
the Holders will be deemed satisfied if delivery is made to the Holders, in
accordance with Section 6(d), not later than the third Business Day after
actual receipt of the applicable notice or document by the Holders'
Representative from Northwest. Notwithstanding anything else contained
herein, the Holders' Representative will not be liable or responsible to any
Person should any Holder fail to act in accordance with any notice so given
to such Holder hereunder.
[Rest of page intentionally left blank.]
<PAGE>
IN WITNESS WHEREOF, each of the undersigned has executed this
Agreement or caused this Agreement to be executed on its behalf as of the
date first written above.
NORTHWEST AIRLINES CORPORATION
By: /s/ Douglas M. Steenland
---------------------------------------
Name: Douglas M. Steenland
Title: Executive Vice President,
General Counsel and Secretary
THE HOLDERS:
DAVID BONDERMAN
BONDERMAN FAMILY LIMITED
PARTNERSHIP
LECTAIR PARTNERS
ELI BROAD
DONALD STURM
1992 AIR GP
1992 AIR, INC.
AIR II GENERAL, INC.
By: 1992 AIR GP, as attorney-in-fact for the
foregoing
By: 1992 Air, Inc., a Texas corporation,
managing partner
By: /s/ James J. O'Brien
---------------------------------
Name: James J. O'Brien
Title: Vice President
<PAGE>
EXHIBIT 10.10
ASSIGNMENT AGREEMENT
THIS Assignment Agreement made and entered into effective as of February
27, 1998 among Northwest Airlines Corporation, a Delaware corporation
("Parent"), Newbridge Parent Corporation, a Delaware corporation and, as of
the date of this Agreement, a wholly owned subsidiary of Parent ("Holdco
Sub"), Air Partners, L.P., a Texas limited partnership (the "Partnership"),
the partners of the Partnership (collectively, the "Partners"), Bonderman
Family Limited Partnership, a Texas limited partnership ("Transferor I"), Air
Saipan, Inc., a CNMI corporation ("Transferor III"), 1992 Air, Inc., a Texas
corporation ("Assignor") and Coulco, Inc., a Texas corporation ("Assignee").
W I T N E S S E T H:
WHEREAS, Parent, Holdco Sub, the Partnership, the Partners, Transferor
I, Assignor and Transferor III are parties to an Investment Agreement dated
as of January 25, 1998 (as amended from time to time, the "Investment
Agreement"):
WHEREAS, Assignor desires to assign to Assignee certain rights under the
Investment Agreement, and the other parties to the Investment Agreement are
willing to consent in writing to such assignment;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
Section 1. ASSIGNMENT. (a) Assignor hereby irrevocably assigned to
Assignee, and relinquishes, all rights, (i) to designate an individual to be
elected or appointed to the Board of Directors of Holdco Sub pursuant to
Section 4.1(b)(i) of the Investment Agreement, and (ii) to designate one
person for election to the Board of Directors of Holdco Sub and to fill any
vacancy resulting from such person's cessation to serve as a director
pursuant to Section 4.1(b)(ii) of the Investment Agreement.
(b) As consideration for such assignment, Assignee agrees (i)
promptly to cause its designee to resign from the Holdco Sub Board of
Directors at the time and under the circumstances described under Section
4.1(b)(iii) of the Investment Agreement, (ii) to comply with Section
4.1(b)(iv) of the Investment Agreement and (iii) to be bound by the
provisions of Section 4.1(b) of the Investment Agreement as though it were
Transferor II (as defined in the Investment Agreement).
(c) Parent and Holdco Sub agree (i) that James G. Coulter and
William S. Price have been deemed to be acceptable by the Board of Directors
of Holdco Sub for purposes of Sections 4.1(b)(i) and 4.1(b)(ii) of the
Investment Agreement, (ii) that the person designated from time to time by
Assignee (who shall be reasonably acceptable to the Holdco Sub Board of
Directors) (the "Assignee Designee") shall be the "Transferor II Designee"
for purposes of Section 4.1 of the Investment Agreement and (iii) that for
all purposes of Section 4.1(b) of the Investment Agreement, all references to
"Transferor II" and the "Transferor II Designee" shall mean and refer to
Assignee and the Assignee Designee.
<PAGE>
2
Section 2. ASSUMPTION. Assignee hereby assumes all of Assignor's
obligations under Section 4.1(b) of the Investment Agreement.
Section 3. CONSENT. Pursuant to Section 7.7 of the Investment
Agreement, each of Parent, Holdco Sub, the Partnership, the Partners,
Transferor I, Transferor III and Assignor consent to the assignment effected
by Section 1 hereof.
Section 4. GOVERNING LAW. This Assignment Agreement shall be
governed by and construed in accordance with the laws of the State of New
York as applied to contracts entered into and to be performed in New York
without regard to the application of principles of conflict of laws.
IN WITNESS WHEREOF, the parties have executed, delivered and entered
into this Agreement as of the date and year first written above.
NORTHWEST AIRLINES CORPORATION
By: /s/ Douglas M. Steenland
--------------------------------------
Name: Douglas M. Steenland
Title: Executive Vice President,
General Counsel and Secretary
NEWBRIDGE PARENT CORPORATION
By: /s/ Douglas M. Steenland
--------------------------------------
Name: Douglas M. Steenland
Title: Executive Vice President,
General Counsel and Secretary
AIR PARTNERS, L.P.
1992 Air GP, a Texas general partnership
By: 1992 Air, Inc., a Texas corporation
managing partner
By: /s/ James J. O'Brien
----------------------------------
Name: James J. O'Brien
Title: Vice President
<PAGE>
3
THE PARTNERS:
GENERAL PARTNERS
1992 AIR GP, a Texas general partnership
By: 1992 Air, Inc., a Texas corporation,
general partner
By: /s/ James J. O'Brien
----------------------------------
Name: James J. O'Brien
Title: Vice President
AIR II GENERAL, INC., a Texas corporation
By: /s/ James J. O'Brien
--------------------------------------
Name: James J. O'Brien
Title: Vice President
<PAGE>
4
LIMITED PARTNERS
DAVID BONDERMAN
BONDERMAN FAMILY LIMITED
PARTNERSHIP
ESTATE OF LARRY LEE HILLBLOM
By: Russell K. Snow, Jr.
Managing Executor
Bank of Saipan, Executor
DHL MANAGEMENT SERVICES, INC.
LECTAIR PARTNERS
By: Planden Corp., G.P.
SUN AMERICA INC. (formerly Broad, Inc.)
ELI BROAD
AMERICAN GENERAL CORPORATION
DONALD STURM
CONAIR LIMITED PARTNERS, L.P.
BONDO AIR LIMITED PARTNERSHIP
By: 1992 Air, Inc.
By: 1992 AIR GP, as attorney-in-fact
for the foregoing
By: 1992 Air, Inc. a Texas
corporation, general partner
By: /s/ James J. O'Brien
----------------------------
Name: James J. O'Brien
Title: Vice President
AIR SAIPAN, INC., a CNMI corporation
By: /s/ James J. O'Brien
-------------------------------------
Name: James J. O'Brien
Title: Agent and Attorney-in-Fact
<PAGE>
5
BONDERMAN FAMILY LIMITED
PARTNERSHIP
By: /s/ James J. O'Brien
-------------------------------------
Name: James J. O'Brien
Title: Agent and Attorney-in-Fact
1992 AIR, INC., a Texas corporation
By: /s/ James J. O'Brien
-------------------------------------
Name: James J. O'Brien
Title: Vice President
ASSIGNEE:
COULCO, INC., a Texas corporation
By: /s/ James J. O'Brien
-------------------------------------
Name: James J. O'Brien
Title: Vice President
<PAGE>
EXHIBIT 10.18
ACKNOWLEDGMENT
Acknowledgment (this "ACKNOWLEDGMENT") dated as of November 20,
1998 by Northwest Parent Corporation ("NORTHWEST") as successor to Northwest
Airlines Holdings Corporation (formerly known as Northwest Airlines
Corporation, the "COMPANY"), under the Second Amended and Restated Investor
Stockholders' Agreement dated as of December 23, 1993, as amended (the
"STOCKHOLDERS' AGREEMENT"), by and among Alfred A. Checchi, the A Trust
created pursuant to a trust agreement dated May 23, 1984 with Gary L. Wilson
as trustee, the K Trust created pursuant to a trust agreement dated May 23,
1984 with Gary L. Wilson as trustee, the Trust created pursuant to a trust
agreement dated September 9, 1985 with Gary L. Wilson as trustee (each such
trust collectively known as the "CHECCHI FAMILY TRUSTS"; the Checchi Family
Trusts and Alfred A. Checchi together known as the "CHECCHI FAMILY"); Gary L.
Wilson, Derek M. Wilson, Christopher D. Wilson (together the "WILSON FAMILY);
Frederic V. Malek, Frederic W. Malek, Michelle A. Malek (together the "MALEK
FAMILY"); the Wilson-Thornhill Foundation created under the Trust Agreement
dated December 24, 1994; Richard C. Blum & Associates - NWA Partners, L.P.,
("BLUM"); and the Company.
W I T N E S S E T H
WHEREAS, pursuant to the Agreement and Plan of Merger, dated as of
January 25, 1998 (as amended and restated as of October 30, 1998, the "MERGER
AGREEMENT") among the Company, Northwest and Newbridge Merger Corporation, a
wholly owned subsidiary of Northwest, Newbridge Merger Corporation will merge
with and into the Company (the "MERGER"), with the Company as the surviving
corporation, in accordance with Section 251(g) of the General Corporation Law
of the State of Delaware; and
WHEREAS, following the effective time of the Merger, the Company
will be a wholly owned subsidiary of Northwest;
NOW, THEREFORE, Northwest hereby agrees to the following:
1. ACKNOWLEDGMENT. Northwest hereby acknowledges that it has
unconditionally undertaken, assumed and agreed to perform and discharge when
due, to the extent not heretofore performed or discharged, all of the
liabilities and obligations of the Company arising out of the Stockholders'
Agreement. Northwest further agrees that from and after the effective time
of the Merger all references to the "Company" in the Stockholders' Agreement
(other than those references which relate to a time period prior to the
effectiveness of the Merger) shall mean Northwest. This Acknowledgment shall
be binding upon Northwest, its successors and assigns and shall inure to the
benefit of each of the parties to the Stockholders' Agreement.
<PAGE>
2
2. NOTICES. All notices, requests, demands and other
communications which are required or may be given under the Stockholders'
Agreement to the Company shall be delivered to Northwest at 2700 Lone Oak
Parkway, Eagan, Minnesota 55121, attention, Executive Vice President,
General Counsel and Secretary, fax (612) 726-7123.
3. SEVERABILITY. In the event that any one or more of the
provisions, paragraphs, words, clauses, phrases or sentences contained
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision, paragraph, word, clause,
phrase or sentence in every other respect and of the remaining provisions,
paragraphs, words, clauses, phrases or sentences hereof shall not be in any
way impaired, it being intended that this Acknowledgement shall be
enforceable by the parties to the Stockholders' Agreement to the fullest
extent permitted by law.
4. GOVERNING LAW. This Acknowledgement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
applicable to contracts made and to be performed therein. The parties to
this Acknowledgement hereby agree to submit to the non-exclusive jurisdiction
of the courts of the State of New York in any action or proceeding arising
out of or relating to this Acknowledgement.
IN WITNESS WHEREOF, the undersigned has executed this
Acknowledgement or caused this Acknowledgement to be executed on its behalf
as of the date first written above.
NORTHWEST AIRLINES CORPORATION
By: /s/ Douglas M. Steenland
---------------------------------------
Name: Douglas M. Steenland
Title: Executive Vice President,
General Counsel and Secretary
<PAGE>
Exhibit 10.28
ACKNOWLEDGMENT
Acknowledgment (this "ACKNOWLEDGMENT") dated as of November 20,
1998 by Northwest Airlines Corporation (formerly known as Newbridge Parent
Corporation, "NORTHWEST") as successor to Northwest Airlines Holdings
Corporation (formerly known as Northwest Airlines Corporation, the
"COMPANY"), under the First Amended and Restated Common Stock Registration
Rights Agreement (the "REGISTRATION RIGHTS AGREEMENT"), dated as of September
9, 1994 by and among Alfred A. Checchi, the A Trust created pursuant to a
trust agreement dated May 23, 1984 with Gary L. Wilson as trustee, the K
Trust created pursuant to a trust agreement dated May 23, 1984 with Gary L.
Wilson as trustee, the Trust created pursuant to a trust agreement dated
September 9, 1985 with Gary L. Wilson as trustee; Gary L. Wilson, Derek M.
Wilson, Christopher D. Wilson; Frederic V. Malek, Frederic W. Malek, Michelle
A. Malek; Bright Star Investments Limited and its affiliate Paracor Finance
Inc., formerly Wings Acquisition Investor Limited; Bankers Trust New York
Corporation; Koninklijke Luchtvaart Maatschappij N.V.; Richard C. Blum &
Associates - NWA Partners, L.P.; the Air Line Pilots Association,
International, the International Association of Machinists and Aerospace
Workers, the International Brotherhood of Teamsters, the Transport Workers
Union of America, the Airline Technical Support Association, the Northwest
Airlines Meteorologists Association; the trusts and separate arrangements
that are signatories to this Agreement; and the Company.
W I T N E S S E T H
WHEREAS, pursuant to the Agreement and Plan of Merger, dated as of
January 25, 1998 (as amended and restated on October 30, 1998, the "MERGER
AGREEMENT") among the Company, Northwest and Newbridge Merger Corporation, a
wholly owned subsidiary of Northwest, Newbridge Merger Corporation will merge
with and into the Company (the "MERGER"), with the Company as the surviving
corporation, in accordance with Section 251(g) of the General Corporation Law
of the State of Delaware; and
WHEREAS, following the effective time of the Merger, the Company
will be a wholly owned subsidiary of Northwest;
NOW, THEREFORE, Northwest hereby agrees to the following:
1. ACKNOWLEDGMENT. Northwest hereby acknowledges that it has
unconditionally undertaken, assumed and agreed to perform and discharge when
due, to the extent not heretofore performed or discharged, all of the
liabilities and obligations of the Company arising out of the Registration
Rights Agreement. Northwest further agrees that from and after the effective
time of the Merger all references to the "Company" in the Registration Rights
Agreement (other than those references which relate a time period prior to
the effectiveness of the Merger) shall mean Northwest. This Acknowledgment
shall be binding upon
<PAGE>
2
Northwest, its successors and assigns and shall inure to the benefit of each
of the parties to the Registration Rights Agreement.
2. NOTICES. All notices, requests, demands and other
communications which are required or may be given under the Registration
Rights Agreement to the Company shall be delivered to Northwest at 2700 Lone
Oak Parkway, Eagan, Minnesota 55121, attention, Executive Vice President,
General Counsel and Secretary, fax (612) 726-7123.
3. SEVERABILITY. In the event that any one or more of the
provisions, paragraphs, words, clauses, phrases or sentences contained
herein, or the application thereof in any circumstances, is held invalid,
illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision, paragraph, word, clause,
phrase or sentence in every other respect and of the remaining provisions,
paragraphs, words, clauses, phrases or sentences hereof shall not be in any
way impaired, it being intended that this Acknowledgment shall be enforceable
by the parties to the Registration Rights Agreement to the fullest extent
permitted by law.
4. GOVERNING LAW. This Acknowledgment shall be governed by and
construed and enforced in accordance with the laws of the State of New York
applicable to contracts made and to be performed therein. The parties to
this Acknowledgment hereby agree to submit to the non-exclusive jurisdiction
of the courts of the State of New York in any action or proceeding arising
out of or relating to this Acknowledgment.
IN WITNESS WHEREOF, the undersigned has executed this
Acknowledgment or caused this Acknowledgment to be executed on its behalf as
of the date first written above.
NORTHWEST AIRLINES CORPORATION
By: /s/ Douglas M. Steenland
-------------------------------------------
Name: Douglas M. Steenland
Title: Executive Vice President,
General Counsel and Secretary
<PAGE>
NORTHWEST AIRLINES, INC.
FIRST AMENDMENT TO FIRST AMENDED AND RESTATED
AIRPORT AGREEMENT
This First Amendment to the First Amended and Restated Airport
Agreement (this "Amendment") made and enters into this 26th day of June, 1998,
by and betweeen the County of Wayne, a Michigan Charter County, by and
through its Chief Executive Officer, hereinafter referred to as "Lessor", and
Northwest Airlines, Inc., a Minnesota corporation, hereinafter referred to as
"Lessee".
Witnesseth:
WHEREAS, Lessor and Lessee are parties to that certain First Amended
and Restated Airport Agreement dated as of October 10, 1996 (the "First Amended
and Restated Airport Agreement"), which became effective as of December 19,
1997; and
WHEREAS, Lessor and Lessee deem it necessary and advisable to amend
the First Amended and Restated Airport Agreement in certain respects;
NOW, THEREFORE, for and in consideration of the premises and of the
mutual covenants and agreements herein contained, Lessor and Lessee agree as
follows:
Section 1. Subparagraph (2) under the definition of "Revenue
Requirement" in Article IIIB.1 of the First Amended and Restated Airport
Agreement is hereby deleted in its entirety and the following subparagraph (2)
is hereby substituted in lieu thereof:
"(2) one hundred twenty-five percent (125%) of the amount of
principal and interest due (net of any capitalized interest)
for such Fiscal Year on all then outstanding Bonds, less
any unencumbered amounts on deposit in the Revenue Fund on
the last day of the Fiscal Year preceding such Fiscal Year
that are useable to satisfy the rate covenant requirements
of any bond ordinance under which Bonds were issued;
provided that amounts on deposit in the ACE Account that are
transferred to the Revenue Fund in Fiscal Year 1998
pursuant to the requirements of the Bond Ordinance shall be
deemed to have been on deposit in the Revenue Fund on the
last day of Fiscal Year 1997; plus"
Section 2. Subparagraph (4) under the definition of "Revenue
Requirement" in Article IIIB.1 of the First Amended and Restated Airport
Agreement is hereby deleted in its entirety and the following
subparagraph (4) is hereby substituted in lieu thereof:
"(4) commencing in the Fiscal Year 1999, an amount equal to $5
million (which amount shall be escalated each Fiscal Year
beginning in Fiscal Year 2002 to reflect percentage
increases in the Producer Price Index during the most
recently ended 12-month period for which such index is
published) minus the amount, if any, deposited for such
Fiscal Year into the ACE Account; plus"
<PAGE>
Section 3. Subparagraph (4) of Article IIIB.2(a) of the First
Amended and Restated Airport Agreement is hereby deleted in its entirety and
the following subparagraph (4) is hereby substituted in lieu thereof:
"(4) Deposits shall be made into the Bond Reserve Account, the
Operation and Maintenance Reserve Fund and the Renewal and
Replacement Fund pursuant to the provisions of Ordinance
319 and into any other funds for similar purposes established
pursuant to other ordinances under which Bonds are issued;"
Section 4. The defined terms "Subordinate Bond Reserve Account,"
and "Reserve Fund" are hereby deleted from Article XXVIII of the First Amended
and Restated Airport Agreement.
Section 5. Except to the extent amended by this Amendement, the
First Amended and Restated Airport Agreement remains unamended, and shall
become effective as set forth therein.
Section 6. All reference in notices, requests, certificates and
other instruments executed and delivered after the date of effectiveness of
this Amendement may refer to the First Amended and Restated Airport Agreement
without making specific reference to this Amendment, but such reference
nevertheless shall be deemed to include this Amendment unless the context
shall clearly otherwise require.
Section 7. This Amendement may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the day and year first above written.
COUNTY OF WAYNE
CHIEF EXECUTIVE OFFICER
/s/ Edward H. McNamara
-----------------------
Edward M. McNamara
NORTHWEST AIRLINES, INC.
By: /s/ James M. Greenwald
-------------------------
Its: James M. Greenwald, VP
Facilities and Airport Affairs
3
<PAGE>
NORTHWEST AIRLINES, INC
FIRST AMENDMENT TO SECOND AMENDED AND RESTATED
AIRPORT AGREEMENT
This First Amendment to Second Amended and Restated Airport
Agreement (this "Amendment") made and entered into this 23rd day of Sept.,
1997 by and between the County of Wayne, a Michigan Charter County, by and
through its Chief Executive Officer, hereinafter referred to as "Lessor", and
Northwest Airlines, Inc., a Minnesota corporation, hereinafter referred to as
"Lessee".
Witnesseth:
WHEREAS, Lessor and Lessee are parties to that certain Second
Amended and Restated Airport Agreement dated October 10, 1996 (the "Second
Amended and Restated Airport Agreement"), which shall become effective upon
the Date of Beneficial Occupancy of the Midfield Terminal (as such terms are
defined in the Second Amended and Restated Airport Agreement); and
WHEREAS, Lessor and Lessee deem it necessary and advisable to amend
the Second Amended and Restated Airport Agreement in certain respects;
NOW, THEREFORE, for and in consideration of the premises and of the
mutual covenants and agreements herein contained, Lessor and Lessee agree
as follows:
Section 1. Article 1B.3.(b)(iii)(F)(IV) is hereby deleted in its
entirety.
Section 2. Article 1B.3(b)(iii)(I) is hereby deleted in its entirety.
Section 3. Except to the extent amended by this Amendment, the
Second Amended and Restated Airport Agreement remains unamended, and shall
become effective as set forth therein.
Section 4. All references in notices, request, certificates and
other instruments executed and delivered after the date of effectiveness of
this Amendment may refer to the Second Amended and Restated Airport Agreement
without making specific reference to this Amendment, but such reference
nevertheless shall be deemed to include this Amendment unless the context
shall clearly otherwise require.
Section 5. This Amendment may be executed in several counterparts,
each of which shall be an original and all of which shall constitute but one
and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to
be executed as of the day and year first above written.
COUNTY OF WAYNE
CHIEF EXECUTIVE OFFICER
/s/Edward H. McNamara
-----------------------------
Edward H. McNamara
NORTHWEST AIRLINES, INC.
By:/s/Richard H. Anderson
-----------------------------
Richard H. Anderson
Its: Senior Vice President
-----------------------------
Technical Operations and
Airport Affairs
/
<PAGE>
NORTHWEST AIRLINES, INC.
SECOND AMENDMENT TO SECOND AMENDED AND RESTATED
AIRPORT AGREEMENT
This Second Amendment to Second Amended and Restated Airport
Agreement (this "Amendment") made and entered into this 26th day of June,
1998, by and between the County of Wayne, a Michigan Charter County, by and
through its Chief Executive Officer, hereinafter referred to as "Lessor", and
Northwest Airlines, Inc., a Minnesota corporation, hereinafter referred to as
"Lessee".
Witnesseth:
WHEREAS, Lessor and Lessee are parties to that certain Second
Amended and Restated Airport Agreement dated as of October 10, 1996 (the
"Second Amended and Restated Airport Agreement"), as amended, which is
scheduled to become effective upon the Date of Beneficial Occupancy of the
Midfield Terminal (as such terms are defined in the Second Amended and
Restated Airport Agreement); and
WHEREAS, Lessor and Lessee deem it necessary and advisable to amend
the Second Amended and Restated Airport Agreement in certain respects;
NOW, THEREFORE, for and in consideration of the premises and of the
mutual covenants and agreements herein contained, Lessor and Lessee agree as
follows:
Section 1. Subparagraph (2) under the definition of "Revenue
Requirement" in Article IIIB.1 of the Second Amended and Restated Airport
Agreement is hereby deleted in its entirety and the following subparagraph
(2) is hereby substituted in lieu thereof:
"(2) one hundred twenty-five percent (125%) of the amount of
principal and interest due (net of any capitalized interest)
for such Fiscal Year on all then outstanding Bonds, less any
unencumbered amounts on deposit in the Revenue Fund on the
last day of the Fiscal Year preceding such Fiscal Year that
are useable to satisfy the rate covenant requirements of any
bond ordinance under which Bonds were issued; provided that
amounts on deposit in the ACE Account that are transferred to
the Revenue Fund in Fiscal Year 1998 pursuant to the
requirements of the Bond Ordinance shall be deemed to have
been on deposit in the Revenue Fund on the last day of Fiscal
Year 1997; plus"
Section 2. Subparagraph (4) under the definition of "Revenue
Requirement" in Article IIIB.1 of the Second Amended and Restated Airport
Agreement is hereby deleted in its entirety and the following subparagraph
(4) is hereby substituted in lieu thereof:
"(4) commencing in Fiscal Year 1999, an amount equal to $5 million
(which amount shall be escalated each Fiscal Year beginning in
Fiscal Year 2002
<PAGE>
to reflect percentage increases in the Producer Price Index
during the most recently ended 12-month period for which such
index is published) minus the amount, if any, deposited for
such Fiscal Year into the ACE Account; plus"
Section 3. Subparagraph (4) of Article IIIB.2(a) of the Second
Amended and Restated Airport Agreement is hereby deleted in its entirety and
the following subparagraph (4) is hereby substituted in lieu thereof:
"(4) Deposits shall be made into the Bond Reserve Account, the
Operation and Maintenance Reserve Fund and the Renewal and
Replacement Fund pursuant to the provisions of Ordinance 319
and into any other funds for similar purposes established
pursuant to other ordinances under which Bonds are issued;"
Section 4. The defined terms "Subordinate Bond Reserve Account,"
and "Reserve Fund" are hereby deleted from Article XXVIII of the Second
Amended and Restated Airport Agreement.
Section 5. Exhibit G of the Second Amended and Restated Airport
Agreement is hereby deleted in its entirety and Exhibit G attached to this
Amendment is hereby substituted in lieu thereof and shall be incorporated
in the Second Amended and Restated Airport Agreement as though fully set
forth in the Second Amended and Restated Airport Agreement.
Section 6. Except to the extent amended by this Amendment, the
Second Amended and Restated Airport Agreement remains unamended, and shall
become effective as set forth therein.
Section 7. All references in notices, requests, certificates and
other instruments executed and delivered after the date of effectiveness of
this Amendment may refer to the Second Amended and Restated Airport Agreement
without making specific reference to this Amendment, but such reference
nevertheless shall be deemed to include this Amendment unless the context
shall clearly otherwise require.
Section 8. This Amendment may be executed in several
counterparts, each of which shall be an original and all of which shall
constitute but one and the same instrument.
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first above written.
COUNTY OF WAYNE
CHIEF EXECUTIVE OFFICER
/s/ Edward H. McNamara
-----------------------------------
Edward H. McNamara
NORTHWEST AIRLINES, INC.
By: /s/ James M. Greenwald
--------------------------------
JAMES M. GREENWALD, VP
Its: FACILITIES AND AIRPORT AFFAIRS
-------------------------------
3
<PAGE>
Exhibit 10.50
AMENDMENT AND CONSENT
TO FIRST CREDIT AGREEMENT
AMENDMENT AND CONSENT, dated as of November 12, 1998 (this "Amendment
and Consent"), by and among NORTHWEST AIRLINES CORPORATION, a Delaware
corporation ("Holdings"), NWA INC., a Delaware corporation ("NWA"), NORTHWEST
AIRLINES, INC., a Minnesota corporation (the "Borrower"), the lenders from time
to time party to the Credit Agreement described below (each a "Bank" and,
collectively, the "Banks"), ABN AMRO BANK N.V., as compliance agent (the
"Compliance Agent"), BANKERS TRUST COMPANY, as administrative agent (the
"Administrative Agent"), CHASE SECURITIES INC., as syndication agent (the
"Syndication Agent"), CITIBANK, N.A., as documentation agent (the "Documentation
Agent"), and NATIONAL WESTMINSTER BANK PLC and U.S. BANK NATIONAL ASSOCIATION
(f/k/a FIRST BANK NATIONAL ASSOCIATION), as Agents. All capitalized terms used
herein and not otherwise defined herein shall have the respective meanings
provided such terms in the First Credit Agreement referred to below.
W I T N E S S E T H:
WHEREAS, Holdings, NWA, the Borrower, the Compliance Agent, the
Administrative Agent, the Syndication Agent, the Documentation Agent, the other
Agents and the Banks are parties to a Credit Agreement, dated as of December 15,
1995, as amended and restated as of October 16, 1996, as further amended and
restated as of December 29, 1997, as further amended as of January 23, 1998 and
as further amended by the Temporary Amendment described below (as amended,
modified and/or supplemented through the date hereof, the "First Credit
Agreement");
WHEREAS, Holdings, NWA, the Borrower, the Compliance Agent, the
Administrative Agent, the Syndication Agent, the Documentation Agent, the
other Agents and the Banks executed a Temporary Amendment to the First Credit
Agreement dated as of May 12, 1998 (the "Temporary Amendment") pursuant to
which certain provisions of the First Credit Agreement were permanently
amended and certain other provisions of the First Credit Agreement were
temporarily amended;
WHEREAS, Holdings, NWA and the Borrower entered into a Credit
Agreement, dated as of May 12, 1998, as amended as of May 29, 1998, by and among
Holdings, NWA, the Borrower, the lenders from time to time party thereto and The
Chase Manhattan Bank, as agent (as amended, modified and/or supplemented from
time to time by any amendment, modification or supplement, the "Second Credit
Agreement");
<PAGE>
WHEREAS, Holdings, NWA and the Borrower are concurrently herewith
entering into an amendment to the Second Credit Agreement, dated as of the date
hereof, by and among Holdings, NWA, the Borrower, the lenders from time to time
party thereto and The Chase Manhattan Bank, as agent (the "Second Amendment to
the Second Credit Agreement") and an amendment to the Aircraft Mortgage
Agreement (as such term is defined in the Second Credit Agreement) (the
"Amendment to the Second Credit Agreement Aircraft Mortgage");
WHEREAS, the Borrower is concurrently herewith entering into
amendments to the Security Documents;
WHEREAS, the parties hereto wish to amend certain provisions of the
First Credit Agreement, the Temporary Amendment and the Security Documents; and
WHEREAS, the Banks party hereto wish to consent to the Second
Amendment to the Second Credit Agreement and to the Amendment to the Second
Credit Agreement Aircraft Mortgage;
NOW THEREFORE, it is agreed:
1. The First Credit Agreement is amended as follows:
(a) Section 1.08(a) of the First Credit Agreement is hereby amended
by deleting the phrase "at a rate per annum which shall be equal to the Base
Rate" and inserting in lieu thereof the phrase "at a rate per annum which shall
be equal to the sum of 1% plus the Base Rate".
(b) Section 8.06(n) of the First Credit Agreement is hereby amended
by deleting the number "90" appearing therein and inserting the number "180" in
lieu thereof.
(c) Section 10 of the First Credit Agreement is hereby amended by
deleting the definitions of Applicable Eurodollar Margin and Applicable
Commitment Fee Percentage appearing therein and inserting the following new
definitions in lieu thereof:
" 'Amendment to the Second Credit Agreement Aircraft Mortgage'
shall have the meaning provided in the Amendment and Consent to the
Agreement, dated as of November 12, 1998."
" 'Applicable Eurodollar Margin' shall mean 2.000%."
" 'Applicable Commitment Fee Percentage' shall mean, for both
Basic Revolving Loans and Supplemental Revolving Loans, 0.3750%."
" 'Second Amendment to the Second Credit Agreement' shall have
the meaning provided in the Amendment and Consent to the Agreement,
dated as of November 12, 1998."
-2-
<PAGE>
(d) Section 10 of the First Credit Agreement is hereby further
amended by inserting the following text immediately prior to the period
appearing at the end of the definition of Consolidated EBITDAR:
", plus (iv) the following amount for each of the following periods:
<TABLE>
<CAPTION>
PERIOD AMOUNT
- ------------------------------------------------------------------------------
<S> <C>
Second Quarter 1998 $45,000,000
Third Quarter 1998 $672,000,000
Fourth Quarter 1998 an amount equal to the lesser of (x) the sum of the
publicly announced costs relating to the strike by
the Northwest Air Line Pilots Association plus
out-of-period labor costs associated with the
settlement of such strike for the fourth quarter of
1998 and (y) $378,000,000
First Quarter 1999 an amount equal to the lesser of (x) the sum of the
publicly announced costs relating to the strike by
the Northwest Air Line Pilots Association plus
out-of-period labor costs associated with the
settlement of such strike for the first quarter of
1999 and (y) $75,000,000".
</TABLE>
2. The Temporary Amendment is amended as follows:
(a) The fourth recital of the Temporary Amendment is hereby amended
by inserting the phrase "subject to paragraph 3 hereof," after the word "(B)"
appearing therein.
(b) The introductory language to paragraph 2 of the Temporary
Amendment is hereby amended by deleting the phrase ", but in each case only
until the Temporary Amendment Expiry Date" appearing therein and inserting in
lieu thereof the phrase ", but in each case, subject to the provisions of
paragraph 3 hereof, only until the Temporary Amendment Expiry Date".
(c) Paragraph 2(a) of the Temporary Amendment is hereby deleted in
its entirety and "(a) INTENTIONALLY OMITTED." Inserted in lieu thereof.
(d) Paragraph 2(u) of the Temporary Amendment is hereby amended by
(i) deleting the words "Applicable Eurodollar Margin, Applicable Commitment Fee
Percentage," appearing therein and (ii) deleting the definitions of "Applicable
Eurodollar Margin" and "Applicable Commitment Fee Percentage" set forth therein.
-3-
<PAGE>
(e) Paragraph 3 of the Temporary Amendment is hereby amended by
inserting at the end thereof the following phrase:
"Notwithstanding anything in this Amendment to the contrary, the
Temporary Amendment Expiry Date shall not be deemed to have
occurred with respect to any of the amendments referred to in
paragraph 2 hereof, other than those amendments referred to in
paragraphs 2(g), 2(m)(iv) and (v), 2(o), 2(p), 2(q) and 2(r), and
the Collateral Agent shall not release its security interest in the
Collateral, unless and until:
(a) (i) no "Revolving Loans" and no "Revolving Notes" (in each
case as defined in the Second Credit Agreement) are
outstanding, (ii) all "Obligations" (as defined in the Second
Credit Agreement) have been repaid in full and (iii) the "Total
Revolving Loan Commitment" (as defined in the Second Credit
Agreement) has been terminated in full;
(b) no Default or Event of Default shall have occurred and be
continuing;
(c) the senior unsecured debt rating of the Borrower (without
any credit enhancements of any type and based upon an actual
issuance of senior unsecured debt and not upon an "implied
rating") as rated by Standard and Poor's Rating Services
("S&P") is no less than "BB" and as rated by Moody's Investor
Services, Inc. ("Moody's") is no less than "Ba2"; and
(d) the sum of (x) unrestricted cash and cash equivalents and
(y) unrestricted short term investments of Holdings and its
Subsidiaries all as determined on a consolidated basis in
accordance with GAAP and as certified to the Banks by Holdings'
treasurer or chief financial officer, and (z) the Total
Unutilized Basic Revolving Loan Commitment and the Total
Unutilized Supplemental Revolving Loan Commitment exceeds
$1,000,000,000.
3. Section 8.13 of the First Credit Agreement is hereby amended by
adding the following proviso at the end thereof:
"; provided, however, the Borrower shall be permitted to enter into
the Second Amendment to the Second Credit Agreement and the Amendment to
the Second Credit Agreement Aircraft Mortgage"
4. The undersigned Banks consent to and authorize the Collateral
Agent to enter into amendments to the Aircraft Mortgage Agreement and the Slot
Security Agreement in substantially the form attached hereto as Attachments I
and II.
5. This Amendment and Consent is limited precisely as written and
shall not be deemed to be a modification, acceptance or waiver of any other
term, condition or provision of the First Credit Agreement, the other Credit
Documents, the Temporary Amendment or any of the instruments or agreements
referred to therein.
-4-
<PAGE>
6. In order to induce the Compliance Agent, the Administrative
Agent, the Syndication Agent, the Documentation Agent, the other Agents and the
Banks to enter into this Amendment and Consent, each of Holdings, NWA and the
Borrower hereby represents and warrants that (x) no Default or Event of Default
shall exist on the Effective Date both before and after giving effect to this
Amendment and Consent and (y) all of the representations and warranties
contained in the Credit Documents shall be true and correct in all material
respects on the Effective Date both before and after giving effect to this
Amendment and Consent with the same effect as though such representations and
warranties had been made on and as of the Effective Date (it being understood
that any representation or warranty made as of a specific date shall be true and
correct in all material respects as of such specific date).
7. This Amendment and Consent shall become effective as of the date
first written above (the "Effective Date") when each of the following conditions
has been met (provided that if all such conditions have not been so met by
November 16, 1998, then this Amendment and Consent will not become effective):
(i) the representations of Holdings, NWA and the Borrower set
forth in paragraph 6 above shall be true and correct in all material
respects;
(ii) each of Holdings, NWA, the Borrower and the Required Banks
shall have duly executed a counterpart hereof (whether the same or
different counterparts) and shall have delivered (including by way of
facsimile transmission) the same to the Administrative Agent at its
Notice Office;
(iii) there shall have been delivered to each of the Agents and
each of the Banks a true and complete copy of the Second Amendment to the
Second Credit Agreement and the Amendment to the Second Credit Agreement
Aircraft Mortgage which shall be in form and substance satisfactory to the
Agents and the Required Banks; PROVIDED, that unless the Administrative
Agent has received actual notice from another Agent or a Bank signatory
hereto that the condition contained in this clause (iii) has not been met
to its satisfaction, upon delivery of such Agent's or Bank's signature page
to this Amendment and Consent in accordance with clause (ii) above, the
condition contained in this clause (iii) shall be deemed to have been met
to such Agent's or Bank's satisfaction;
(iv) the "Second Amendment Effective Date" (as defined in the
Second Amendment to the Second Credit Agreement) shall have occurred;
(v) the Borrower shall have paid to the Agents and Banks all
costs, fees and expenses (including, without limitation, legal fees and
expenses) payable to the Agents and the Banks to the extent then due and
payable; and
(vi) the Borrower shall have duly authorized, executed and
delivered (I) an amendment to the Aircraft Mortgage Agreement in the form
of Attachment I to this Amendment and Consent and (II) an amendment to the
Slot Security Agreement in the form of Attachment II to this Amendment and
Consent and the Banks shall have received a legal opinion from counsel, and
in form and substance, satisfactory to the Administrative
-5-
<PAGE>
Agent to the effect that the perfection and priority of the security
interests granted pursuant to the Aircraft Mortgage Agreement and the
Slot Security Agreement are not affected by the amendments thereto.
8. This Amendment and Consent may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which counterparts when executed and delivered shall be an original, but all
of which shall together constitute one and the same instrument. A complete set
of counterparts shall be lodged with the Borrower and each Agent.
9. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
10. From and after the Effective Date, all references in the Credit
Agreement, each of the Credit Documents and the Temporary Amendment to the
Credit Agreement, any Credit Document or the Temporary Amendment shall be deemed
to be references to such Credit Agreement, such Credit Document or such
Temporary Amendment as amended hereby.
* * * *
-6-
<PAGE>
Exhibit 10.50
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.
NORTHWEST AIRLINES CORPORATION
By: /s/ Rolf S. Andresen
------------------------------------
Name: Rolf S. Andresen
Title: Vice President Finance
and Chief Accounting Officer
NWA INC.
By: /s/ Rolf S. Andresen
------------------------------------
Name: Rolf S. Andresen
Title: Vice President Finance
and Chief Accounting Officer
NORTHWEST AIRLINES, INC.
By: /s/ Rolf S. Andresen
------------------------------------
Name: Rolf S. Andresen
Title: Vice President Finance
and Chief Accounting Officer
NORTHWEST AIRLINES CORPORATION
f/k/a Newbridge Parent Corporation
By: /s/ Robert H. Nazarian
------------------------------------
Name: Robert H. Nazarian
Title: Treasurer
ABN AMRO BANK N.V.,
CHICAGO BRANCH,
Individually and as Compliance Agent
By: /s/ Lukas van der Hoef
------------------------------------
Name: Lukas van der Hoef
Title: Vice President
<PAGE>
By: /s/ Carla S. Waggoner
------------------------------------
Name: Carla S. Waggoner
Title: Assistant Vice President
BANKERS TRUST COMPANY,
Individually and as Administrative
Agent
By: /s/ Robert R. Telesca
------------------------------------
Name: Robert R. Telesca
Title: Assistant Vice President
PARIBAS
By: /s/ Chuck Irwin
------------------------------------
Name: Chuck Irwin
Title: Vice President
By: /s/ Larry Robinson
------------------------------------
Name: Larry Robinson
Title: Vice President
CHASE SECURITIES INC.,
as Syndication Agent
By: /s/ Donald S. Shokrian
------------------------------------
Name: Donald S. Shokrian
Title: Vice President
Global Aerospace Group
<PAGE>
CITIBANK, N.A.,
as Documentation Agent
By: /s/ Thomas Boyle
------------------------------------
Name: Thomas Boyle
Title: Managing Director-Global
Aviation
NATIONAL WESTMINSTER BANK PLC,
NEW YORK BRANCH
Individually and as an Agent
By: /s/ Simon Clark
------------------------------------
Name: Simon Clark
Title: Vice President
NATIONAL WESTMINSTER BANK PLC, NASSAU
BRANCH,
Individually and as an Agent
By: /s/ Simon Clark
------------------------------------
Name: Simon Clark
Title: Vice President
U.S. BANK NATIONAL ASSOCIATION
Individually and as an Agent
By: /s/ Mark R. Olmon
------------------------------------
Name: Mark R. Olmon
Title: Senior Vice President
<PAGE>
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION
By: /s/ R. Guy Stapleton
------------------------------------
Name: R. Guy Stapleton
Title: Managing Director
THE BANK OF TOKYO-MITSUBISHI, LTD.
CHICAGO BRANCH
By: /s/ Jeffrey R. Arnold
------------------------------------
Name: Jeffrey R. Arnold
Title: Vice President and Manager
BANQUE NATIONALE DE PARIS
By: /s/ Jo Ellen Bender
------------------------------------
Name: Jo Ellen Bender
Title: Senior Vice President and
Manager
CANADIAN IMPERIAL BANK OF COMMERCE
By: /s/ E. Lindsay Gordon
------------------------------------
Name: E. Lindsay Gordon
Title: Executive Director
CIBC Oppenheimer Corp.,
as Agent
<PAGE>
CHANG HWA COMMERCIAL BANK, LTD., NEW
YORK BRANCH
By: /s/ Wan-Tu Yeh
------------------------------------
Name: Wan-Tu Yeh
Title: Vice President and
General Manager
THE CHASE MANHATTAN BANK
By: /s/ Matthew H. Massie
------------------------------------
Name: Matthew H. Massie
Title: Vice President
Global Aerospace and Shipping
CHIAO TUNG BANK CO., LTD. NEW YORK
AGENCY
By: /s/ Kuang-Si Shin
------------------------------------
Name: Kuang-Si Shin
Title: Senior Vice President
to General Manager
CHRISTIANIA BANK OG KREDITKASSE ASA,
NEW YORK BRANCH
By: /s/Hans Chr. Kjelsrud
------------------------------------
Name: Hans Chr. Kjelsrud
Title: Senior Vice President
By: /s/ Martin Lunder
------------------------------------
Name: Martin Lunder
Title: Senior Vice President
<PAGE>
CREDIT LYONNAIS
NEW YORK BRANCH
By: /s/ Phillipe Soustra
------------------------------------
Name: Phillipe Soustra
Title: Senior Vice President
CREDIT SUISSE FIRST BOSTON
By: /s/ William S. Lutkins
------------------------------------
Name: William S. Lutkins
Title: Vice President
By: /s/ Thomas G. Muoio
------------------------------------
Name: Thomas G. Muoio
Title: Vice President
DAI-ICHI KANGYO BANK, LTD., CHICAGO
BRANCH
By: /s/ N. Fukatsu
------------------------------------
Name: N. Fukatsu
Title: Vice President
THE FUJI BANK, LIMITED
By: /s/ Peter L. Chinnici
------------------------------------
Name: Peter L. Chinnici
Title: Joint General Manager
<PAGE>
HAMBURISCHE LANDESBANK--GIROZENTRALE
By:
------------------------------------
Name:
Title:
LANDESBANK Berlin--GIROZENTRALE
By: /s/ Peter Storey
------------------------------------
Name: Peter Storey
Title: Senior Vice President
By: /s/ Rudolf Schmidt
------------------------------------
Name: Rudolf Schmidt
Title: Vice President
THE MITSUBISHI TRUST AND BANKING
CORPORATION, NEW YORK BRANCH
By: /s/ Scott J. Paige
------------------------------------
Name: Scott J. Paige
Title: Senior Vice President
ROYAL BANK OF CANADA
By: /s/ Michael J. Madnick
------------------------------------
Name: Michael J. Madnick
Title: Senior Manager
<PAGE>
THE SAKURA BANK, LTD.
By: /s/ Yoshikazu Nagura
------------------------------------
Name: Yoshikazu Nagura
Title: Vice President
THE SANWA BANK, LIMITED
By: /s/ Michael J. Lawrence
------------------------------------
Name: Michael J. Lawrence
Title: Senior Vice President
THE SUMITOMO BANK, LIMITED, CHICAGO
BRANCH
By: /s/ John H. Kemper
------------------------------------
Name: John H. Kemper
Title: Senior Vice President
THE SUMITOMO TRUST AND BANKING CO., LTD.
By: /s/ Eleanor Chan
------------------------------------
Name: Eleanor Chan
Title: Manager and Vice President
<PAGE>
AMENDMENT
TO CREDIT AGREEMENT
AMENDMENT TO CREDIT AGREEMENT, dated as of January 27, 1999 (this
"Amendment"), by and among NORTHWEST AIRLINES CORPORATION, a Delaware
corporation formerly known as Newbridge Parent Corporation ("Newco"), NORTHWEST
AIRLINES HOLDINGS CORPORATION, a Delaware corporation formerly known as
Northwest Airlines Corporation ("Holdings"), NWA INC., a Delaware corporation
("NWA"), NORTHWEST AIRLINES, INC., a Minnesota corporation (the "Borrower"), the
lenders from time to time party to the Credit Agreement described below (each a
"Bank" and, collectively, the "Banks"), ABN AMRO BANK N.V., as compliance agent
(the "Compliance Agent"), BANKERS TRUST COMPANY, as administrative agent (the
"Administrative Agent"), CHASE SECURITIES INC., as syndication agent (the
"Syndication Agent"), CITIBANK, N.A., as documentation agent (the "Documentation
Agent"), and NATIONAL WESTMINSTER BANK PLC and U.S. BANK NATIONAL ASSOCIATION
(f/k/a FIRST BANK NATIONAL ASSOCIATION), as Agents. All capitalized terms used
herein and not otherwise defined herein shall have the respective meanings
provided such terms in the Credit Agreement referred to below.
W I T N E S S E T H:
WHEREAS, Newco, Holdings, NWA, the Borrower, the Compliance Agent, the
Administrative Agent, the Syndication Agent, the Documentation Agent, the other
Agents and the Banks are parties to a Credit Agreement, dated as of December 15,
1995, as amended and restated as of October 16, 1996, as further amended and
restated as of December 29, 1997, as further amended as of January 23, 1998, as
further amended as of May 12, 1998 (the "Temporary Amendment") and as further
amended as of November 12, 1998 (as amended, modified and/or supplemented
through the date hereof, the "Credit Agreement");
WHEREAS, Newco, Holdings, NWA, the Borrower and Northwest Airlines
Holding Corporation intend to amend and restate the Credit Agreement dated as of
May 12, 1998, among Newco, Holdings, NWA, the Borrower, the lenders from time to
time party thereto and The Chase Manhattan Bank , as agent, pursuant to an
Amended and Restated Credit Agreement to be dated on or about February 9, 1999,
by and among Newco, Holdings, NWA, the Borrower, the lenders from time to time
party thereto and Bankers Trust Company, as syndication agent and The Chase
Manhattan Bank, as administrative agent (as hereafter amended, modified and/or
supplemented from time to time by any amendment, modification or supplement, the
"New Credit Agreement");
WHEREAS, the parties hereto wish to consent to Newco, Holdings, NWA
and the Borrower entering into the New Credit Agreement;
NOW THEREFORE, it is agreed:
<PAGE>
1. Section 8 of the Credit Agreement is hereby amended by deleting
Section 8.14 in its entirety and inserting in lieu thereof the words
"Intentionally Omitted."
2. Section 2(w) of the Temporary Amendment is hereby amended by
deleting the definition of New Credit Agreement appearing therein and inserting
the following new definition in lieu thereof:
" 'New Credit Agreement' shall mean an amendment and restatement
to the credit agreement, dated as of May 12, 1998, among Newco,
Holdings, NWA, the Borrower, the lenders from time to time party
thereto and The Chase Manhattan Bank, as agent, to be dated as of
approximately February 9, 1999, by and among Newco, Holdings, NWA,
the Borrower, the lenders from time to time party thereto and Bankers
Trust Company, as syndication agent, and The Chase Manhattan Bank, as
administrative agent, as amended, modified and/or supplemented from
time to time, which amended and restated credit agreement shall be on
substantially the terms and conditions set forth on Exhibit A hereto
and otherwise on terms and conditions satisfactory to the
Administrative Agent."
3. The Temporary Amendment is hereby amended by deleting the date
"May 12, 1999" in each place it appears and inserting in lieu thereof the phrase
"the date occurring 364 days after the Effective Date under, and as defined in,
the New Credit Agreement as in effect on the date on which the New Credit
Agreement is originally executed."
4. This Amendment is limited precisely as written and shall not be
deemed to be a modification, acceptance or waiver of any other term, condition
or provision of the Credit Agreement, the other Credit Documents or any of the
instruments or agreements referred to therein.
5. In order to induce the Compliance Agent, the Administrative
Agent, the Syndication Agent, the Documentation Agent, the other Agents and the
Banks to enter into this Amendment, each of Newco, Holdings, NWA and the
Borrower hereby represents and warrants that (x) no Default or Event of Default
exists on the Effective Date both before and after giving effect to this
Amendment and (y) all of the representations and warranties contained in the
Credit Documents shall be true and correct in all material respects on the
Effective Date both before and after giving effect to this Amendment with the
same effect as though such representations and warranties had been made on and
as of the Effective Date (it being understood that any representation or
warranty made as of a specific date shall be true and correct in all material
respects as of such specific date).
6. This Amendment shall become effective as of the date first
written above (the "Effective Date") when each of Newco, Holdings, NWA, the
Borrower and the Required Banks shall have duly executed a counterpart hereof
(whether the same or different counterparts) and shall have delivered (including
by way of facsimile transmission) the same to the Administrative Agent at its
Notice Office.
-2-
<PAGE>
7. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and each Agent.
8. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
9. From and after the Effective Date all references in the Credit
Agreement and each of the Credit Documents to the Credit Agreement or any Credit
Document shall be deemed to be references to such Credit Agreement or such
Credit Document as amended hereby.
* * * *
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Amendment to be duly executed and delivered as of the date
first above written.
NORTHWEST AIRLINES CORPORATION
f/k/a Newbridge Parent Corporation
By: /s/ Rolf S. Andresen
-------------------------------------
Name: Rolf S. Andresen
Title: Vice President and Chief
Accounting Officer
NORTHWEST AIRLINES HOLDINGS CORPORATION
f/k/a Northwest Airlines Corporation
By: /s/ Rolf S. Andresen
-------------------------------------
Name: Rolf S. Andresen
Title: Vice President and Chief
Accounting Officer
NWA INC.
By: /s/ Rolf S. Andresen
-------------------------------------
Name: Rolf S. Andresen
Title: Vice President and Chief
Accounting Officer
<PAGE>
NORTHWEST AIRLINES, INC.
By: /s/ Mark D. Powers
-------------------------------------
Name: Mark D. Powers
Title: Vice President-Finance
ABN AMRO BANK N.V.,
CHICAGO BRANCH,
Individually and as Compliance Agent
By: /s/ John E. Lewis
-------------------------------------
Name: John E. Lewis
Title: Senior Vice President
By: /s/ Claudia C. Heldring
-------------------------------------
Name: Claudia C. Heldring
Title: Vice President
BANKERS TRUST COMPANY,
Individually and as Administrative Agent
By: /s/ Calli S. Hayes
-------------------------------------
Name: Calli S. Hayes
Title: Managing Director
<PAGE>
CHASE SECURITIES INC.,
as Syndication Agent
By: /s/ Donald S. Shokrian
-------------------------------------
Name: Donald S. Shokrian
Title: Vice President
Global Aerospace Group
CITIBANK, N.A.,
as Documentation Agent
By: /s/ Thomas Boyle
-------------------------------------
Name: Thomas Boyle
Title: Managing Director-
Global Aviation
NATIONAL WESTMINSTER BANK PLC,
NEW YORK BRANCH,
Individually and as an Agent
By: /s/ Simon Clark
-------------------------------------
Name: Simon Clark
Title: Regional Financial Officer
NATIONAL WESTMINSTER BANK PLC,
NASSAU BRANCH,
Individually and as an Agent
By: /s/ Simon Clark
-------------------------------------
Name: Simon Clark
Title: Regional Financial Officer
<PAGE>
U.S. BANK NATIONAL ASSOCIATION
Individually and as an Agent
By: /s/ Mark R. Olmon
-------------------------------------
Name: Mark R. Olmon
Title: Senior Vice President
BANK OF AMERICA NATIONAL TRUST &
SAVINGS ASSOCIATION
By:
-------------------------------------
Name:
Title:
THE BANK OF TOKYO-MITSUBISHI, LTD.
CHICAGO BRANCH
By:
-------------------------------------
Name:
Title:
BANQUE NATIONALE DE PARIS
By:
-------------------------------------
Name:
Title:
<PAGE>
CHANG HWA COMMERCIAL BANK, LTD.,
NEW YORK BRANCH
By: /s/ Wan-Tu Yeh
-------------------------------------
Name: Wan-Tu Yeh
Title: Vice President &
General Manager
THE CHASE MANHATTAN BANK
By: /s/ Matthew H. Massie
-------------------------------------
Name: Matthew H. Massie
Title: Vice President
Global Aerospace
and Shipping
CHIAO TUNG BANK CO., LTD. NEW YORK AGENCY
By: /s/ Kuang-Si Shiu
-------------------------------------
Name: Kuang-Si Shiu
Title: Senior Vice President &
General Manager
CHRISTIANIA BANK OG KREDITKASSE ASA,
NEW YORK BRANCH
By:
-------------------------------------
Name:
Title:
By:
-------------------------------------
Name:
Title:
<PAGE>
Canadian Imperial Bank of Commerce
By: /s/ E. Lindsay Gordon
-------------------------------------
Name: E. Lindsay Gordon,
Title: Executive Director
CIBC Oppenheimer Corp.,
As Agent
CREDIT LYONNAIS
NEW YORK BRANCH
By: /s/ Pascal Poupelle
-------------------------------------
Name: Pascal Poupelle
Title: Executive Vice President
CREDIT SUISSE FIRST BOSTON
By: /s/ Robert N. Finney
-------------------------------------
Name: Robert N. Finney
Title: Managing Director
By: /s/ William S. Lutkins
-------------------------------------
Name: William S. Lutkins
Title: Vice President
<PAGE>
DAI-ICHI KANGYO BANK, LTD., CHICAGO
BRANCH
By: /s/ N. Fukatsu
-------------------------------------
Name: N. Fukatsu
Title: Vice President
THE FUJI BANK, LIMITED
By: /s/ Peter L. Chinnici
-------------------------------------
Name: Peter L. Chinnici
Title: Joint General Manager
LANDESBANK BERLIN--GIROZENTRALE
By: /s/ Peter Storey
-------------------------------------
Name: Peter Storey
Title: Senior Vice President
By: /s/ Rudolf Schmidt
-------------------------------------
Name: Rudolf Schmidt
Title: Vice President
<PAGE>
THE MITSUBISHI TRUST AND BANKING
CORPORATION, NEW YORK BRANCH
By: /s/ Scott J. Paige
-------------------------------------
Name: Scott J. Paige
Title: Senior Vice President
PARIBAS
By:
-------------------------------------
Name:
Title:
ROYAL BANK OF CANADA
By: /s/ Michael J. Madnick
-------------------------------------
Name: Michael J. Madnick
Title: Senior Manager
THE SAKURA BANK, LTD.
By:
-------------------------------------
Name:
Title:
<PAGE>
THE SANWA BANK, LIMITED
By:
-------------------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED,
CHICAGO BRANCH
By: /s/ John H. Kemper
-------------------------------------
Name: John H. Kemper
Title: Senior Vice President
THE SUMITOMO TRUST AND BANKING
CO., LTD.
By: /s/ Eleanor Chan
-------------------------------------
Name: Eleanor Chan
Title: Senior Vice President
and Manager
MORGAN STANLEY
By:
-------------------------------------
Name:
Title:
<PAGE>
Exhibit 10.53
ATTACHMENT I
to Amendment and Consent
to First Credit Agreement
FIRST AMENDMENT
TO FIRST AIRCRAFT MORTGAGE AND SECURITY AGREEMENT
FIRST AMENDMENT TO AIRCRAFT MORTGAGE AND SECURITY AGREEMENT (this
"Amendment"), dated as of November 12, 1998, by and between NORTHWEST AIRLINES,
INC., a Minnesota corporation (together with its successors and permitted
assigns, the "Company") and BANKERS TRUST COMPANY, as Collateral Agent (the
"Collateral Agent"). All capitalized terms used herein and not otherwise
defined shall have the respective meanings provided to such terms in the
Aircraft Mortgage and Security Agreement referred to below.
W I T N E S S E T H :
WHEREAS, Northwest Airlines Corporation, a Delaware corporation, NWA
Inc., a Delaware corporation, the Company, the Banks (as defined in the First
Credit Agreement), ABN Amro Bank N.V., as Compliance Agent, Bankers Trust
Company, as Administrative Agent, Chase Securities Inc., as Syndication Agent,
Citibank N.A., as Documentation Agent, and National Westminster Bank Plc and
U.S. Bank National Association, as Agents are parties to a Credit Agreement
dated as of December 15, 1995, as amended and restated as of October 16, 1996,
as further amended and restated as of December 29, 1997, as further amended as
of January 23, 1998 and as further amended on May 12, 1998 (as amended, modified
and/or supplemented through the date hereof, the "First Credit Agreement");
WHEREAS, the Company and the Collateral Agent, for the benefit of the
Banks and the Administrative Agent under, and any other lender from time to time
party to, the First Credit Agreement, are parties to an Aircraft Mortgage and
Security Agreement dated as of May 12, 1998 (as amended, modified and/or
supplemented through the date hereof, the "First Aircraft Mortgage Agreement");
WHEREAS, the parties hereto wish to amend certain provisions of the
First Aircraft Mortgage Agreement as herein provided;
NOW, THEREFORE, it is agreed:
1. Section 3.4 of the First Aircraft Mortgage Agreement is hereby
amended by inserting the following new Section 3.4(f) immediately after Section
3.4(e) appearing therein:
"(f) SUBSTITUTION OF AIRCRAFT.
(I) The Company shall have the right at its option at any time,
on at least five (5) Business Days' prior written notice to the Collateral
Agent, to substitute for one or more Aircraft one or more Replacement
Aircraft so long as on the date of such replacement no Event of Default
shall have occurred and be continuing, such Replacement
<PAGE>
Aircraft are free and clear of all Liens except Permitted Liens and the
aggregate appraised value (as determined by an appraisal, dated not
more than ten Business Days prior to the date of such substitution, by
an independent appraisal firm satisfactory, at the time of such
appraisal, to the Collateral Agent setting forth the fair market value,
as determined in accordance with the definition of "fair market value"
promulgated by the International Society of Transport Aircraft Trading,
as of the date of such appraisal, of the Replacement Aircraft) of the
Replacement Aircraft shall be not less than the aggregate Appraised
Value of the Aircraft for which the Replacement Aircraft are being
substituted (as determined in accordance with the most recent Appraisal
of such Aircraft).
(II) Upon the Company having provided Replacement Aircraft as
provided for in Section 3.4(f)(I) above, the Lien of this Mortgage shall
continue with respect to such Replacement Aircraft as though no
substitution had occurred; the Collateral Agent shall, at the cost and
expense of the Company, release from the Lien of this Mortgage the replaced
Aircraft upon the occurrence of the substitution by executing and
delivering to the Company such documents and instruments, prepared at the
Company's expense, as the Company may reasonably request to evidence such
release.
(III) CONDITIONS TO AIRCRAFT SUBSTITUTION:
(i) The Company's right to make a substitution under Section
3.4(f)(I) hereof shall be subject to the fulfillment, at the Company's
sole cost and expense and in addition to the conditions contained in
such Section 3.4(f)(I), of the following conditions precedent:
(A) a Mortgage Supplement covering the Replacement Aircraft
(filed for recording pursuant to the Federal Aviation Act, or the
applicable laws, rules and regulations of any other jurisdiction
in which the relevant Aircraft may then be registered as
permitted hereby);
(B) an appraisal for the Replacement Aircraft satisfying
the requirements of Section 3.4(f)(I);
(C) such Uniform Commercial Code financing statements
covering the Lien created by this Mortgage as deemed necessary or
desirable by counsel for the Collateral Agent to protect the
security interests of the Collateral Agent in the Replacement
Aircraft; and
(ii) The Collateral Agent shall have received from the Company
such documents and evidence with respect to the Company as the
Collateral Agent may reasonably request in order to establish the
consummation of the transactions contemplated by this Section 3.4(f),
evidence of taking of all necessary corporate action in connection
therewith and compliance with the conditions set forth in this Section
3.4(f), in each case in form and substance reasonably satisfactory to
the Collateral Agent;
(iii) The Company shall cause the Replacement Aircraft to be
subject to the Lien of this Mortgage, free and clear of Liens (other
than Permitted Liens);
(iv) The Replacement Aircraft shall have been duly certified
by the FAA
2
<PAGE>
or the relevant body or agency of the jurisdiction then
applicable to the registration of the Aircraft to be replaced as to
type and airworthiness in accordance with the terms of this Mortgage,
and the registration of the Replacement Aircraft in the name of the
Company (or any Lessee as lessee if the Aircraft to be replaced had
been so registered immediately prior to such substitution) shall have
been duly made with the FAA or the relevant body or agency of the
jurisdiction then applicable to the registration of the Airframe to be
replaced;
(v) The Collateral Agent shall have received evidence
satisfactory to it with respect to the matters covered by
subparagraphs (iii) and (iv) above;
(vi) The Collateral Agent shall, at the expense of the Company,
have received (A) an opinion addressed to the Collateral Agent,
reasonably satisfactory in form and substance to the Collateral Agent,
from Cadwalader, Wickersham & Taft or other counsel selected by the
Company and reasonably satisfactory to the Collateral Agent to the
effect that (x) the Replacement Aircraft, has or have been made
subject to the Lien of this Mortgage and (y) all required action has
been taken in order to maintain, and such action shall maintain, the
effectiveness and priority of the interests in the Collateral which
the Mortgage purports to create and (B) an opinion of qualified FAA
counsel or, if applicable, qualified local counsel in the jurisdiction
where the Aircraft to be replaced is registered, in either case
addressed to the Collateral Agent and in form and substance
satisfactory to the Collateral Agent, respecting the due recordation
of the Mortgage Supplement as a first priority Lien respecting such
Replacement Aircraft, the registration of the ownership thereof and
freedom from Liens of record (other than Permitted Liens);
(vii) The Company shall have delivered to the Collateral
Agent (A) a copy of the original bill of sale respecting such
Replacement Aircraft, and (B) appropriate instruments assigning to the
Collateral Agent the benefits, if any, of all manufacturer's and
vendor's warranties generally available and permitted to be assigned
by the Company with respect to such Replacement Aircraft.
(viii) The Collateral Agent shall have received evidence
satisfactory to the Collateral Agent as to the due compliance with
Section 3.6 hereof with respect to the Replacement Aircraft; and
(ix) The following statement shall be true and the Collateral
Agent shall have received an Officer's Certificate of the Company,
dated the date of such substitution, stating that each of the
conditions specified in this paragraph (III) with respect to such
Replacement Aircraft, and any comparable provisions of any lease
permitted hereby to which such Aircraft is subject, have been
satisfied."
2. Section 7.12(a) of the First Aircraft Mortgage Agreement is
hereby amended by deleting the last sentence thereof and inserting in lieu
thereof the following new sentence:
"As used in this Mortgage, "Termination Date" shall mean the
earlier to occur of (x) the Temporary Amendment Expiry Date which
shall only be deemed to occur if the conditions set forth in paragraph
3 of the Temporary Amendment as
3
<PAGE>
such paragraph 3 is amended by the Amendment and Consent to the
Credit Agreement, dated as of November 12, 1998 are satisfied and
(y) the first date upon which the Total Commitment and all Letters
of Credit have been terminated, no Note is outstanding (and all
Loans have been paid in full) and all other Obligations then owing
have been paid in full."
3. Appendix A to the First Aircraft Mortgage Agreement is hereby
amended by deleting the definitions of Aircraft, Airframe and Replacement
Airframe appearing therein and inserting the following new definitions in lieu
thereof:
" 'Aircraft' means each of the Airframes (or any airframes which
are part of any Replacement Aircraft substituted therefor pursuant to
Section 3.4 or 3.5 of the Mortgage) together with the Engines (if any)
installed thereon (or any Replacement Engines substituted for said Engines
pursuant to Section 3.4 of the Mortgage), whether or not any of such
initial or substitute Engines may from time to time be installed on such
Airframe or may be installed on any other airframe or on any other
aircraft."
" 'Airframes' means each of the airframes described in Section
2.1(a) of the Mortgage together with any and all Parts (other than Engines
or engines), and any airframes which are part of any Replacement Aircraft
that may from time to time be substituted pursuant to Section 3.4 or 3.5 of
the Mortgage; so long as the same shall be incorporated or installed
therein or attached thereto."
" 'Replacement Airframe' means an aircraft (except Engines or
engines from time to time installed thereon) which shall have been made
subject to the Lien of the Mortgage pursuant to Section 3.4 or 3.5
thereof."
4. This Amendment is limited precisely as written and shall not be
deemed to be a modification, acceptance or waiver of any other term, condition
or provision of the First Aircraft Mortgage Agreement or any of the instruments
or agreements referred to therein.
5. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Agent.
6. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
7. This Amendment shall become effective for all purposes on the
date (the "Amendment Effective Date") when the Company and the Collateral Agent
shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Collateral Agent at its Notice Office.
8. From and after the Amendment Effective Date all references in any
Credit Document to the First Aircraft Mortgage Agreement shall be deemed to be
references to such First Aircraft Mortgage Agreement as amended hereby.
* * *
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amendment to the First Aircraft
Mortgage Agreement as of the date first above written.
NORTHWEST AIRLINES, INC.
By: /s/ Rolf S. Andresen
------------------------------------
Name: Rolf S. Andresen
Title: Vice President Finance and
Chief Accounting Officer
<PAGE>
BANKERS TRUST COMPANY
as Collateral Agent
By: /s/ Robert R. Telesca
------------------------------------
Name: Robert R. Telesca
Title: Assistant Vice President
<PAGE>
Exhibit 10.55
ATTACHMENT II
to Amendment and Consent
to First Credit Agreement
FIRST AMENDMENT
TO SLOT SECURITY AGREEMENT
FIRST AMENDMENT TO SLOT SECURITY AGREEMENT (this "Amendment"), dated
as of November 12, 1998, by and between NORTHWEST AIRLINES, INC., a Minnesota
corporation (together with its successors and permitted assigns, the "Pledgor")
and BANKERS TRUST COMPANY, as Collateral Agent (the "Collateral Agent"). All
capitalized terms used herein and not otherwise defined shall have the
respective meanings provided to such terms in the Slot Security Agreement
referred to below.
W I T N E S S E T H :
WHEREAS, Northwest Airlines Corporation, a Delaware corporation, NWA
Inc., a Delaware corporation, the Pledgor, the Banks (as defined in the First
Credit Agreement), ABN Amro Bank N.V., as Compliance Agent, Bankers Trust
Company, as Administrative Agent, Chase Securities Inc., as Syndication Agent,
Citibank N.A., as Documentation Agent, and National Westminster Bank Plc and
U.S. Bank National Association, as Agents, are parties to a Credit Agreement
dated as of December 15, 1995, as amended and restated as of October 16, 1996,
as further amended and restated as of December 29, 1997, as further amended as
of January 23, 1998 and as further amended on May 12, 1998 (as amended, modified
and/or supplemented through the date hereof, the "First Credit Agreement");
WHEREAS, the Pledgor and the Collateral Agent, for the benefit of the
Banks and the Agents under, and any other lender from time to time party to, the
First Credit Agreement, are parties to a Slot Security Agreement dated as of May
12, 1998 (as amended, modified and/or supplemented through the date hereof, the
"Slot Security Agreement"); and
WHEREAS, the parties hereto wish to amend certain provisions of the
Slot Security Agreement as herein provided;
NOW, THEREFORE, it is agreed:
1. Section 6 of the Slot Security Agreement is hereby amended by
inserting the following new Section 6(vi) immediately after Section 6(v)
appearing therein:
"(vi) SUBSTITUTION OF PLEDGED SLOTS.
(I) The Pledgor shall have the right at its option at any time, on at
least five (5) Business Days' prior written notice to the Collateral Agent,
to substitute for one or more Pledged Slot(s) one or more Replacement Slots
so long as on the date of such replacement, no Event of Default shall have
occurred and be continuing, each such Replacement Slot is free and clear of
all Liens except Permitted Liens and the aggregate
<PAGE>
appraised value (as determined by an appraisal, dated not more than ten
Business Days prior to the date of such substitution, by an independent
appraisal firm satisfactory, at the time of such appraisal, to the
Collateral Agent setting forth the fair market value, as determined on a
basis consistent with the most recent Appraisal of the Pledged Slots, as
of the date of such appraisal, of the Replacement Slot(s)) of the
Replacement Slot(s) shall be not less than the aggregate Appraised Value
of the Pledged Slot(s) for which the Replacement Slot(s) are being
substituted (as determined in accordance with the most recent Appraisal
of such Pledged Slot(s)).
(II) Upon the Company having provided a Replacement Slot(s) as
provided for in Section 6(vi)(I) above, the Lien of this Agreement shall
continue with respect to such Replacement Slot(s) as though no substitution
had occurred; the Collateral Agent shall, at the cost and expense of the
Company, release from the Lien of this Agreement the replaced Pledged
Slot(s) upon the occurrence of the substitution by executing and delivering
to the Company such documents and instruments, prepared at the Company's
expense, as the Company may reasonably request to evidence such release.
(III) CONDITIONS TO SLOT SUBSTITUTION.
(i) The Company's right to make a substitution under Section 6(vi)(I)
hereof shall be subject to the fulfillment, at the Company's sole cost and
expense and in addition to the conditions contained in such Section 6(vi)(I), of
the following conditions precedent:
(A) an appraisal for the Replacement Slot(s) satisfying the
requirements of Section 6(vi)(I);
(B) such Uniform Commercial Code financing statements
covering the Lien created by this Agreement as deemed necessary
or desirable by counsel for the Collateral Agent to protect the
security interests of the Collateral Agent in the Replacement
Slot(s); and
(C) an Officer's Certificate of the Pledgor stating (a)
that on the substitution date no Event of Default shall have
occurred and be continuing, (b) each of the conditions specified
in this paragraph (vi) with respect to such Replacement Slot(s)
have been satisfied, (c) all the material licenses, permits,
authorizations, certificates of compliance, certificates of
public convenience and necessity and other certificates
(including, without limitation, air carrier operating
certificates and operations specifications issued by the FAA
pursuant to 14 C.F.R. Part 121) which are required by the DOT or
the FAA and which are adequate for the Pledgor to use the
Replacement Slot(s) are in full force and duly issued to the
Pledgor;
(b) The Pledgor shall cause the Replacement Slot(s) to be
subject to the Lien of this Agreement, free and clear of Liens (other
than Permitted Liens and subject to the Federal Aviation Act and/or
the ability of the FAA to withdraw slots);
2
<PAGE>
(c) The Pledgor shall have been duly authorized to hold the
Replacement Slot(s) pursuant to authority granted by the FAA pursuant
to Title 14 of the Code of Federal Regulations, Part 93;
(d) The Pledgor shall have caused evidence of its title to be
duly recorded, filed, or filed for recording, to the extent permitted
or required under any applicable law, by the Pledgor as owner;
(e) The Collateral Agent shall have received evidence
satisfactory to it with respect to the matters covered by
subparagraphs (b), (c) and (d) above;
(f) The Collateral Agent shall, at the expense of the Pledgor,
have received an opinion addressed to the Collateral Agent, reasonably
satisfactory in form and substance to the Collateral Agent, from a
counsel selected by the Pledgor and reasonably satisfactory to the
Collateral Agent to the effect that (x) the Replacement Slot(s) have
been made subject to the Lien of this Agreement and (y) all required
action has been taken in order to maintain, and such action shall
maintain, the effectiveness and priority of the interests in the
Collateral which the Agreement purports to create; and
(g) The Collateral Agent shall have received from the Pledgor
such documents and evidence with respect to the Pledgor as the
Collateral Agent may reasonably request in order to establish the
consummation of the transactions contemplated by this Section 6(vi),
and evidence of taking of all necessary corporate action in connection
therewith and compliance with the conditions set forth in this Section
6(vi), in each case in form and substance reasonably satisfactory to
the Collateral Agent."
2. Section 15(a) of the Slot Security Agreement is hereby amended by
deleting the last sentence thereof and inserting in lieu thereof the following
new sentence:
"As used in this Agreement, "Termination Date" shall mean the
earlier to occur of (x) the Temporary Amendment Expiry Date which
shall only be deemed to occur if the conditions set forth in paragraph
3 of the Temporary Amendment as such paragraph 3 is amended by the
Amendment and Consent to the Credit Agreement, dated as of November
12, 1998 are satisfied and (y) the first date upon which the Total
Commitment and all Letters of Credit have been terminated, no Note is
outstanding (and all Loans have been paid in full) and all other
Obligations then owing have been paid in full."
3. Section 16 to the Slot Security Agreement is hereby amended by
deleting the definition of Pledged Slots appearing therein and inserting the
following new definition in lieu thereof:
3
<PAGE>
" 'Pledged Slots' shall mean the takeoff and landing rights of the
Borrower identified on Schedule I hereto, and any Replacement Slot(s) that
may from time to time be substituted, pursuant to Section 6(vi) of this
Agreement, for any such Pledged Slot(s)."
4. Section 16 to the Slot Security Agreement is hereby amended by
inserting the following new definition in appropriate alphabetical order:
" 'Replacement Slot' means takeoff and landing rights which have been
made subject to the Lien of this Agreement pursuant to Section 6(vi)."
5. This Amendment is limited precisely as written and shall not be
deemed to be a modification, acceptance or waiver of any other term, condition
or provision of the Slot Security Agreement or any of the instruments or
agreements referred to therein.
6. This Amendment may be executed in any number of counterparts and
by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Borrower and the Agent.
7. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
8. This Amendment shall become effective for all purposes on the
date (the "Amendment Effective Date") when the Pledgor and the Collateral Agent
shall have duly executed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including by way of facsimile
transmission) the same to the Collateral Agent at its Notice Office.
9. From and after the Amendment Effective Date all references in any
Credit Document to the Slot Security Agreement shall be deemed to be references
to such Slot Security Agreement as amended hereby.
* * *
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Amendment to the Slot Security
Agreement as of the date first above written.
NORTHWEST AIRLINES, INC.
By /s/ Rolf S. Andresen
----------------------------------
Name: Rolf S. Andresen
Title: Vice President Finance
and Chief Accounting Officer
<PAGE>
BANKERS TRUST COMPANY
as Collateral Agent
By /s/ Robert R. Telesca
----------------------------------
Name: Robert R. Telesca
Title: Assistant Vice President
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CREDIT AGREEMENT
among
NORTHWEST AIRLINES CORPORATION,
f/k/a Newbridge Parent Corporation,
NORTHWEST AIRLINES HOLDINGS CORPORATION,
f/k/a Northwest Airlines Corporation,
NWA INC.,
NORTHWEST AIRLINES, INC.,
BANKERS TRUST COMPANY,
as Syndication Agent,
THE CHASE MANHATTAN BANK,
as Administrative Agent,
BT ALEX. BROWN INCORPORATED
and
CHASE SECURITIES INC.,
as Co-Book Managers,
and
VARIOUS LENDING INSTITUTIONS
----------------------------------
Dated as of May 12, 1998
and
Amended and Restated as of February 9, 1999
----------------------------------
$750,000,000
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
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SECTION 1. Amount and Terms of Credit . . . . . . . . . . . . . . . . . . . . . . .1
1.01 The Commitments.. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.02 Minimum Amount of Each Borrowing, etc . . . . . . . . . . . . . . . . . .2
1.03 Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.04 Disbursement of Funds . . . . . . . . . . . . . . . . . . . . . . . . . .2
1.05 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.06 Conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
1.07 Pro Rata Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . .4
1.08 Interest. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
1.09 Interest Periods. . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
1.10 Increased Costs, Illegality, etc. . . . . . . . . . . . . . . . . . . . .6
1.11 Compensation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
1.12 Change of Lending Office. . . . . . . . . . . . . . . . . . . . . . . . .8
1.13 Replacement of Banks. . . . . . . . . . . . . . . . . . . . . . . . . . .8
SECTION 2. Fees; Reductions of Commitment . . . . . . . . . . . . . . . . . . . . .9
2.01 Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.02 Voluntary Termination of Commitments. . . . . . . . . . . . . . . . . . .9
2.03 Mandatory Reduction of Commitments. . . . . . . . . . . . . . . . . . . 10
SECTION 3. Prepayments; Payments; Taxes . . . . . . . . . . . . . . . . . . . . . 10
3.01 Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.02 Mandatory Repayments. . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.03 Method and Place of Payment . . . . . . . . . . . . . . . . . . . . . . 12
3.04 Net Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 4A. Conditions Precedent to Restatement Effective Date. . . . . . . . . . 14
4A.01 Notes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4A.02 Officers' Certificate. . . . . . . . . . . . . . . . . . . . . . . . . 14
4A.03 Opinions of Counsel. . . . . . . . . . . . . . . . . . . . . . . . . . 15
4A.04 Corporate Documents; Proceedings; etc. . . . . . . . . . . . . . . . . 15
4A.05 Consent Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4A.06 Adverse Change, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 15
4A.07 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
4A.08 Financial Outlook. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4A.09 Existing Credit Agreement. . . . . . . . . . . . . . . . . . . . . . . 16
4A.10 Fees, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4A.11 Appraisal of Collateral. . . . . . . . . . . . . . . . . . . . . . . . 16
(i)
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4A.12 Acknowledgment and Amendment . . . . . . . . . . . . . . . . . . . . . 16
4A.13 Other Credit Agreement . . . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 4B. Conditions Precedent to All Credit Events . . . . . . . . . . . . . . 17
4B.01 Notice of Borrowing. . . . . . . . . . . . . . . . . . . . . . . . . . 17
4B.02 No Default; Representations and Warranties . . . . . . . . . . . . . . 17
4B.03 Full Utilization of Existing Facilities. . . . . . . . . . . . . . . . 17
SECTION 5. Representations, Warranties and Agreements . . . . . . . . . . . . . . 17
5.01 Corporate Status. . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.02 Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . 18
5.03 No Violation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.04 Governmental Approvals. . . . . . . . . . . . . . . . . . . . . . . . . 18
5.05 Financial Statements; Financial Outlook . . . . . . . . . . . . . . . . 19
5.06 Litigation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.07 True and Complete Disclosure. . . . . . . . . . . . . . . . . . . . . . 19
5.08 Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . . . 20
5.09 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.10 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.11 Investment Company Act. . . . . . . . . . . . . . . . . . . . . . . . . 21
5.12 Compliance with Statutes, etc . . . . . . . . . . . . . . . . . . . . . 21
5.13 Air Carrier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.14 Security Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.15 Year 2000 Reprogramming . . . . . . . . . . . . . . . . . . . . . . . . 21
5.16 Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.17 Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.18 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
5.19 KLM Shares. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 6. Affirmative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . 22
6.01 Information Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 22
6.02 Books, Records and Inspections. . . . . . . . . . . . . . . . . . . . . 24
6.03 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.04 Payment of Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.05 Consolidated Corporate Franchises . . . . . . . . . . . . . . . . . . . 25
6.06 Compliance with Statutes, etc . . . . . . . . . . . . . . . . . . . . . 25
6.07 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
6.08 Good Repair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
6.09 End of Fiscal Years; Fiscal Quarters. . . . . . . . . . . . . . . . . . 26
6.10 Performance of Obligations. . . . . . . . . . . . . . . . . . . . . . . 27
6.11 Air Carrier . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
6.12 Security Interests. . . . . . . . . . . . . . . . . . . . . . . . . . . 27
(ii)
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SECTION 7. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.01 Changes in Business . . . . . . . . . . . . . . . . . . . . . . . . . . 27
7.02 Consolidation, Merger, etc. . . . . . . . . . . . . . . . . . . . . . . 27
7.03 Sale of Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
7.04 Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.05 Distributions, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
7.06 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
7.07 Transactions with Affiliates. . . . . . . . . . . . . . . . . . . . . . 34
7.08 Consolidated Indebtedness to Consolidated EBITDAR . . . . . . . . . . . 34
7.09 Consolidated EBITDAR to Consolidated Fixed Charges. . . . . . . . . . . 34
7.10 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.11 LAX TWO CORP. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.12 Other Credit Agreement; Bridge Debt Agreement . . . . . . . . . . . . . 35
SECTION 8. Events of Default. . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.01 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.02 Representations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.03 Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
8.04 Default Under Other Agreements. . . . . . . . . . . . . . . . . . . . . 35
8.05 Bankruptcy, etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.06 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.07 Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
8.08 Guaranty. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.09 Security Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 9. Definitions and Accounting Terms . . . . . . . . . . . . . . . . . . . 38
9.01 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
SECTION 10. The Agents. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.01 Appointment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.02 Nature of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
10.03 Lack of Reliance on any Agent. . . . . . . . . . . . . . . . . . . . . 53
10.04 Certain Rights of Each Agent . . . . . . . . . . . . . . . . . . . . . 53
10.05 Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.06 Indemnification. . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
10.07 Each Agent in its Individual Capacity. . . . . . . . . . . . . . . . . 54
10.08 Holders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
10.09 Resignation by the Agents. . . . . . . . . . . . . . . . . . . . . . . 54
SECTION 11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
11.01 Payment of Expenses, etc.. . . . . . . . . . . . . . . . . . . . . . . 54
11.02 Right of Setoff. . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
11.03 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
11.04 Benefit of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . 56
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11.05 No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . 57
11.06 Payments Pro Rata. . . . . . . . . . . . . . . . . . . . . . . . . . . 58
11.07 Calculations; Computations . . . . . . . . . . . . . . . . . . . . . . 58
11.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE;
WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . 58
11.09 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
11.10 Effectiveness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
11.11 Headings Descriptive . . . . . . . . . . . . . . . . . . . . . . . . . 60
11.12 Amendment or Waiver; etc.. . . . . . . . . . . . . . . . . . . . . . . 60
11.13 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
11.14 Domicile of Revolving Loans. . . . . . . . . . . . . . . . . . . . . . 61
11.15 Limitation on Additional Amounts, etc. . . . . . . . . . . . . . . . . 62
</TABLE>
<TABLE>
<S> <C>
SCHEDULE I Commitments
SCHEDULE II Bank Addresses
SCHEDULE III Subsidiaries
SCHEDULE IV Existing Indebtedness
EXHIBIT A Form of Notice of Borrowing
EXHIBIT B Form of Revolving Note
EXHIBIT C Form of Section 3.04(b)(ii) Certificate
EXHIBIT D-1 Form of Opinion of Douglas M. Steenland, Esq.,
Executive Vice President, General Counsel
and Secretary of the Credit Parties
EXHIBIT D-2 Form of Opinion of Dorsey & Whitney, Special
Counsel to the Borrower
EXHIBIT D-3 Form of Opinion of White & Case, Special
Counsel to the Agent
EXHIBIT E Form of Consent Letter
EXHIBIT F Form of Assignment and Assumption Agreement
EXHIBIT G Form of Acknowledgment and Amendment
</TABLE>
(iv)
<PAGE>
CREDIT AGREEMENT, dated as of May 12, 1998 and amended as of May 29,
1998 and November 12, 1998 and amended and restated as of February 9, 1999,
among NORTHWEST AIRLINES CORPORATION f/k/a Newbridge Parent Corporation, a
Delaware corporation ("Newco"), NORTHWEST AIRLINES HOLDINGS CORPORATION f/k/a
Northwest Airlines Corporation, a Delaware corporation ("Holdings"), NWA INC.,
a Delaware corporation ("NWA"), NORTHWEST AIRLINES, INC., a Minnesota
corporation (the "Borrower"), the lending institutions listed from time to time
on Schedule I hereto (each a "Bank" and, collectively, the "Banks"), THE CHASE
MANHATTAN BANK, as administrative agent (the "Administrative Agent") and BANKERS
TRUST COMPANY, as Syndication Agent (the "Syndication Agent"). Unless otherwise
defined herein, all capitalized terms used herein and defined in Section 9 are
used herein as so defined.
W I T N E S S E T H :
WHEREAS, Newco, Holdings, NWA, the Borrower, the Existing Banks and
The Chase Manhattan Bank, as agent, are party to a credit agreement, dated as of
May 12, 1998 (as the same has been amended to, but not including, the
Restatement Effective Date, the "Existing Credit Agreement"); and
WHEREAS, the parties hereto wish to amend and restate the Existing
Credit Agreement as herein provided:
NOW, THEREFORE, the parties hereto agree that the Existing Credit
Agreement shall be and hereby is amended and restated in its entirety as
follows:
SECTION 1. AMOUNT AND TERMS OF CREDIT.
1.01 THE COMMITMENTS. Subject to and upon the terms and conditions set forth
herein, each Bank severally agrees, (A) in the case of each Continuing Bank, to
convert into Revolving Loans, on the Restatement Effective Date, Existing
Revolving Loans made by such Continuing Bank to the Borrower pursuant to the
Existing Credit Agreement and outstanding on the Restatement Effective Date in
an aggregate principal amount equal to the amount set forth on Schedule I and/or
(B) at any time and from time to time on and after the Restatement Effective
Date and prior to the Revolving Loan Maturity Date, to make a revolving loan or
revolving loans (each, a "Revolving Loan", and, collectively, the "Revolving
Loans") to the Borrower, which Revolving Loans (i) shall, at the option of the
Borrower, be Base Rate Loans or Eurodollar Loans, PROVIDED that, (x) except as
otherwise specifically provided in Section 1.10(b), all Revolving Loans
comprising the same Borrowing shall at all times be of the same Type, and (y) at
any given time, no more than one Borrowing of Eurodollar Loans may be incurred
prior to March 1, 1999 (which Borrowing may only have an Interest Period of one
or two weeks as selected by the Borrower, PROVIDED however, in the event the
Borrower has elected to convert any Borrowing of Base Rate Loans into Eurodollar
Loans, then no additional Borrowings of Eurodollar Loans under this Section 1.01
shall be permitted), (ii) may be repaid and reborrowed in accordance with the
provisions hereof and (iii) shall not exceed for any Bank at any time
outstanding (which, in the case of each Continuing Bank, shall include the
principal amount of Existing Revolving Loans
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converted pursuant to clause (A) above) that aggregate principal amount which
equals the Revolving Loan Commitment of such Bank at such time.
1.02 MINIMUM AMOUNT OF EACH BORROWING, ETC. The aggregate principal
amount of each Borrowing shall not be less than $10,000,000 and, if greater,
shall be in integral multiples of $5,000,000. More than one Borrowing may occur
on the same date, but at no time shall there be outstanding more than 20
Borrowings of Eurodollar Loans.
1.03 NOTICE OF BORROWING. (a) Whenever the Borrower desires to make
a Borrowing hereunder, it shall give the Administrative Agent at its Notice
Office at least one Business Day's prior written notice (or telephonic notice
promptly confirmed in writing) of each Base Rate Loan and at least three
Business Days' prior written notice (or telephonic notice promptly confirmed in
writing) of each Eurodollar Loan to be made hereunder, PROVIDED that any such
notice shall be deemed to have been given on a certain day only if given before
11:00 A.M. (New York time) on such day. Each such written notice or written
confirmation of telephonic notice (each, a "Notice of Borrowing"), except as
otherwise expressly provided in Section 1.10, shall be irrevocable and shall be
given by the Borrower in the form of Exhibit A, appropriately completed to
specify the aggregate principal amount of the Revolving Loans to be made
pursuant to such Borrowing, the date of such Borrowing (which shall be a
Business Day), and whether the Revolving Loans being made pursuant to such
Borrowing are to be initially maintained as Base Rate Loans or Eurodollar Loans
and, if Eurodollar Loans, the initial Interest Period to be applicable thereto.
The Administrative Agent shall promptly give each Bank notice of such proposed
Borrowing, of such Bank's proportionate share thereof and of the other matters
required by the immediately preceding sentence to be specified in the Notice of
Borrowing.
(b) Without in any way limiting the obligation of the Borrower to
confirm in writing any telephonic notice of any Borrowing of Revolving Loans,
the Administrative Agent may act without liability upon the basis of telephonic
notice of such Borrowing, believed by the Administrative Agent in good faith to
be from an Authorized Officer of the Borrower prior to receipt of written
confirmation.
1.04 DISBURSEMENT OF FUNDS. No later than 12:00 Noon (New York time)
on the date specified in each Notice of Borrowing, each Bank will make available
its PRO RATA portion of each Borrowing requested to be made on such date. All
such amounts shall be made available in Dollars and in immediately available
funds at the Payment Office of the Administrative Agent, and the Administrative
Agent will make available to the Borrower at the Payment Office the aggregate of
the amounts so made available by the Banks. Unless the Administrative Agent
shall have been notified by any Bank prior to the date of Borrowing that such
Bank does not intend to make available to the Administrative Agent such Bank's
portion of any Borrowing to be made on such date, the Administrative Agent may
assume that such Bank has made such amount available to the Administrative Agent
on such date of Borrowing and the Administrative Agent may, in reliance upon
such assumption, make available to the Borrower a corresponding amount. If such
corresponding amount is not in fact made available to the Administrative Agent
by such Bank, the Administrative Agent shall be entitled to recover such
corresponding amount on demand from such Bank. If such Bank does not pay such
corresponding amount forthwith upon the Administrative Agent's demand therefor,
the Administrative Agent shall promptly notify the
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Borrower and the Borrower shall immediately pay such corresponding amount to
the Administrative Agent. The Administrative Agent shall also be entitled to
recover on demand from such Bank or the Borrower, as the case may be,
interest on such corresponding amount in respect of each day from the date
such corresponding amount was made available by the Administrative Agent to
the Borrower until the date such corresponding amount is recovered by the
Administrative Agent, at a rate per annum equal to (i) if recovered from such
Bank, the overnight Federal Funds Rate and (ii) if recovered from the
Borrower, the rate of interest applicable to the respective Borrowing, as
determined pursuant to Section 1.08. Nothing in this Section 1.04 shall be
deemed to relieve any Bank from its obligation to make Revolving Loans
hereunder or to prejudice any rights which the Borrower may have against any
Bank as a result of any failure by such Bank to make Revolving Loans
hereunder.
1.05 NOTES. (a) The Borrower's obligation to pay the principal of,
and interest on, the Revolving Loans made by each Bank shall be evidenced by a
promissory note duly executed and delivered by the Borrower substantially in the
form of Exhibit B with blanks appropriately completed in conformity herewith
(each, a "Revolving Note" and, collectively, the "Revolving Notes").
(b) The Revolving Note issued to each Bank shall (i) be executed by
the Borrower, (ii) be payable to the order of such Bank and be dated the
Restatement Effective Date, (iii) be in a stated principal amount equal to the
Revolving Loan Commitment of such Bank and be payable in the principal amount of
the Revolving Loans evidenced thereby, (iv) mature on the Revolving Loan
Maturity Date, (v) bear interest as provided in the appropriate clause of
Section 1.08 in respect of the Base Rate Loans and Eurodollar Loans, as the case
may be, evidenced thereby and (vi) be subject to mandatory repayment as provided
in Section 3.02.
(c) Each Bank will note on its internal records the amount of each
Revolving Loan made by it and each payment in respect thereof and will prior to
any transfer of any of its Revolving Notes endorse on the reverse side thereof
the outstanding principal amount of Revolving Loans evidenced thereby. Failure
to make any such notation shall not affect the Borrower's obligations in respect
of such Revolving Loans.
1.06 CONVERSIONS. The Borrower shall have the option to
convert, on any Business Day, all or a portion equal to at least $10,000,000
(and, if greater, in integral multiples of $5,000,000) of the outstanding
principal amount of Revolving Loans made pursuant to one or more Borrowings of
one or more Types of Revolving Loans into a Borrowing of another Type of
Revolving Loan, PROVIDED that (i) except as otherwise provided in Section
1.10(b), Eurodollar Loans may be converted into Base Rate Loans only on the last
day of an Interest Period applicable to the Revolving Loans being converted and
no partial conversion of Eurodollar Loans shall reduce the outstanding principal
amount of such Eurodollar Loans made pursuant to a single Borrowing to less than
$10,000,000, (ii) Base Rate Loans may only be converted into Eurodollar Loans if
no Default or Event of Default is in existence on the date of the conversion,
(iii) no conversion pursuant to this Section 1.06 shall result in a greater
number of Borrowings of Eurodollar Loans than is permitted under Section 1.02
and (iv) prior to March 1, 1999, only one conversion of Base Rate Loans into
Eurodollar Loans may be made, provided however, in the event the Borrower has
already incurred a Borrowing of Eurodollar Loans under clause (y) of the
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proviso to Section 1.01, then no conversions of Base Rate Loans into
Eurodollar Loans under this Section 1.06(iv) may be effected. Each such
conversion shall be effected by the Borrower by giving the Administrative
Agent at its Notice Office prior to 11:00 A.M. (New York time) at least three
Business Days' prior notice (each, a "Notice of Conversion") specifying the
Revolving Loans to be so converted, the Borrowing or Borrowings pursuant to
which such Revolving Loans were made and, if to be converted into Eurodollar
Loans, the Interest Period to be initially applicable thereto. The
Administrative Agent shall give each Bank prompt notice of any such proposed
conversion affecting any of its Revolving Loans.
1.07 PRO RATA BORROWINGS. All Borrowings of Revolving Loans under
this Agreement shall be incurred from the Banks PRO RATA on the basis of their
Revolving Loan Commitments. It is understood that no Bank shall be responsible
for any default by any other Bank of its obligation to make Revolving Loans
hereunder and that each Bank shall be obligated to make the Revolving Loans
provided to be made by it hereunder, regardless of the failure of any other Bank
to make its Revolving Loans hereunder.
1.08 INTEREST. (a) The Borrower agrees to pay interest in respect
of the unpaid principal amount of each Base Rate Loan from the date the proceeds
thereof are made available to the Borrower (which for Revolving Loans
outstanding immediately after the Restatement Effective Date shall be deemed to
be the Restatement Effective Date) until the earlier of (i) the maturity
(whether by acceleration or otherwise) of such Base Rate Loan and (ii) the
conversion of such Base Rate Loan to a Eurodollar Loan pursuant to Section 1.06,
at a rate per annum which shall be equal to the sum of 1.25% plus the Base Rate
in effect from time to time.
(b) The Borrower agrees to pay interest in respect of the unpaid
principal amount of each Eurodollar Loan from the date the proceeds thereof are
made available to the Borrower until the earlier of (i) the maturity (whether by
acceleration or otherwise) of such Eurodollar Loan and (ii) the conversion of
such Eurodollar Loan to a Base Rate Loan pursuant to Section 1.06, 1.09 or 1.10,
as applicable, at a rate per annum which shall, during each Interest Period
applicable thereto, be equal to the sum of 2.25% plus the Eurodollar Rate for
such Interest Period.
(c) Overdue principal and, to the extent permitted by law, overdue
interest in respect of each Revolving Loan and any other overdue amount payable
hereunder shall, in each case, bear interest at a rate per annum equal to the
greater of (x) except as provided in Section 1.08(d)(y), 2% per annum in excess
of the rate otherwise applicable to Base Rate Loans from time to time and (y) in
the case of Eurodollar Loans, until the end of the applicable Interest Period
for such Eurodollar Loans, at a rate which is 2% in excess of the rate then
borne by such Eurodollar Loans, in each case with such interest to be payable on
demand.
(d) Accrued (and theretofore unpaid) interest shall be payable (i) in
respect of each Base Rate Loan, quarterly in arrears on each Quarterly Payment
Date, (ii) in respect of each Eurodollar Loan, on the last day of each Interest
Period applicable thereto and, in the case of an Interest Period in excess of
three months, on each date occurring at three month intervals after the first
day of such Interest Period and (iii) in respect of each Revolving Loan, on any
repayment or prepayment (on the amount repaid or prepaid), at maturity (whether
by acceleration or otherwise) and, after such maturity, on demand.
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(e) Upon each Interest Determination Date, the Administrative Agent
shall determine the Eurodollar Rate for each Interest Period applicable to
Eurodollar Loans and shall promptly notify the Borrower and the Banks thereof.
1.09 INTEREST PERIODS. (a) At the time it gives any Notice of
Borrowing or Notice of Conversion in respect of the making of, or conversion
into, any Eurodollar Loan (in the case of the initial Interest Period applicable
thereto) or on the third Business Day prior to the expiration of an Interest
Period applicable to such Eurodollar Loan (in the case of any subsequent
Interest Period), the Borrower shall have the right to elect (subject to clause
(y) of the proviso to Section 1.01), by giving the Administrative Agent notice
thereof, the interest period or interest periods (each, an "Interest Period")
applicable to such Eurodollar Loan (or any portion thereof), which Interest
Period shall, at the option of the Borrower, be a one, two, three or six-month
period and, if prior to March 1, 1999, a one or two week period, PROVIDED that:
(i) all Eurodollar Loans comprising a Borrowing shall at all times
have the same Interest Period (it being understood that one Borrowing may
be converted into more than one Borrowing as a result of the selection of
Interest Periods so long as in any event, after giving effect to such
conversions, all Banks are participating PRO RATA in such Borrowing and
Section 1.02 is complied with);
(ii) the initial Interest Period for any Eurodollar Loan shall
commence on the date of Borrowing of such Eurodollar Loan (including the
date of any conversion thereto from a Revolving Loan of a different Type)
and each Interest Period occurring thereafter in respect of such Eurodollar
Loan shall commence on the day on which the next preceding Interest Period
applicable thereto expires;
(iii) if any Interest Period relating to a Eurodollar Loan begins
on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period, such Interest Period
shall end on the last Business Day of such calendar month;
(iv) if any Interest Period would otherwise expire on a day which is
not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; PROVIDED, HOWEVER, that if any Interest Period for
a Eurodollar Loan would otherwise expire on a day which is not a Business
Day but is a day of the month after which no further Business Day occurs in
such month, such Interest Period shall expire on the next preceding
Business Day;
(v) no Interest Period may be selected at any time when a Default or
Event of Default is then in existence;
(vi) no Interest Period in respect of any Borrowing shall be selected
which extends beyond the Revolving Loan Maturity Date; and
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(vii) no Interest Period may be selected which would commence
prior to March 1, 1999, except as otherwise provided in clause (y) of the
proviso to Section 1.01.
If upon the expiration of any Interest Period applicable to a Borrowing of
Eurodollar Loans, the Borrower has failed to elect, or is not permitted to
elect, a new Interest Period or Interest Periods to be applicable to such
Eurodollar Loans as provided above, the Borrower shall be deemed to have elected
to convert such Eurodollar Loans into Base Rate Loans effective as of the
expiration date of such current Interest Period.
1.10 INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that any
Bank shall have determined (which determination shall, absent manifest error, be
final and conclusive and binding upon all parties hereto but, with respect to
clause (i) below, may be made only by the Administrative Agent):
(i) on any Interest Determination Date that, by reason of any
changes arising after the date of this Agreement affecting the interbank
Eurodollar market, adequate and fair means do not exist for ascertaining
the applicable interest rate on the basis provided for in the definition
of Eurodollar Rate; or
(ii) at any time, that such Bank shall incur increased costs or
reductions in the amounts received or receivable hereunder with respect to
any Eurodollar Loan because of (x) any change since the date of this
Agreement in any applicable law or governmental rule, regulation, order,
guideline or request (whether or not having the force of law) or in the
interpretation or administration thereof and including the introduction of
any new law or governmental rule, regulation, order, guideline or request
(such as, for example, but not limited to a change in official reserve
requirements, but, in all events, excluding reserves required under
Regulation D of the Board of Governors of the Federal Reserve System to the
extent included in the computation of the Eurodollar Rate) and/or (y) other
circumstances (other than an adverse change in the credit quality of such
Bank) since the date of this Agreement affecting the interbank Eurodollar
market; or
(iii) at any time, that the making or continuance of any Eurodollar
Loan has become (x) unlawful by any law or governmental rule, regulation
or order, (y) impossible by compliance by any Bank in good faith with
any governmental request (whether or not having force of law) or (z)
impracticable as a result of a contingency occurring after the date of this
Agreement which materially and adversely affects the interbank Eurodollar
market;
then, and in any such event, such Bank (or the Administrative Agent, in the case
of clause (i) above) shall promptly give notice (by telephone confirmed in
writing) to the Borrower and, except in the case of clause (i) above, to the
Administrative Agent of such determination (which notice the Administrative
Agent shall promptly transmit to each of the other Banks). Thereafter (x) in
the case of clause (i) above, Eurodollar Loans shall no longer be available
until such time as the Administrative Agent notifies the Borrower and the Banks
that the circumstances giving rise to
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such notice by the Administrative Agent no longer exist, and any Notice of
Borrowing or Notice of Conversion given by the Borrower with respect to
Eurodollar Loans, which have not yet been incurred (including by way of
conversion) shall be deemed rescinded by the Borrower, (y) in the case of
clause (ii) above, the Borrower shall, subject to the provisions of Section
11.15 (to the extent applicable) pay to such Bank, upon written demand
therefor, such additional amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Bank shall
reasonably determine) as shall be required to compensate such Bank for such
increased costs or reductions in amounts received or receivable hereunder (a
written notice as to the additional amounts owed to such Bank, showing in
reasonable detail the basis for the calculation thereof, submitted to the
Borrower by such Bank in good faith shall, absent manifest error, be final
and conclusive and binding on all the parties hereto) and (z) in the case of
clause (iii) above, the Borrower shall take one of the actions specified in
Section 1.10(b) as promptly as possible and, in any event, within the time
period required by law. Each of the Administrative Agent and each Bank
agrees that if it gives notice to the Borrower of any of the events described
in clause (i) or (iii) above, it shall promptly notify the Borrower and, in
the case of any such Bank, the Administrative Agent, if such event ceases to
exist. If any such event described in clause (iii) above ceases to exist as
to a Bank, the obligations of such Bank to make Eurodollar Loans and to
convert Base Rate Loans into Eurodollar Loans on the terms and conditions
contained herein shall be reinstated.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected by the circumstances described in
Section 1.10(a)(iii) shall) either (x) if the affected Eurodollar Loan is then
being made initially or pursuant to a conversion, cancel the respective
Borrowing by giving the Administrative Agent telephonic notice (confirmed in
writing) on the same date that the Borrower was notified by the affected Bank
pursuant to Section 1.10(a)(ii) or (iii) or (y) if the affected Eurodollar Loan
is then outstanding, upon at least three Business Days' written notice to the
Administrative Agent, require the affected Bank to convert such Eurodollar Loan
into a Base Rate Loan, PROVIDED that, if more than one Bank is affected at any
time, then all affected Banks must be treated the same pursuant to this Section
1.10(b).
(c) If at any time any Bank determines that the introduction after
the date of this Agreement of, or any change after the date of this Agreement
in, any applicable law or governmental rule, regulation, order, guideline,
directive or request (whether or not having the force of law) concerning capital
adequacy, or any change after the date of this Agreement in interpretation or
administration thereof by any governmental authority, central bank or comparable
agency, will have the effect of increasing the amount of capital required or
expected to be maintained by such Bank or any corporation controlling such Bank
based on the existence of such Bank's Revolving Loan Commitment hereunder or its
obligations hereunder, then the Borrower shall, subject to the provisions of
Section 11.15 (to the extent applicable), pay to such Bank, upon its written
demand therefor, such additional amounts as shall be required to compensate such
Bank or such other corporation for the increased cost to such Bank or such other
corporation or the reduction in the rate of return to such Bank or such other
corporation as a result of such increase of capital. In determining such
additional amounts, each Bank will act reasonably and in good faith and will use
averaging and attribution methods which are reasonable. Each Bank will provide
written notice thereof to the Borrower, which notice shall show the basis
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for calculation of such additional amounts, although the failure to give any
such notice shall, subject to Section 11.15, not release or diminish any of
the Borrower's obligations to pay additional amounts pursuant to this Section
1.10(c) upon receipt of such notice.
1.11 COMPENSATION. The Borrower shall, subject to the provisions of
Section 11.15 (to the extent applicable), compensate each Bank, upon its written
request (which request shall set forth the basis for requesting such
compensation), for all reasonable losses, expenses and liabilities (including,
without limitation, any loss, expense or liability incurred by reason of the
liquidation or reemployment of deposits or other funds required by such Bank to
fund its Eurodollar Loans but excluding any loss of anticipated profits) which
such Bank may sustain: (i) if for any reason (other than a default by such Bank
or the Administrative Agent) a Borrowing of, or conversion from or into,
Eurodollar Loans does not occur on a date specified therefor in a Notice of
Borrowing or Notice of Conversion (whether or not withdrawn by the Borrower or
deemed withdrawn pursuant to Section 1.10(a) or (b)); (ii) if any repayment
(including, without limitation, any repayment made pursuant to Section 3.01 or
3.02, as a result of an acceleration of the Revolving Loans pursuant to Section
8 or on the Restatement Effective Date) or conversion of any of its Eurodollar
Loans (or Existing Revolving Loans which are Eurodollar Loans) occurs on a date
which is not the last day of an Interest Period (or Interest Period under, and
as defined in, the Existing Credit Agreement) with respect thereto; (iii) if any
prepayment of any of its Eurodollar Loans is not made on any date specified in a
notice of prepayment given by the Borrower; or (iv) as a consequence of (x) any
other default by the Borrower to repay its Revolving Loans when required by the
terms of this Agreement or any Revolving Note held by such Bank or (y) any
election made pursuant to Section 1.10(b). No Bank shall be deemed to have any
loss, expense or liability incurred by the reason of the liquidation or
reemployment of deposits as a result of the Borrower repaying Eurodollar Loans
prior to the end of an Interest Period unless the Eurodollar Rate which would be
applicable to the Eurodollar Loan being repaid if such Eurodollar Rate were
being determined on the date of repayment (assuming for purposes of this
determination that the Interest Period or the maturity utilized in making such
determination is the Interest Period or the maturity originally applicable to
such Eurodollar Loan) is less than the Eurodollar Rate actually applicable to
the Eurodollar Loan being repaid.
1.12 CHANGE OF LENDING OFFICE. Each Bank agrees that after becoming
aware of the occurrence of any event giving rise to the operation of
Section 1.10(a)(ii) or (iii), Section 1.10(c), or Section 3.04 with respect to
such Bank, it will use reasonable efforts (subject to overall policy
considerations of such Bank) to designate another lending office for any
Revolving Loans affected by such event, PROVIDED that such designation is made
on such terms that such Bank and its lending office suffer no material economic,
legal or regulatory disadvantage, with the object of avoiding the consequence of
the event giving rise to the operation of such Section. Nothing in this
Section 1.12 shall affect or postpone any of the obligations of the Borrower or
the rights of any Bank provided in Sections 1.10 and 3.04, PROVIDED that this
sentence shall not limit the Borrower's rights and remedies in connection with a
breach of the immediately preceding sentence.
1.13 REPLACEMENT OF BANKS. If (x) any Bank defaults in its
obligations to make Revolving Loans, (y) any Bank refuses to give timely consent
to proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the
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Required Banks as provided in Section 11.12(b) or (z) any Bank is owed
increased costs under Section 1.10 (by virtue of the application of Section
1.11 or otherwise) or Section 3.04 which in the judgment of the Borrower are
material in amount and which are not otherwise requested by Banks
constituting at least the Super-Majority Banks, the Borrower shall have the
right, if no Event of Default then exists and, in the case of a Bank
described in clause (z) above, such Bank has not withdrawn its request for
such compensation or changed its applicable lending office with the effect of
eliminating or substantially decreasing (to a level which in the judgment of
the Borrower is not material) such increased cost, to replace such Bank (the
"Replaced Bank") with one or more other Eligible Transferee or Transferees
(collectively, the "Replacement Bank") with the consent of the Administrative
Agent, which consent shall not be unreasonably withheld or delayed, PROVIDED
that (i) at the time of any replacement pursuant to this Section 1.13, the
Replacement Bank shall enter into one or more Assignment and Assumption
Agreements pursuant to which the Replacement Bank shall acquire all of the
Revolving Loan Commitment and outstanding Revolving Loans of the Replaced
Bank and, in connection therewith, shall pay to the Replaced Bank in respect
thereof an amount equal to the sum of (a) an amount equal to the principal
of, and all accrued interest on, all outstanding Revolving Loans of the
Replaced Bank and (b) an amount equal to all accrued, but theretofore unpaid,
Fees owing to the Replaced Bank pursuant to Section 2.01 hereof and (ii) all
obligations of the Borrower owing to the Replaced Bank (other than those
specifically described in clause (i) above in respect of which the assignment
purchase price has been, or is concurrently being, paid) shall be paid in
full to such Replaced Bank concurrently with such replacement. Upon the
execution of the respective assignment documentation, the payment of amounts
referred to in clauses (i) and (ii) above and, if so requested by the
Replacement Bank, delivery to the Replacement Bank of the appropriate
Revolving Note executed by the Borrower, the Replacement Bank shall become a
Bank hereunder and the Replaced Bank shall cease to constitute a Bank
hereunder, except with respect to indemnifications under this Agreement
pursuant to Section 1.10, 1.11, 3.04, 11.01 and 11.06, which shall survive as
to such Replaced Bank.
SECTION 2. FEES; REDUCTIONS OF COMMITMENT.
2.01 FEES. (a) The Borrower agrees to pay the Administrative Agent
for distribution to each Bank a commitment fee (the "Commitment Fee") for the
period from the Restatement Effective Date to and including the Revolving Loan
Maturity Date (or such earlier date as the Total Revolving Loan Commitment shall
have been terminated), computed at a per annum rate equal to .50% multiplied by
the daily Unutilized Revolving Loan Commitment of such Bank. Accrued Commitment
Fees shall be due and payable quarterly in arrears on each Quarterly Payment
Date and on the Revolving Loan Maturity Date or such earlier date upon which the
Total Revolving Loan Commitment is terminated.
(b) The Borrower shall pay to each Agent, for its own account, such
other fees as have been agreed to in writing by the Borrower and such agent.
2.02 VOLUNTARY TERMINATION OF COMMITMENTS. (a) Upon at least three
Business Days' prior written notice (or telephonic notice confirmed in writing)
to the Administrative Agent at its Notice Office (which notice the
Administrative Agent shall promptly transmit to each of the Banks), the Borrower
shall have the right, at any time or from time to time, without premium or
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penalty, to terminate the Total Unutilized Revolving Loan Commitment, in whole
or in part, PROVIDED that any such partial reduction shall be in an amount of
$5,000,000 or integral multiples of $1,000,000 in excess thereof, PROVIDED
further that each such reduction pursuant to this clause (a) shall apply
proportionately to permanently reduce the Revolving Loan Commitment of each
Bank.
(b) In the event of certain refusals by a Bank to consent to certain
proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Required Banks as provided in Section
11.12(b), the Borrower shall have the right, upon five Business Days' prior
written notice to the Administrative Agent at its Notice Office (which notice
the Administrative Agent shall promptly transmit to each of the Banks), to
terminate the entire Revolving Loan Commitment of such Bank, so long as all
Revolving Loans, together with accrued and unpaid interest, Fees and all other
amounts, owing to such Bank are repaid concurrently with the effectiveness of
such termination pursuant to Section 3.01(b) (at which time Schedule I shall be
deemed modified to reflect such changed amounts)), and at such time, such Bank
shall no longer constitute a "Bank" for purposes of this Agreement, except with
respect to indemnifications under this Agreement pursuant to Sections 1.10,
1.11, 3.04, 11.01 and 11.06, which shall survive as to such repaid Bank.
2.03 MANDATORY REDUCTION OF COMMITMENTS. (a) The Total Revolving
Loan Commitment and the Revolving Loan Commitment of each Bank shall terminate
in their entirety on the Revolving Loan Maturity Date.
(b) In addition to any other mandatory commitment reductions pursuant
to this Section 2.03, the Total Revolving Loan Commitment (and the Revolving
Loan Commitment of each Bank) shall be reduced at the time any payment is
required to be made on the principal amount of Revolving Loans (or would be
required to be made if Revolving Loans were then outstanding) pursuant to
Section 3.02(b), (c) or (d), by an amount equal to the maximum amount of
Revolving Loans that would be required to be repaid pursuant to Section 3.02(b),
(c) or (d) assuming that Revolving Loans were outstanding in an aggregate
principal amount equal to the Total Revolving Loan Commitment.
(c) Each reduction to the Total Revolving Loan Commitment pursuant to
this Section 2.03 shall be applied proportionately to reduce the Revolving Loan
Commitment of each Bank.
SECTION 3. PREPAYMENTS; PAYMENTS; TAXES.
3.01 VOLUNTARY PREPAYMENTS. (a) The Borrower shall have the right
to prepay the Revolving Loans, without premium or penalty, in whole or in part
at any time and from time to time on the following terms and conditions: (i)
the Borrower shall give the Administrative Agent prior to 12:00 Noon (New York
time) at its Notice Office at least one Business Day's prior written notice (or
telephonic notice promptly confirmed in writing) of its intent to prepay such
Revolving Loans, the amount of such prepayment and the Types of Revolving Loans
to be prepaid and, in the case of Eurodollar Loans, the specific Borrowing or
Borrowings pursuant to which made, which notice the Administrative Agent shall
promptly transmit to each of the Banks;
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(ii) each prepayment (except any prepayment in full of a Borrowing) shall be
in a minimum amount of $1,000,000 and, if greater, shall be in integral
multiples thereof, PROVIDED that if any partial prepayment of Eurodollar
Loans made pursuant to any Borrowing shall reduce the outstanding Eurodollar
Loans made pursuant to such Borrowing to an amount less than $10,000,000 then
such Borrowing may not be continued as a Borrowing of Eurodollar Loans and
any election of an Interest Period with respect thereto given by the Borrower
shall have no force or effect; (iii) at the time of any prepayment of
Eurodollar Loans pursuant to this Section 3.01 on any day other than the last
day of an Interest Period applicable thereto, the Borrower shall pay the
amounts then required pursuant to Section 1.11 and (iv) except as provided in
clause (b) of this Section 3.01, each prepayment in respect of any Revolving
Loans made pursuant to a Borrowing shall be applied PRO RATA among the Banks
which made such Revolving Loans.
(b) In the event of certain refusals by a Bank to consent to certain
proposed changes, waivers, discharges or terminations with respect to this
Agreement which have been approved by the Required Banks as provided in Section
11.12(b), the Borrower shall have the right, upon five Business Days' prior
written notice to the Administrative Agent at its Notice Office (which notice
the Administrative Agent shall promptly transmit to each of the Banks) to repay
all Revolving Loans, together with accrued and unpaid interest, Fees and all
other amounts, owing to such Bank in accordance with said Section 11.12(b) so
long as (A) the Revolving Loan Commitment of such Bank is terminated
concurrently with such repayment pursuant to Section 2.02(b) (at which time
Schedule I shall be deemed modified to reflect the changed Revolving Loan
Commitment) and (B) the consents required by Section 11.12(b) in connection with
the repayment pursuant to this clause (b) shall have been obtained.
3.02 MANDATORY REPAYMENTS. (a) On any day on which the aggregate
outstanding principal amount of the Revolving Loans exceeds the Total Revolving
Loan Commitment as then in effect, the Borrower shall prepay on such date the
principal of Revolving Loans of the Banks in an amount equal to such excess.
(b) In addition to any other mandatory repayments pursuant to this
Section 3.02, on each date after the Restatement Effective Date upon which Newco
or any of its Subsidiaries receives any proceeds from any incurrence by Newco or
any of its Subsidiaries of Indebtedness required to be applied pursuant to this
Section in accordance with Section 7.06(d) or 7.06(e), an amount equal to the
amount required by Section 7.06(d) or 7.06(e), as the case may be, shall be
applied as a mandatory repayment of principal of outstanding Revolving Loans in
accordance with the requirements of Sections 3.02(e).
(c) In addition to any other mandatory repayments pursuant to this
Section 3.02, on each date after the Restatement Effective Date upon which Newco
or any of its Subsidiaries receives proceeds from any sale of assets required to
be applied pursuant to this Section in accordance with Section 7.03, an amount
equal to the amount required by Section 7.03 shall be applied as a mandatory
repayment of principal of outstanding Revolving Loans in accordance with the
requirements of Section 3.02(e).
(d) In addition to any other mandatory repayments pursuant to this
Section 3.02, upon the occurrence of an Event of Loss with respect to Collateral
which results in failure to be in
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compliance with the Coverage Tests on the 30th day following the date of
occurrence of such Event of Loss, as such failure is determined based on an
Appraisal obtained by the Borrower following such Event of Loss, an amount
equal to the amount necessary for the Coverage Tests to be complied with
(based on the Collateral after giving effect to such Event of Loss and the
Appraisal obtained after such Event of Loss) shall be applied as a mandatory
repayment of principal of outstanding Revolving Loans in accordance with the
requirements of Section 3.02(e).
(e) With respect to each repayment of Revolving Loans required by
this Section 3.02, the Borrower may designate the Types of Revolving Loans which
are to be repaid and, in the case of Eurodollar Loans, the specific Borrowing or
Borrowings pursuant to which made, PROVIDED that: (i) if any repayment of
Eurodollar Loans made pursuant to a single Borrowing shall reduce the
outstanding Eurodollar Loans made pursuant to such Borrowing to an amount less
than $10,000,000, such Borrowing shall be converted at the end of the then
current Interest Period into a Borrowing of Base Rate Loans; and (ii) each
repayment of any Revolving Loans made pursuant to a Borrowing shall be applied
PRO RATA among the Banks. In the absence of a designation by the Borrower as
described in the preceding sentence, the Administrative Agent shall, subject to
the above, make such designation in its sole discretion.
3.03 METHOD AND PLACE OF PAYMENT. Except as otherwise specifically
provided herein, all payments under this Agreement or any Revolving Note shall
be made to the Administrative Agent for the account of the Bank or Banks
entitled thereto not later than 1:00 P.M. (New York time) on the date when due
and shall be made in Dollars in immediately available funds at the Payment
Office of the Administrative Agent. Whenever any payment to be made hereunder
or under any Revolving Note shall be stated to be due on a day which is not a
Business Day, the due date thereof shall be extended to the next succeeding
Business Day and, with respect to payments of principal, interest shall be
payable at the applicable rate during such extension.
3.04 NET PAYMENTS. (a) All payments made by the Guarantors or the
Borrower hereunder or under any Revolving Note will be made without set-off,
counterclaim or other defense. Except as provided in Section 3.04(b), all such
payments will be made free and clear of, and without deduction or withholding
for, any present or future taxes, levies, imposts, duties, fees, assessments or
other charges of whatever nature now or hereafter imposed by any jurisdiction or
by any political subdivision or taxing authority thereof or therein with respect
to such payments (but excluding, except as provided in the second succeeding
sentence, (i) any tax imposed on or measured by the net income or profits of a
Bank, or any franchise tax based on the net income or profits of a Bank, in
either case pursuant to the laws of the United States of America or any
political subdivision or taxing authority thereof or therein or the jurisdiction
in which it is organized or in which the principal office or applicable lending
office of such Bank is located or any subdivision thereof or therein, and (ii)
in the case of any Bank organized under the laws of any jurisdiction other than
the United States of America or any State thereof (including the District of
Columbia), any taxes imposed by the United States of America by means of
withholding at the source unless such withholding results from a change in
applicable law or treaty subsequent to the date such Bank becomes a Bank with
respect to the Revolving Loan or portion thereof affected by such change) and
all interest, penalties or similar liabilities with respect thereto (all such
non-excluded taxes, levies, imports, duties, fees, assessments or other charges
being referred to collectively as "Taxes"). If any Taxes are so levied or
imposed, the Borrower
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agrees to pay the full amount of such Taxes, and such additional amounts as
may be necessary so that every payment of all amounts due under this
Agreement or under any Revolving Note, after withholding or deduction for or
on account of any Taxes, will not be less than the amount provided for herein
or in such Revolving Note. If any amounts are payable in respect of Taxes
pursuant to the preceding sentence of this Section 3.04(a), then the Borrower
agrees to reimburse each Bank, upon the written request of such Bank, for
taxes imposed on or measured by the net income or profits of such Bank, or
any franchise tax based on the net income or profits of such Bank, in either
case pursuant to the laws of the jurisdiction in which the principal office
or applicable lending office of such Bank is located or under the laws of any
political subdivision or taxing authority of any such jurisdiction in which
the principal office or applicable lending office of such Bank is located and
for any withholding of income or similar taxes imposed by the United States
of America as such Bank shall determine are payable by, or withheld from,
such Bank in respect of such amounts so paid to or on behalf of such Bank
pursuant to the preceding sentence and in respect of any amounts paid to or
on behalf of such Bank pursuant to this sentence. Such written request shall
set forth the amount of net income or profits or franchise taxes payable by,
or withheld from, such Bank pursuant to the immediately preceding sentence
and shall be certified by an appropriate officer of such Bank. The Borrower
will pay any such Taxes required to be paid pursuant to this Section 3.04(a)
within the time allowed for such payment under applicable law and will
furnish to the Administrative Agent within 45 days after the date the payment
of any Taxes is made to the relevant taxation or other authority pursuant to
applicable law certified copies of tax receipts evidencing such payment by
the Borrower. The Borrower agrees to indemnify and hold harmless each Bank,
and reimburse such Bank upon its written request, for the amount of any Taxes
so levied or imposed and paid by such Bank.
(b) Each Bank which is not a United States person (as such term is
defined in Section 7701(a)(30) of the Code) agrees to deliver to the Borrower
and the Administrative Agent on or prior to the Restatement Effective Date or in
the case of a Bank that is an assignee or transferee of an interest under this
Agreement pursuant to Sections 1.13 or 11.04 (unless the respective Bank was
already a Bank hereunder immediately prior to such assignment or transfer), on
the date of such assignment or transfer to such Bank, (i) two accurate and
complete original signed copies of Internal Revenue Service Form 4224 or Form
1001 (or successor forms) certifying to such Bank's entitlement to a complete
exemption from United States withholding tax with respect to payments to be made
under this Agreement and under any Revolving Note, or (ii) if the Bank is not a
"bank" within the meaning of Section 881(c)(3)(A) of the Code and cannot deliver
either Internal Revenue Service Form 1001 or 4224 pursuant to clause (i) above,
(x) a certificate substantially in the form of Exhibit C (any such certificate,
a "Section 3.04(b)(ii) Certificate") and (y) two accurate and complete original
signed copies of Internal Revenue Service Form W-8 (or successor form)
certifying to such Bank's entitlement to a complete exemption from United States
withholding tax with respect to payments of interest to be made under this
Agreement and under any Revolving Note. In addition, each Bank agrees that from
time to time after the Restatement Effective Date, when a lapse in time or
change in circumstances renders the previous certification obsolete or
inaccurate in any material respect, it will deliver to the Borrower and the
Administrative Agent two new accurate and complete original signed copies of
Internal Revenue Service Form 4224 or 1001, or Form W-8 and a Section
3.04(b)(ii) Certificate, as the case may be, and such other forms as may be
required in
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order to confirm or establish the entitlement of such Bank to a continued
exemption from or reduction in United States withholding tax with respect to
payments under this Agreement and any Revolving Note, or it shall immediately
notify the Borrower and the Administrative Agent of its inability to deliver
any such form or certificate. Notwithstanding anything to the contrary
contained in Section 3.04(a), but subject to Section 11.04(b) and the
immediately succeeding sentence, (x) the Borrower shall be entitled, to the
extent it is required to do so by law, to deduct or withhold income or
similar taxes imposed by the United States (or any political subdivision or
taxing authority thereof or therein) from interest, fees or other amounts
payable hereunder for the account of any Bank which is not a United States
person (as such term is defined in Section 7701(a)(30) of the Code) for U.S.
Federal income tax purposes to the extent that such Bank has not provided to
the Borrower U.S. Internal Revenue Service Forms that establish a complete
exemption from such deduction or withholding and (y) the Borrower shall not
be obligated pursuant to Section 3.04(a) hereof to gross-up payments to be
made to a Bank in respect of income or similar taxes imposed by the United
States (or any political subdivision or taxing authority thereof or therein)
if (I) such Bank has not provided to the Borrower the Internal Revenue
Service Forms and, if applicable, certificate required to be provided to the
Borrower pursuant to this Section 3.04(b) or (II) in the case of a payment,
other than interest, to a Bank described in clause (ii) above, to the extent
that such forms and, if applicable, certificate do not establish a complete
exemption from withholding of such taxes. Notwithstanding anything to the
contrary contained in the preceding sentence or elsewhere in this Section
3.04 and except as set forth in Section 11.04(b), the Borrower agrees to pay
additional amounts and to indemnify each Bank in the manner set forth in
Section 3.04(a) (without regard to the identity of the jurisdiction requiring
the deduction or withholding) in respect of any amounts deducted or withheld
by it as described in the immediately preceding sentence as a result of any
changes after the Restatement Effective Date in any applicable law, treaty,
governmental rule, regulation, guideline or order, or in the official
interpretation thereof, relating to the deducting or withholding of income or
similar Taxes.
(c) The provisions of this Section 3.04 are subject to the provisions
of Section 11.15 (to the extent applicable).
SECTION 4A. CONDITIONS PRECEDENT TO RESTATEMENT EFFECTIVE DATE. The
occurrence of the Restatement Effective Date is subject to the satisfaction of
the following conditions:
4A.01 NOTES. On or prior to the Restatement Effective Date there
shall have been delivered to the Administrative Agent for the account of each of
the Banks the appropriate Revolving Note executed by the Borrower and in the
amount and maturity and as otherwise provided herein.
4A.02 OFFICERS' CERTIFICATE. (a) On the Restatement Effective Date,
the Agents shall have received a certificate dated the Restatement Effective
Date and signed by an Authorized Officer of the Borrower stating that all of the
applicable conditions set forth in Sections 4A.06, 4A.07, 4A.11 and 4B.02 have
been satisfied as of such date.
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(b) On the Restatement Effective Date, the Agents shall have received
a certificate dated the Restatement Effective Date and signed by an Authorized
Officer of Holdings (i) stating that Holdings is in compliance with Sections
7.08 and 7.09 as of the last day of the fiscal quarter ended December 31, 1998
and (ii) setting forth the calculations required to establish such compliance.
4A.03 OPINIONS OF COUNSEL. On the Restatement Effective Date, the
Agents shall have received opinions, in form and substance satisfactory to the
Agents, addressed to the Agents and the Banks and dated the Restatement
Effective Date, from (i) Douglas M. Steenland, Esq., Executive Vice President,
General Counsel and Secretary of the Credit Parties, which opinion shall cover
the matters contained in Exhibit D-1 hereto, (ii) Dorsey & Whitney, special
counsel for the Borrower, which opinion shall cover the matters contained in
Exhibit D-2 hereto and (iii) White & Case, special counsel to the Agents, which
opinion shall cover the matters contained in Exhibit D-3 hereto.
4A.04 CORPORATE DOCUMENTS; PROCEEDINGS; ETC. (a) On the Restatement
Effective Date, the Agents shall have received from each Credit Party a
certificate, dated the Restatement Effective Date, signed by an Authorized
Officer, and attested to by the Secretary or any Assistant Secretary, of such
Credit Party, (x) certifying that the certificate of incorporation and by-laws
of such Credit Party attached thereto are true and correct copies thereof and
(y) to the effect that such Credit Party is in good standing in its respective
state of incorporation.
(b) On the Restatement Effective Date, all corporate and legal
proceedings and all instruments and agreements in connection with the
transactions contemplated by this Agreement and the other Credit Documents shall
be satisfactory in form and substance to the Agents, and the Agents shall have
received all information and copies of all certificates, documents and papers,
including records of corporate proceedings, governmental approvals, good
standing certificates and bring-down telegrams or facsimiles, if any, which the
Agents may have requested in connection therewith, such documents and papers,
where appropriate, to be certified by proper corporate or governmental
authorities.
4A.05 CONSENT LETTER. The Agents shall have received a letter from
CT Corporation System, presently located at 1633 Broadway, New York, New York
10019, substantially in the form of Exhibit E, indicating its consent to its
appointment by each Credit Party as its agent to receive service of process as
specified in Section 11.08.
4A.06 ADVERSE CHANGE, ETC. On the Restatement Effective Date,
nothing shall have occurred which has had a material adverse effect on (i) the
rights or remedies of the Agents or the Banks, (ii) the ability of the Credit
Parties to perform their respective obligations to the Agents and the Banks or
(iii) the results of operations or financial condition of Holdings and its
Subsidiaries taken as a whole or the Borrower and its Subsidiaries taken as a
whole, provided, however, that neither a strike or other labor action with
respect to the Borrower nor the effects thereof shall be deemed to have such a
material adverse effect.
4A.07 LITIGATION. On the Restatement Effective Date, no actions,
suits or proceedings by any entity (private or governmental) shall be pending or
threatened (a) with
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respect to the Transaction or this Agreement or any documentation executed in
connection therewith, or (b) which has had a materially adverse effect on (i)
the Transaction, (ii) the results of operations or financial condition of
Holdings and its Subsidiaries taken as a whole or of the Borrower and its
Subsidiaries taken as whole or (iii) the rights or remedies of the Banks
hereunder or under any other Credit Document or on the ability of any Credit
Party to perform its respective obligations to the Banks hereunder or under
any other Credit Document.
4A.08 FINANCIAL OUTLOOK. The Banks shall have received the
Financial Outlook which shall be in form and substance reasonably
satisfactory to the Agents and the Required Banks.
4A.09 EXISTING CREDIT AGREEMENT. On the Restatement Effective
Date, (i) each Continuing Bank shall have converted its Existing Revolving
Loans, as contemplated by Section 1.01, (ii) all Existing Revolving Loans
being converted as described in preceding clause (i) which were outstanding
as Eurodollar Loans shall, at the time of such conversion, be converted into
Base Rate Loans and the Borrower shall pay all breakage costs in accordance
with the provisions of Section 1.11 of the Existing Credit Agreement in
connection therewith, (iii) each Existing Bank shall have received payment in
full of all amounts then due and owing to it under the Existing Credit
Agreement, (iv) the Borrower shall have paid all accrued and unpaid interest
and fees owing under the Existing Credit Agreement through the Restatement
Effective Date, and (v) the Administrative Agent shall have received evidence
reasonably satisfactory to it that the matters set forth in this Section
4A.09 have been satisfied on such date.
4A.10 FEES, ETC. The Borrower shall have paid to the Agents and
the Banks all costs, fees and expenses (including, without limitation, legal
fees and expenses) payable to the Agents and the Banks to the extent then due.
4A.11 APPRAISAL OF COLLATERAL. (a) The Agents shall have
received an Appraisal with respect to the Collateral setting forth the
Appraised Value of such Collateral as of the Restatement Effective Date,
which Appraisal shall be in form and substance satisfactory to the Agents.
(b)(i) The Appraised Value of the Collateral (using fair market
values) shall be equal to or greater than 1.75 times the Total Revolving Loan
Commitment and (ii) the Appraised Value of the Collateral using "orderly
liquidation" values shall be equal to or greater than 1.5 times the Total
Revolving Loan Commitment (such calculations in clauses (i) and (ii), the
"Coverage Tests").
4A.12 ACKNOWLEDGMENT AND AMENDMENT . On the Restatement Effective
Date, the Borrower and the Collateral Agent shall have duly authorized,
executed and delivered (i) an Acknowledgment and Amendment in the form of
Exhibit G hereto, whereby (A) the Borrower acknowledges and confirms that
the it is a party to the Route Security Agreement and that the Route
Security Agreement secures, and the Collateral is collateral security for,
the Obligations and (B) the Collateral Agent acknowledges and agrees to the
substitution of Schedule I to the Route Security Agreement with Annex I to
the Acknowledgment and Amendment; (ii) executed copies of proper financing
statements, if
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any, to be filed under the UCC in all jurisdictions required to perfect
the security interests purported to be created by the Route Security
Agreement; (iii) evidence of the completion of all other recordings and
filings with respect to the Route Security Agreement in order to perfect
the security interest created by the Route Security Agreement, including
without limitation, all filings with the FAA; (iv) evidence that all
third party approvals, consents, or notices, or all other actions
required or deemed reasonably necessary by the Administrative Agent, to
perfect and protect the security interests created by the Route Security
Agreement have been obtained or taken, as the case may be; and (v)
certified copies of a Request for Information or Copies (form UCC 11) or
equivalent reports, listing any financing statements relating to the
Collateral.
4A.13 OTHER CREDIT AGREEMENT. On the Restatement Effective Date,
the Other Credit Agreement shall have been amended in form, scope and
substance satisfactory to the Agents and the Required Banks.
SECTION 4B. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS. The
obligation of each Bank to make Revolving Loans (including Revolving Loans
made on the Restatement Effective Date) is subject, at the time of each such
Credit Event, to the satisfaction of the following conditions:
4B.01 NOTICE OF BORROWING. The Administrative Agent shall have
received a Notice of Borrowing meeting the requirements of Section 1.03(a).
4B.02 NO DEFAULT; REPRESENTATIONS AND WARRANTIES. At the time of
each such Credit Event and also after giving effect thereto (i) there shall
exist no Default or Event of Default and (ii) all representations and
warranties contained herein or in any other Credit Document shall be true and
correct in all material respects with the same effect as though such
representations and warranties had been made on the date of such Credit Event
(it being understood and agreed that any representation or warranty which by
its terms is made as of a specified date shall be required to be true and
correct in all material respects only as of such specified date).
4B.03 FULL UTILIZATION OF EXISTING FACILITIES. At the time of
such Credit Event, the Borrower shall have utilized all of the commitments
under the Other Credit Agreement.
The acceptance of the benefits of each Credit Event shall
constitute a representation and warranty by each Credit Party to the Agents
and each of the Banks that all of the conditions specified in Section 4A and
in this Section 4B which are applicable to such Credit Event exist as of that
time. All of the Revolving Notes, certificates, legal opinions and other
documents and papers referred to in Section 4A and in this Section 4B, unless
otherwise specified, shall be delivered to the Administrative Agent at the
Administrative Agent's Notice Office for the account of each of the Banks
and, except for the Revolving Notes, in sufficient counterparts for each of
the Banks and shall be reasonably satisfactory in form and substance to the
Banks.
SECTION 5. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. In order
to induce the Banks to enter into this Agreement on the Restatement Effective
Date and to make the
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Revolving Loans, each Credit Party makes the following representations and
warranties to and agreements with the Banks (in each case solely to the
extent applicable to such Credit Party or its Subsidiaries), all of which
shall survive the execution and delivery of this Agreement and the Revolving
Notes and the making of the Revolving Loans, with the occurrence of each
Credit Event on or after the Restatement Effective Date being deemed to
constitute a representation and warranty that the matters specified in this
Section 5 are true and correct in all material respects on the date of such
Credit Event (it being understood and agreed that any representation or
warranty which by its terms is made as of a specified date shall be required
to be true and correct in all material respects only as of such specified
date).
5.01 CORPORATE STATUS. Each Credit Party and each of its
Subsidiaries (i) is a duly organized and validly existing corporation or
other entity in good standing under the laws of the jurisdiction of its
organization, (ii) has the power and authority to own its property and assets
and to transact the business in which it is engaged and presently proposes to
engage and (iii) is duly qualified and is authorized to do business and is in
good standing in each jurisdiction where it is required to be so qualified
and where the failure to be so qualified would have a material adverse effect
on the results of operations or financial condition of Newco and its
Subsidiaries taken as a whole or the Borrower and its Subsidiaries taken as a
whole.
5.02 CORPORATE POWER AND AUTHORITY. Each Credit Party has the
power and authority to execute, deliver and perform the terms and provisions
of each of the Credit Documents to which it is party and has taken all
necessary action to authorize the execution, delivery and performance by it
of each of such Credit Documents. Each Credit Party has duly executed and
delivered each of the Credit Documents to which it is party, and each of such
Credit Documents constitutes such Credit Party's legal, valid and binding
obligation enforceable in accordance with its terms, except to the extent
that the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws generally
affecting creditors' rights and by equitable principles (regardless of
whether enforcement is sought in equity or at law).
5.03 NO VIOLATION. Neither the execution, delivery or performance
by any Credit Party of the Credit Documents to which it is a party, nor
compliance by it with the terms and provisions thereof, (i) will contravene
in any material respect any provision of any material applicable law,
statute, rule or regulation or any applicable order, writ, injunction or
decree of any court or governmental instrumentality, (ii) will conflict in
any material respect with or result in any material breach of any of the
terms, covenants, conditions or provisions of, or constitute a material
default under, or result in the creation or imposition of (or the obligation
to create or impose) any Lien (except pursuant to the Route Security
Agreement) upon any of the properties or assets of such Credit Party pursuant
to the terms of any material indenture, mortgage, deed of trust, credit
agreement or loan agreement, or any other material agreement, contract or
instrument, to which such Credit Party is a party or by which it or any of
its property or assets is bound or to which it may be subject or (iii) will
violate any provision of the certificate of incorporation or by-laws of such
Credit Party.
5.04 GOVERNMENTAL APPROVALS. No material order, consent,
approval, license, authorization or validation of, or filing, recording or
registration with, or exemption by, any
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governmental or public body or authority, or any subdivision thereof, is
required to authorize, or is required in connection with, (i) the execution,
delivery and performance of any Credit Document (other than any such order,
consent, approval, license, authorization, validation, filing, recording,
registration or exemption required to be made or obtained after the
Restatement Effective Date in the ordinary course of business which the
Borrower agrees to promptly obtain as and when required under applicable law)
or (ii) the legality, validity, binding effect or enforceability of any
Credit Document.
5.05 FINANCIAL STATEMENTS; FINANCIAL OUTLOOK. (a) (A) The
audited consolidated balance sheets of each of Holdings and its Subsidiaries
and the Borrower and its Subsidiaries at December 31, 1997 and the related
consolidated statements of operations, of common stockholders' equity
(deficit) (in the case of Holdings and its Subsidiaries) and of cash flows of
such parties for the fiscal year ended as of said date, which financial
statements have been examined by Ernst & Young, who delivered an unqualified
opinion in respect therewith and (B) the unaudited consolidated balance
sheets of each of Holdings and its Subsidiaries and the Borrower and its
Subsidiaries at September 30, 1998 and the related consolidated statements of
operations, of common stockholders' equity (deficit) (in the case of Holdings
and its Subsidiaries) and of cash flows of such parties for the fiscal
quarter ended as of said date have heretofore been furnished to each Bank and
present fairly in all material respects the financial position of such
entities at the dates of said statements and the results of operations for
the periods covered thereby in accordance with GAAP consistently applied,
except to the extent provided in the notes to said financial statements.
Since December 31, 1997, there has been no material adverse change in the
financial condition or results of operations of the Borrower or any
Guarantor, provided that no strike or other labor action with respect to the
Borrower nor the effects thereof shall be deemed to be a material adverse
change in the financial condition or results of operations of the Borrower or
any Guarantor.
(b) On and as of the Restatement Effective Date, the Financial
Outlook 1998-2003, dated as of January 8, 1999 (the "Financial Outlook"),
previously delivered to the Agents and the Banks, had been prepared on a
basis consistent with the financial statements referred to in Section 5.05(a)
(other than as set forth or presented in such Financial Outlook), and there
are no statements or conclusions in the Financial Outlook which are based
upon or include information known to any Credit Party to be misleading in any
material respect or which fail to take into account material information
regarding the matters reported therein. The Financial Outlook is based on
good faith estimates and assumptions believed by the Credit Parties to be
reasonable at the time made, which the Credit Parties continue to believe are
reasonable as of the Restatement Effective Date, it being recognized by the
Banks that the Financial Outlook as to future events is not to be viewed as
facts and that actual results during the period or periods covered by the
Financial Outlook may differ from the results set forth in the Financial
Outlook.
5.06 LITIGATION. There are no actions, suits or proceedings
pending or threatened with respect to any Credit Party or any of its
Subsidiaries (i) that have had a material adverse effect on the financial
condition or results of operations of the Borrower or any Guarantor or (ii)
that affect the legality, validity, binding effect or enforceability of any
Credit Document.
5.07 TRUE AND COMPLETE DISCLOSURE. All factual information (taken
as a whole) furnished by or on behalf of any Credit Party in writing to any
Agent or any Bank for purposes of
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or in connection with this Agreement, the other Credit Documents or any
transaction contemplated herein or therein is, and all other such factual
information (taken as a whole) hereafter furnished by or on behalf of any
such Persons in writing to any Agent or any Bank will be, true and accurate
in all material respects on the date as of which such information is dated or
certified and not incomplete by omitting to state any fact necessary to make
such information (taken as a whole) not misleading in any material respect at
such time in light of the circumstances under which such information was
provided.
5.08 USE OF PROCEEDS; MARGIN REGULATIONS. (a) All proceeds of
the Revolving Loans shall be used by the Borrower (i) to effect the
Transaction, (ii) to pay fees and expenses arising in connection with the
Transaction and (iii) for the working capital purposes of the Borrower and
its Subsidiaries.
(b) Not more than 25% of the value of the assets of the Borrower,
or of Newco and its Subsidiaries on a consolidated basis, shall constitute
Margin Stock. Neither the making of any Revolving Loan nor the use of the
proceeds of any thereof will violate or be inconsistent with the provisions
of Regulation T, U or X of the Board of Governors of the Federal Reserve
System.
5.09 COMPLIANCE WITH ERISA. Each Pension Plan has been operated
and administered in compliance with all applicable requirements of ERISA and,
if intended to qualify under Section 401(a) or 403(a) of the Code, in
compliance with all applicable requirements of such provision except where
the failure to so comply would not result in, taking all instances in the
aggregate, liability in excess of $2,000,000. Full payment has been made by
each Credit Party or any of its ERISA Affiliates of all amounts which such
Persons are required under the terms of each Pension Plan and Multiemployer
Plan to have paid as contributions to such Pension Plan and Multiemployer
Plan except where the failure to so comply, taking all instances in the
aggregate, would not result in liability in excess of $2,000,000. None of
the Pension Plans had an accumulated funding deficiency (as defined in
Section 302 of ERISA and Section 412 of the Code), whether or not waived, as
of the last day of the most recent plan year of such Pension Plan. No
Termination Event has occurred or, to the best knowledge of any Credit Party,
is expected by such Credit Party to occur with respect to any Pension Plan or
Multiemployer Plan such that any Credit Party or any of its ERISA Affiliates
would incur, taking all instances in the aggregate, liabilities in excess of
$10,000,000 (such liabilities to include, without limitation, any liability
to the PBGC or to any other party under Sections 4062, 4063 and 4064 of ERISA
or to any Multiemployer Plan determined under Section 4201 ET SEQ. of ERISA)
resulting from or associated with all such Termination Events. No Credit
Party nor any of its ERISA Affiliates has engaged in any transaction in
connection with which any such entity has been or could be subjected to
either a tax imposed by Section 4975 of the Code or the corresponding civil
penalty assessed pursuant to Sections 502(i) and 502(l) of ERISA, which
penalties and taxes for all such transactions are in an aggregate amount in
excess of $2,500,000. Using actuarial assumptions and computation methods
consistent with Part 1 of subtitle E of Title IV of ERISA, the aggregate
liabilities of Holdings and its Subsidiaries, the Borrower and its
Subsidiaries and their ERISA Affiliates to all Multiemployer Plans in the
event of a complete withdrawal therefrom, as of the close of the most recent
fiscal year of each such Multiemployer Plan ended prior to the date of the
most recent Credit Event, would not have a material adverse effect upon the
results of operation or financial condition of any Credit Party. No Credit
Party nor any of its Subsidiaries maintains or
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contributes to any employee welfare benefit plan (as defined in Section 3(1)
of ERISA) which provides benefits to retired employees or other former
employees (other than as required by Section 601 of ERISA) or any employee
pension benefit plan (as defined in Section 3(2) of ERISA) the obligations
with respect to which would have a material adverse effect on the ability of
any Credit Party to perform its respective obligations under this Agreement.
5.10 SUBSIDIARIES. Schedule III correctly sets forth, as of the
Restatement Effective Date, the percentage ownership (direct and indirect) of
Newco, Holdings, NWA and the Borrower in each of their respective
Subsidiaries.
5.11 INVESTMENT COMPANY ACT. None of the Credit Parties or any of
their respective Subsidiaries is an "investment company" or a company
"controlled" by an "investment company", within the meaning of the Investment
Company Act of 1940, as amended.
5.12 COMPLIANCE WITH STATUTES, ETC. Each Credit Party and each of
its Subsidiaries is in material compliance with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
businesses and the ownership of its properties (including applicable
statutes, regulations, orders and restrictions relating to environmental
standards and controls) except such noncompliances as would not, in the
aggregate, have a material adverse effect on the financial condition or
results of operations of Newco and its Subsidiaries taken as a whole or of
the Borrower and its Subsidiaries taken as a whole.
5.13 AIR CARRIER. The Borrower is a Certificated Air Carrier.
5.14 SECURITY INTERESTS. (a) The security interests created in
favor of the Collateral Agent under the Route Security Agreement at all times
from and after the Original Effective Date constituted and will at all times
from and after the Restatement Effective Date continue to constitute, as
security for the obligations purported to be secured thereby, a legal, valid,
enforceable and perfected security interest in and Lien on all of the
Collateral referred to therein in favor of the Collateral Agent for the
benefit of the Secured Creditors, subject to no other Liens except Permitted
Liens.
(b) The Borrower has legal and marketable title to all Collateral
covered by the Route Security Agreement free and clear of all Liens (except
Permitted Liens).
(c) No consents, filings or recordings are required in order to
perfect (or maintain the perfection or priority of) the security interests
purported to be created by Route Security Agreement, other than such as have
been obtained and which remain in full force and effect and other than
periodic UCC continuation filings.
5.15 YEAR 2000 REPROGRAMMING. A project to complete on a timely
basis all the reprogramming required to permit the proper functioning, in and
following the year 2000, of (i) Newco's or any of its Subsidiaries' computer
systems and (ii) equipment containing embedded microchips (excluding systems
and equipment of third-parties with which Newco's or any of its Subsidiaries'
systems interface) and the testing of all such systems and equipment, as so
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reprogrammed, has been implemented by Newco and its Subsidiaries. Neither
Newco nor any of its Subsidiaries believes that the consequences of the year
2000 will pose significant operational problems for its computer systems.
5.16 ASSET SALES. As of the Restatement Effective Date, the
aggregate amount of gross sales proceeds received by Newco or any of its
Subsidiaries since December 15, 1995 from all sales, leases and other
dispositions of any assets (including cash or cash equivalents proceeds received
pursuant to Section 7.03(I)(a) and included in determining whether the
$5,000,000,000 threshold contained in Section 7.03(I)(f) has been exceeded) is
$85,963,702.
5.17 DISTRIBUTIONS. As of the Restatement Effective Date, the amount
of all cash Distributions declared, made or paid by Newco or any of its
Subsidiaries pursuant to Section 7.05(b) on or after January 1, 1995 (other than
pursuant to Section 7.05(b)(ii)) plus the amount of all such Distributions made
by Newco and/or Holdings pursuant to Section 7.05(g) but excluding the amount of
Distributions declared, made or paid to Newco or any of its Subsidiaries is
$1,054,119,000.
5.18 INDEBTEDNESS. As of the Restatement Effective Date, the amount
of unsecured Indebtedness of Newco and its Subsidiaries incurred after December
15, 1995, which is included in determining whether the $600,000,000 threshold
contained in Section 7.06(d) has been exceeded, is $ 113,663,000. As of the
Restatement Effective Date, the amount of secured Indebtedness of Newco and its
Subsidiaries incurred after December 15, 1995, which is included in determining
whether the $300,000,000 threshold contained in Section 7.06(e) has been
exceeded, is $ 0.
5.19 KLM SHARES. As of the Restatement Effective Date, Newco and/or
Holdings redeemed, retired, repurchased or otherwise acquired all of the shares
of common stock of Newco and/or Holdings owned by KLM for an aggregate
consideration of $1,054,119,000.
SECTION 6. AFFIRMATIVE COVENANTS. Each Credit Party hereby covenants and
agrees (in each case solely to the extent that any covenant or agreement set
forth in this Section 6 is expressly stated to be applicable to such Credit
Party and its Subsidiaries) that on and after the Restatement Effective Date and
until the Total Revolving Loan Commitment and the Revolving Loans and the
Revolving Notes together with interest, Fees and all other Obligations incurred
hereunder and thereunder, are paid in full:
6.01 INFORMATION COVENANTS. Newco will furnish to each Bank:
(a) ANNUAL FINANCIAL STATEMENTS. As soon as available and in any
event within 120 days after the close of each fiscal year of Newco, (i) a
copy of the SEC Form 10-K filed by Newco with the SEC for such fiscal year,
or, if no such Form 10-K was so filed by Newco for such fiscal year, the
consolidated balance sheet of Newco and its subsidiaries and whether or not
such Form 10-K was filed, of each of Holdings and its Subsidiaries and the
Borrower and its Subsidiaries, as at the end of such fiscal year and the
related consolidated statements of operations, of common stockholders'
equity (deficit) (in the case of Newco and its Subsidiaries) and of cash
flows for such fiscal year, setting forth
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comparative consolidated figures as of the end of and for the preceding
fiscal year, and examined by Ernst & Young (or (x) any other "Big Six"
or "Big Five" accounting firm or (y) any other firm of independent
public accountants of recognized standing selected by Newco, Holdings
or the Borrower, as the case may be, and reasonably acceptable to the
Required Banks) whose opinion shall not be qualified as to the scope of
audit or as to the status of Newco, Holdings or the Borrower as a going
concern, and (ii) a certificate of such accounting firm stating that
in the course of its regular audit of the business of Newco, Holdings
and the Borrower, which audit was conducted in accordance with
generally accepted auditing standards, such accounting firm has
obtained no knowledge of any Default or Event of Default which has
occurred and is continuing or, if in the opinion of such accounting
firm such a Default or Event of Default has occurred and is continuing,
a statement as to the nature thereof.
(b) QUARTERLY FINANCIAL STATEMENTS. As soon as available and in any
event within 45 days after the close of each of the first three quarterly
accounting periods in each fiscal year of Newco, a copy of the SEC Form
10-Q filed by Newco with the SEC for such quarterly period, or, if no such
Form 10-Q was so filed by Newco with respect to any such quarterly period,
the consolidated balance sheet of Newco and its Subsidiaries, and whether
or not such Form 10-Q was filed, of each of Holdings and its Subsidiaries
and the Borrower and its Subsidiaries, as at the end of such quarterly
period and the related consolidated statements of operations for such
quarterly period and for the elapsed portion of the fiscal year ended with
the last day of such quarterly period and in each case setting forth
comparative consolidated figures as of the end of and for the related
periods in the prior fiscal year, all of which shall be certified by an
Authorized Officer of Newco, Holdings or the Borrower, as the case may be,
subject to changes resulting from audit and normal year-end audit
adjustments.
(c) BUDGETS. Not more than 75 days following the commencement of
each fiscal year of the Borrower, a budget of the Borrower and its
Subsidiaries in reasonable detail for each fiscal month of such fiscal year
as is customarily prepared by management for its internal use setting
forth, with appropriate discussion, the principal assumptions upon which
such budget is based.
(d) OFFICER'S CERTIFICATES. At the time of the delivery of the
financial statements provided for in Section 6.01(a) and (b), a certificate
of an Authorized Officer of Newco and the Borrower to the effect that no
Default or Event of Default exists or, if any Default or Event of Default
does exist, specifying the nature and extent thereof and which certificate
shall set forth the calculations required, if any, to establish whether
each Credit Party was in compliance with the provisions of Sections 7.02,
7.03, 7.04, 7.05, 7.06, 7.08 and 7.09 as at the end of such fiscal period
or year, as the case may be.
(e) NOTICE OF DEFAULT OR LITIGATION. Promptly, and in any event
within three Business Days after any senior financial or legal officer of
any Credit Party obtains knowledge thereof, notice of (x) the occurrence of
any event which constitutes a Default or Event of Default which notice
shall specify the nature thereof, the period of existence thereof and what
action such Credit Party proposes to take with respect thereto and (y)
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any litigation or governmental proceeding pending against or affecting
Newco or any of its Subsidiaries which is likely to have a material
adverse effect on the financial condition or results of operations of
Newco and its Subsidiaries taken as a whole or the Borrower and its
Subsidiaries taken as a whole.
(f) RATING CHANGES. Promptly after any senior financial or legal
officer of NWA or the Borrower obtains knowledge thereof, notice of any
change in the Rating assigned by either Rating Agency.
(g) OTHER INFORMATION. Promptly upon transmission thereof, copies of
any filings and registrations with, and reports to, the Securities and
Exchange Commission or any successor thereto (the "SEC") by Newco or any of
its Subsidiaries (other than amendments to any registration statement (to
the extent such registration statement, in the form it becomes effective,
is delivered to the Banks), exhibits to any registration statement and any
registration statements on Form S-8) and, with reasonable promptness, such
other information or documents (financial or otherwise) as the
Administrative Agent on its own behalf or on behalf of the Required Banks
may reasonably request from time to time.
(h) NON-ORDINARY COURSE TRANSACTION. At any time after the
Restatement Effective Date that any Credit Party or any of its respective
Subsidiaries proposes to enter into any transaction (or series of related
transactions) with any Affiliate of any Credit Party or any of their
respective Subsidiaries outside the ordinary course of business (other than
any transaction of a nature described in the proviso to Section 7.07), the
Borrower shall give the Administrative Agent and the Banks (x) written
notice of any such transaction at least 7 Business Days (or such shorter
period as the Required Banks may agree) prior to the earlier of (I) the
consummation thereof or (II) the execution of a binding agreement therefor,
and (y) such other information related to the transaction as the
Administrative Agent or the Required Banks shall reasonably request.
(i) Prompt notice of any fact, event or circumstance relating to the
consequences of the year 2000 which it or any of its Subsidiaries is or
becomes aware of and that could be reasonably expected to (a) have a
material adverse impact on the implementation or anticipated July 1, 1999
date for completion of the reprogramming and testing project referred to in
Section 5.15 hereof, (b) have a material adverse impact on the proper
functioning of Newco or any of its Subsidiaries' computer systems or
equipment containing embedded microchips on or after the year 2000 or (c)
result in a material adverse effect on the financial conditions or results
of operations of Newco and its Subsidiaries taken as a whole or of the
Borrower and its Subsidiaries taken as a whole.
6.02 BOOKS, RECORDS AND INSPECTIONS. Each Credit Party will, and
will cause each of its Subsidiaries to, keep proper books of record and
account in which full, true and correct entries in conformity with GAAP and
all requirements of law shall be made of all dealings and transactions in
relation to its business and activities. Each Credit Party will, and will
cause each of its Subsidiaries to, permit, upon reasonable notice given by
the Administrative Agent to the Borrower on behalf of any Bank, officers and
designated representatives of any Bank (including without limitation,
appraisers) to visit and inspect any of the properties or assets of such
Credit
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Party and any of its Subsidiaries (including, without limitation, the
Collateral and any books, records or logs related thereto) and to examine the
books of account of such Credit Party and any of its Subsidiaries and discuss
the affairs, finances and accounts of such Credit Party and of any of its
Subsidiaries with its and their officers and independent accountants, all at
such reasonable times and intervals and to such reasonable extent as such
Bank may desire.
6.03 INSURANCE. Each Credit Party will, and will cause each of its
Subsidiaries to, at all times be covered by and maintain in full force and
effect insurance required by the Route Security Agreement and other insurance in
such amounts, covering such risks and liabilities and with such deductibles or
self-insured retentions as are in accordance with normal industry practice and
as is required by law.
6.04 PAYMENT OF TAXES. Each Credit Party will pay and discharge, and
will cause each of its Subsidiaries to pay and discharge, all material taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which material penalties attach thereto, and all material lawful claims which,
if unpaid, might become a Lien or charge upon any properties of any Credit Party
or any of its Subsidiaries, PROVIDED that no Credit Party nor any of its
Subsidiaries shall be required to pay any such tax, assessment, charge, levy or
claim (i) which is being contested in good faith and by proper proceedings if it
has maintained adequate reserves (in the good faith judgment of the management
of such Credit Party) with respect thereto in accordance with GAAP or (ii) the
nonpayment of which would not have a material adverse effect on the financial
condition or results of operations of Newco and its Subsidiaries taken as a
whole or of the Borrower and its Subsidiaries taken as a whole.
6.05 CONSOLIDATED CORPORATE FRANCHISES. Each Credit Party will do,
and will cause each of its Subsidiaries to do, or cause to be done, all things
necessary to preserve and keep in full force and effect its existence and its
material rights, authority and franchises, unless the failure to keep in full
force and effect any such right, authority or franchise would not have a
material adverse effect on the financial condition or results of operations of
Newco and its Subsidiaries taken as a whole or of the Borrower and its
Subsidiaries taken as a whole.
6.06 COMPLIANCE WITH STATUTES, ETC. Each Credit Party will, and will
cause each of its Subsidiaries to, comply in all material respects with all
applicable statutes, regulations and orders of, and all applicable restrictions
imposed by, all governmental bodies, domestic or foreign, in respect of the
conduct of its business and the ownership of its property (including applicable
statutes, regulations, orders and restrictions relating to environmental
standards and controls) other than those the non-compliance with which would not
have a material adverse effect on the financial condition or results of
operations of Newco and its Subsidiaries taken as a whole or the Borrower and
its Subsidiaries taken as a whole.
6.07 ERISA. (a) As soon as practicable and in any event within
fifteen days after any Credit Party or any of its ERISA Affiliates knows or has
reason to know of the occurrence of any (i) Termination Event in connection with
any Pension Plan or Multiemployer Plan, (ii) non-exempt "prohibited transaction"
as described in Section 406 of ERISA or Section 4975 of the Code, (iii)
accumulated funding deficiency or application to the Secretary of the Treasury
for a waiver or modification of the minimum funding standard (including any
required installment
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payments) or an extension of any amortization period under Section 412 of the
Code, (iv) institution pursuant to Section 515 of ERISA to collect a
delinquent contribution, or (v) material liability by any Credit Party or any
Subsidiary of any Credit Party pursuant to any employee welfare benefit plan
(as defined in Section 3(1) of ERISA) that provides benefits to retired
employees or other former employees (other than as required by Section 601 of
ERISA) or any employee pension benefit plan (as defined in Section 3(2) of
ERISA) in addition to the liability existing on the Restatement Effective
Date pursuant to any such welfare or pension plan or plans in connection with
any Pension Plan or Multiemployer Plan or any trust created thereunder, if as
a result of such event or transaction, considered together with other such
events and transactions occurring within the prior two years, the Credit
Parties and their ERISA Affiliates incur or could reasonably expect to incur
liabilities from all such events and transactions in excess of $5,000,000,
such Credit Party shall deliver to each of the Banks a certificate, signed by
an Authorized Officer of such Credit Party, specifying the nature thereof,
what action such Credit Party or such ERISA Affiliate has taken, is taking or
proposes to take with respect thereto, and any action taken or threatened by
the Internal Revenue Service, Department of Labor, PBGC, Pension Plan or
Multiemployer Plan, as applicable, to be taken with respect thereto (together
with copies of all relevant notices or other communications received from
such entity). For the purposes of this Section 6.07, a Credit Party shall be
deemed to have knowledge of all facts known by the "plan administrator" (as
defined in Section 3(16)(A) of ERISA) of any Pension Plan of which such
Credit Party or any of its ERISA Affiliates is the "plan sponsor" (as defined
in Section 3(16)(B) of ERISA).
(b) To the extent reasonably requested by any Bank, as soon as
practicable and in any event within 30 days after the filing of a Form 5500
series annual report by a Credit Party or any of its ERISA Affiliates with the
Internal Revenue Service with respect to each Pension Plan, such Credit Party
shall furnish to such Bank a copy of such Form 5500 series annual report and the
Schedule B (Actuarial Information) thereto (and shall make available for
inspection by such Bank at reasonable times copies of the full annual report
with respect to each Pension Plan).
6.08 GOOD REPAIR. Each Credit Party will, and will cause each of its
Subsidiaries to, ensure that its properties and equipment used or useful in its
business are kept in good repair, working order and condition, normal wear and
tear excepted, and that from time to time there are made in such properties and
equipment all needful and proper repairs, renewals, replacements, extensions,
additions, betterments and improvements thereto, to the extent and in the manner
customary for companies in similar businesses, except where the failure to keep
such properties and equipment in good repair, working order and condition or to
make such repairs, renewals, replacements, extensions, additions, betterments
and improvements would not have a material adverse effect on the financial
condition or results of operations of Newco and its Subsidiaries taken as a
whole or of the Borrower and its Subsidiaries taken as a whole.
6.09 END OF FISCAL YEARS; FISCAL QUARTERS. Newco and the Borrower
will, for financial reporting purposes, cause (i) each of its and each of its
Subsidiaries' fiscal years to end on December 31 of each year and (ii) each of
its and each of its Subsidiaries' fiscal quarters to end on March 31, June 30,
September 30 and December 31 of each year.
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6.10 PERFORMANCE OF OBLIGATIONS. Each Credit Party will, and will
cause each of its Subsidiaries to, perform all of its obligations under the
terms of each mortgage, indenture, security agreement and other debt instrument
by which it is bound, except such non-performances as would not have a material
adverse effect on the financial condition or results of operations of Newco and
its Subsidiaries taken as a whole or of the Borrower and its Subsidiaries taken
as a whole.
6.11 AIR CARRIER. The Borrower will at all times be a Certificated
Air Carrier.
6.12 SECURITY INTERESTS. The Borrower shall perform any and all acts
and execute any and all documents (including, without limitation, the execution,
amendment or supplementation of any financing statement and continuation
statement) for filing under the provisions of the UCC or the Federal Aviation
Act and the rules and regulations thereunder, which are necessary in order to
maintain in favor of the Collateral Agent for the benefit of the Secured
Creditors a valid and perfected Lien on the Collateral, subject to no other
Liens except for Permitted Liens.
SECTION 7. NEGATIVE COVENANTS. Each Credit Party hereby covenants
and agrees (in each case solely to the extent that any covenant or agreement set
forth in this Section 7 is expressly stated to be applicable to such Credit
Party and its Subsidiaries) that on the Restatement Effective Date and
thereafter, for so long as this Agreement is in effect and until the Total
Revolving Loan Commitment has terminated, no Revolving Notes are outstanding and
the Revolving Loans, together with interest, Fees and all other Obligations
incurred hereunder, are paid in full:
7.01 CHANGES IN BUSINESS. No Credit Party will make any material
change in the lines of business in which it was engaged on the Restatement
Effective Date.
7.02 CONSOLIDATION, MERGER, ETC. No Credit Party will wind up,
liquidate or dissolve its affairs, or enter into any transaction of merger or
consolidation, sell or otherwise dispose of all or substantially all of its
property or assets or agree to do any of the foregoing at any future time,
except that so long as no Default or Event of Default exists, or would result
therefrom and PROVIDED that each Credit Party complies with Section 7.03 in
connection with such transaction to the extent such Section is applicable, any
Credit Party may merge or consolidate with, or sell or otherwise dispose of all
or substantially all of its assets to, any Person, PROVIDED that (i) in the case
of any merger or consolidation, the surviving corporation shall be such Credit
Party or (ii) the surviving corporation, if not such Credit Party (or the
successor corporation, in the case of a sale or other disposition of all or
substantially all of a Credit Party's assets), (A) is a corporation organized
and existing under the laws of the United States of America or any State
thereof, (B) is a Citizen of the United States, (C) executes and delivers
agreements assuming the obligations of such Credit Party under this Agreement
and the other Credit Documents to which such Credit Party is a party, which
assumption agreements and all related actions and documentation shall be in form
and substance reasonably satisfactory to the Administrative Agent and (D)
delivers to the Administrative Agent a certificate signed by an Authorized
Officer of such Credit Party and an opinion of counsel to such Person
satisfactory to the Administrative Agent, each
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stating that such transaction and such assumption agreement comply with this
Section and that all conditions precedent herein provided for relating to
such transaction have been complied with.
7.03 SALE OF ASSETS. (I) No Credit Party will, nor will any Credit
Party permit any of its Subsidiaries to, sell, lease or otherwise dispose of any
assets, except:
(a) Newco or any of its Subsidiaries may, in the ordinary course of
business and consistent with past practices, exchange, in any transaction
or series of related transactions, on a like value basis, (i) its real
property for real property owned by another Person, (ii) its airplane
engines for airplane engines owned by another Person, and (iii) its airline
routes, "airport gates" and/or "slots" for airline routes, "airport gates"
and/or "slots" owned by another Person; PROVIDED, HOWEVER, that (x) in no
event may Collateral be exchanged and (y) to the extent Newco or any of its
Subsidiaries receives any cash and/or cash equivalents from any such
property exchange permitted pursuant to this clause (a), the amount of such
cash and/or cash equivalents shall be applied in accordance with clause (f)
of this Section 7.03(I);
(b) Newco or any of its Subsidiaries may, in the ordinary course of
business and consistent with past practices, sell spare parts (which in no
event shall include aircraft or aircraft engines) and supplies (including,
without limitation, fuel) so long as each such sale is for an amount at
least equal to the fair market value thereof (as determined by the
Borrower);
(c) "parting out" of an aircraft engine shall be permitted by Newco
or any of its Subsidiaries in the ordinary course of business and
consistent with past practices;
(d) Newco or any of its Subsidiaries may, in a transaction, sell any
of its aircraft, which aircraft is then substantially contemporaneously
leased back to the respective seller, PROVIDED that with respect to sale
and leasebacks of aircraft owned on the Restatement Effective Date, the
stated expiration of the lease of such aircraft to Newco or one of its
Subsidiaries is after the Revolving Loan Maturity Date;
(e) Newco or any of its Subsidiaries may sell airline tickets and
related services in the ordinary course of business;
(f) Newco or any of its Subsidiaries may sell, lease or otherwise
dispose of any assets (other than Collateral), PROVIDED that to the extent
the gross proceeds received from all such transactions occurring after
December 15, 1995 (including cash or cash equivalent proceeds received
pursuant to Section 7.03(a)) exceeds $500,000,000, an amount equal to 50%
of the Net Sale Proceeds from all transactions which occur after such
$500,000,000 threshold is exceeded (including 50% of the Net Sale Proceeds
from that transaction in which such threshold is exceeded but only out of
that portion of the gross proceeds which exceeds such $500,000,000
threshold) shall be applied to repay Revolving Loans and reduce Revolving
Loan Commitments in accordance with Sections 3.02(c) and 2.03(b);
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(g) Newco or any of its Subsidiaries may, in the ordinary course of
business and consistent with industry practice, (i) trade the use of any
"slot" with another air carrier or (ii) lease or license any such "slot" to
another air carrier, in each case on a temporary basis and PROVIDED that
such transactions do not involve the transfer of title to such "slots"; and
(h) any Credit Party may dispose of its equity interests in (x)
GHI-CA Corporation, a Delaware corporation which owns all of the
outstanding shares of capital stock of Grand Holding, Inc., a Nevada
corporation, d/b/a Champion Air and/or (y) Express Air I owned by such
Credit Party on the Restatement Effective Date.
(II) The Borrower will not convey, sell, lease, transfer or otherwise
dispose of or remove or substitute, any Collateral or take any action that could
materially diminish the fair market value of the Collateral taken as a whole, or
agree to do any of the foregoing at any future time, except as may be permitted
pursuant to the provisions of the Route Security Agreement.
7.04 LIENS. None of the Credit Parties will, or will permit any of
their respective Subsidiaries to, create, incur, assume or suffer to exist any
Lien upon or with respect to the Collateral or assign any right to receive
income from the Collateral, or file or permit the filing with respect to the
Collateral of any financing statement under the UCC or any similar notice of
Lien under any similar recording or notice statute, except (Liens described
below are herein referred as "Permitted Liens"):
(a) Liens created by the Route Security Agreement;
(b) Liens for taxes not yet due or Liens for taxes being contested in
good faith and by appropriate proceedings for which adequate reserves (in
the good faith judgment of the management of the Borrower) have been
established in accordance with GAAP;
(c) Liens (other than any Lien imposed by ERISA) in respect of the
Collateral imposed by law which were incurred in the ordinary course of
business and which have not arisen to secure Indebtedness for borrowed
money, such as carriers', warehousemen's and mechanics' Liens, statutory
landlord's Liens, and other similar Liens and governmental charges arising
in the ordinary course of business, and which either (x) do not in the
aggregate materially detract from the value of any Collateral or materially
impair the use thereof in the operation of the business of the Borrower or
any of its Subsidiaries or (y) are being contested in good faith by
appropriate proceedings, which proceedings have the effect of preventing
the forfeiture or sale of the property or asset subject to such Lien; and
(d) Liens (where there has been no execution or levy and no pledge or
delivery of Collateral as security therefor) arising out of judgments or
awards against the Borrower or any of its Subsidiaries with respect to
which an appeal or proceeding for review is being prosecuted in good faith
and which judgment or award shall be vacated, discharged, satisfied or
stayed or bonded pending appeal within 60 days from the entry thereof.
7.05 DISTRIBUTIONS, ETC. None of the Credit Parties will, or will
permit any of their
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respective Subsidiaries to, authorize, declare or pay any dividends or return
any capital to, its stockholders, partners or members, or authorize or make
any other distribution, payment or delivery of property or cash to its
stockholders, partners or members as such or redeem, retire, purchase or
otherwise acquire, directly or indirectly, for a consideration, any shares of
any class of its capital stock, any partnership interest or any limited
liability company interest (or any warrants for or options or stock
appreciation rights in respect of any of such shares, partnership interests
or limited liability company interests), now or hereafter outstanding, or set
aside any funds for any of the foregoing purposes, and none of the Credit
Parties will permit any of their respective Subsidiaries to purchase or
otherwise acquire for consideration any shares of any class of the capital
stock, any partnership interest or any limited liability company interests of
any Credit Party or any such Subsidiary, as the case may be (or any options
or warrants or stock appreciation rights issued by such Person with respect
to its capital stock, partnership interests or limited liability company
interests), now or hereafter outstanding (all of the foregoing
"Distributions"), except that:
(a) any Subsidiary of Newco may make cash Distributions to Newco or
any Subsidiary of Newco;
(b) so long as no Default or Event of Default exists or would result
therefrom, Newco or any of its Subsidiaries shall be permitted to declare,
make and pay cash Distributions to its respective shareholders in an amount
not to exceed the then Cumulative Net Income Amount less the sum of (i) the
amount of all such Distributions declared, made or paid pursuant to this
Section 7.05(b) prior to the date of determination and on or after January
1, 1995 (other than pursuant to Section 7.05(b)(ii)) plus (ii) the amount
of all such Distributions made by Newco and/or Holdings pursuant to Section
7.05(g); PROVIDED, HOWEVER, that to the extent any non-Wholly- Owned
Subsidiary of Newco pays a cash Distribution to its shareholders, Newco or
its respective Subsidiary which owns the equity interest or interests in
the Subsidiary paying the cash Distribution receives at least its
proportionate share thereof (based upon its relative holdings of equity
interest in the Subsidiary paying such cash Distribution and taking into
account the relative preferences, if any, of the various classes of equity
interests in such Subsidiary); it being understood that the amount of
Distributions declared, made or paid to Newco or any of its Subsidiaries
shall not be counted for purposes of determining whether the amount of
Distributions have exceeded the Cumulative Net Income Amount;
(c) Newco or any of its Subsidiaries may declare and make stock
dividends on its capital stock with the same or a junior class of stock
with respect to which such stock dividend is being paid;
(d) Newco or any of its Subsidiaries may repurchase or redeem its
capital stock solely through the issuance of additional shares of its
capital stock which is of the same or a junior class of such capital stock
being repurchased or redeemed;
(e) so long as no Default or Event of Default exists or would result
therefrom, Holdings may declare, make and pay Distributions in connection
with any redemption of
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its Series A Preferred Stock or Series B Preferred Stock occurring on or
before the Restatement Effective Date;
(f) so long as no Default or Event of Default exists or would result
therefrom, Newco or any of its Subsidiaries or Affiliates may declare, make
and pay Distributions consisting of dividends on preferred securities of
any Subsidiary or Affiliate of Newco issued in connection with the
incurrence of Indebtedness permitted by Section 7.06(l); and
(g) so long as no Event of Default exists or would result therefrom
Newco and/or Holdings may on or before the Restatement Effective Date
redeem, retire, repurchase or otherwise acquire up to 27,000,000 shares of
common stock of Newco and/or Holdings owned by KLM for an aggregate
consideration not in excess of $1,300,000,000.
7.06 INDEBTEDNESS. None of the Credit Parties will, or will permit
any of their respective Subsidiaries to, contract, create, incur, assume or
suffer to exist any Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement;
(b) Indebtedness existing on the Restatement Effective Date listed on
Schedule IV, including any refinancings or renewals thereof, but only to
the extent that such refinancing or renewal does not increase the principal
amount of such Indebtedness outstanding immediately prior to such
refinancing or renewal;
(c) intercompany Indebtedness among Newco and its Subsidiaries;
(d) additional unsecured Indebtedness of Newco and its Subsidiaries,
PROVIDED that to the extent the gross proceeds received from incurrences
thereof after December 15, 1995 (other than any incurrence of any unsecured
Indebtedness of Newco and its Subsidiaries the proceeds of which
Indebtedness is applied substantially contemporaneously to refinance the
outstanding principal amount of, premium, if any, and accrued but unpaid
interest on, any Indebtedness incurred pursuant to this clause (d) or
clause (e) below so long as the principal amount of such Indebtedness being
incurred does not exceed the principal amount of Indebtedness being
refinanced immediately prior to such refinancing), plus the amount of gross
proceeds received from incurrences of secured indebtedness pursuant to
clause (e) below (such gross proceeds being determined in accordance with
clause (e) below), exceed an amount equal to $600,000,000 (provided that
for purposes of determining whether the $600,000,000 threshold has been
exceeded Retired Unsecured Debt shall not be taken into account), an amount
equal to 50% of the Net Debt Proceeds from all incurrences of unsecured
Indebtedness after such threshold is exceeded (including 50% of the Net
Debt Proceeds from the incurrence in which such threshold is exceeded but
only out of that portion of such gross proceeds which exceeds such
threshold at such time) shall be applied to repay Revolving Loans and
reduce Revolving Commitments in accordance with Sections 3.02(b) and
2.03(b);
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(e) additional secured Indebtedness of Newco and its Subsidiaries,
PROVIDED that to the extent the gross proceeds received from incurrences
thereof after December 15, 1995 (other than any incurrence of any secured
Indebtedness of Newco and its Subsidiaries the proceeds of which
Indebtedness is applied substantially contemporaneously to refinance the
outstanding principal amount of, premium, if any, and accrued but unpaid
interest on, any Indebtedness incurred pursuant to clause (d) above or this
clause (e) so long as the principal amount of such Indebtedness being
incurred does not exceed the principal amount of Indebtedness being
refinanced immediately prior to such refinancing), plus the amount of gross
proceeds received from incurrences of unsecured indebtedness pursuant to
clause (d) above in excess of $300,000,000 (such gross proceeds being
determined in accordance with clause (d) above), exceed an amount equal to
$300,000,000 (provided that for purposes of determining whether the
$300,000,000 threshold has been exceeded Retired Secured Debt shall not be
taken into account), an amount equal to 50% of the Net Debt Proceeds from
all incurrences of secured Indebtedness after such threshold is exceeded
(including 50% of the Net Debt Proceeds from the incurrence in which such
threshold is exceeded but only out of that portion of such gross proceeds
which exceeds such threshold at such time) shall be applied to repay
Revolving Loans and reduce Revolving Commitments in accordance with
Sections 3.02(b) and 2.03(b);
(f) Indebtedness incurred in connection with the financing of the
Narita Hotel Property and assets related to such hotel, PROVIDED that the
Liens securing such Indebtedness do not encumber any Collateral (or part
thereof) and the Indebtedness incurred in connection therewith does not
exceed the appraised value of the Narita Hotel Property;
(g) secured Indebtedness incurred to finance the acquisition of
hushkits heretofore or hereafter acquired by the Borrower or any of its
Subsidiaries or to refinance indebtedness incurred to finance the
acquisition of hushkits and any other secured Indebtedness incurred to
finance (or to pre-fund the financing of) the purchase after December 15,
1995 of aircraft and other assets and any refinancing thereof, PROVIDED
that the Liens securing such Indebtedness do not encumber any Collateral
(or part thereof) and the Indebtedness incurred in connection therewith
does not exceed the purchase price of the property being acquired or the
principal amount of the Indebtedness being refinanced;
(h) Indebtedness of Newco and its Subsidiaries of the type described
in clause (v) of the definition of Indebtedness and in clause (iii) thereof
to the extent relating to Indebtedness of the type described in clause (v)
of the definition thereof;
(i) Indebtedness constituting Contingent Obligations of Newco and its
Subsidiaries with respect to corporations, partnerships or joint ventures
formed with other airlines to conduct fueling, ticketing, terminal
operations, aeronautical radio communications, tariff publishing, industry
trade associations, local cartage and other similar airline activities
consistent with the Borrower's past business practice, where the services
provided are generally available to all or substantially all of the
airlines utilizing the facility served;
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(j) Indebtedness of Newco and its Subsidiaries incurred under and in
respect of credit enhancement letters of credit or other similar backstop
liquidity facilities to the extent any such letter of credit or backstop
liquidity facility, as the case may be, has not been drawn upon, which
letters of credit and liquidity facilities provide credit support solely
for the interest portion of Indebtedness incurred by Newco and its
Subsidiaries and otherwise permitted to be incurred pursuant to this
Section 7.06;
(k) Indebtedness of Newco and its Subsidiaries consisting of standby
letters of credit issued for the account of any Credit Party or any of its
respective Subsidiaries in the ordinary course of business and
reimbursement obligations with respect thereto, PROVIDED that the aggregate
amount of such Indebtedness shall not exceed $35,000,000 at any one time;
(l) unsecured Indebtedness of Newco and its Subsidiaries incurred
directly or indirectly to finance any redemption pursuant to Section
7.05(e) and any refinancing thereof, PROVIDED that (i) any such refinancing
occurs substantially contemporaneously with payment of the Indebtedness
being refinanced (or, if not substantially contemporaneously with payment
of the Indebtedness being refinanced, on or prior to December 31, 1997) and
(ii) no such Indebtedness (other than a refinancing in accordance with
clause (l)(i)) shall be incurred to finance any portion of the redemption
price paid in cash with respect to any such redemption;
(m) unsecured Indebtedness of Newco or any of its Subsidiaries in an
aggregate original principal amount not in excess of $800,000,000 incurred
to finance any redemption, retirement, repurchase or acquisition pursuant
to Section 7.05(g) (and in any event within 90 days after the redemption,
retirement, repurchase or acquisition being financed) and any refinancing
thereof that does not increase the outstanding principal amount thereof;
(n) unsecured Indebtedness of Newco or any of its Subsidiaries in an
aggregate original principal amount not in excess of $250,000,000 incurred
to finance any loans, advances or dividends of the nature referred to in
the proviso to the definition of the term "Distribution" herein (and in any
event within 180 days after the loan, advance or dividend being financed)
and any refinancing thereof that does not increase the outstanding
principal amount thereof;
(o) additional secured Indebtedness (whether or not constituting
purchase money Indebtedness) of Newco and its Subsidiaries incurred to
finance or secured by Boeing 757 aircraft N544US, N545US, N546US, N547US,
N548US and N549US so long as the principal amount of such Indebtedness
being incurred does not exceed the fair market value of such aircraft; and
(p) Indebtedness incurred pursuant to the Other Credit Agreement in
an aggregate principal amount outstanding at any one time not to exceed
$1,000,000,000 less (i) the amount of Term Loans under, and as defined in,
the Other Credit Agreement, which are
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repaid after the Original Effective Date and (ii) the amount of permanent
commitment reductions after the Original Effective Date.
7.07 TRANSACTIONS WITH AFFILIATES. None of the Credit Parties will,
or will permit any of their respective Subsidiaries to, enter into any
transaction or series of related transactions with any Affiliate of any Credit
Party or any of their respective Subsidiaries, other than on terms and
conditions substantially as favorable to such Credit Party or such Subsidiary as
would reasonably be obtained by such Credit Party or such Subsidiary at that
time in a comparable arm's-length transaction with a Person other than an
Affiliate, PROVIDED that the foregoing restrictions shall not apply to (a)
customary fees paid to members of the Board of Directors of Newco and its
Subsidiaries, (b) Distributions permitted by Section 7.05 and (c) Indebtedness
permitted by Section 7.06(l).
7.08 CONSOLIDATED INDEBTEDNESS TO CONSOLIDATED EBITDAR. Newco will
not permit the ratio of Consolidated Indebtedness as of the last day of any
fiscal quarter to Consolidated EBITDAR for the period of four consecutive fiscal
quarters ended on the last day of such fiscal quarter, to be greater than
6.0:1.0.
7.09 CONSOLIDATED EBITDAR TO CONSOLIDATED FIXED CHARGES. Newco will
not permit the ratio of Consolidated EBITDAR to Consolidated Fixed Charges for
any period of four consecutive fiscal quarters ended on the last day of any
fiscal quarter, to be less than 1.5:1.0.
7.10 ERISA. None of the Credit Parties will, or will permit any of
their respective Subsidiaries or its ERISA Affiliates to:
(i) engage in any transaction in connection with which Newco or any
of its ERISA Affiliates could be subject to either a tax imposed by Section
4975(a) of the Code or the corresponding civil penalty assessed pursuant to
Section 502(i) of ERISA, which penalties and taxes for all such
transactions could be in an aggregate amount in excess of $2,500,000;
(ii) permit to exist any accumulated funding deficiency, for which a
waiver has not been obtained from the Internal Revenue Service, with
respect to any Pension Plan in an aggregate amount greater than $5,000,000;
or
(iii) permit to exist any failure to make contributions or any
unfunded benefits liability which creates, or with the passage of time
would create, a statutory lien or requirement to provide security under
ERISA or the Code in favor of the PBGC or any Pension Plan, Multiemployer
Plan or other entity in an aggregate amount in excess of $5,000,000.
7.11 LAX TWO CORP. At any time when Newco directly or indirectly
owns more than 50% of the outstanding Voting Stock of LAX Two, Newco will not
permit LAX Two or any of its Subsidiaries to engage in any business other than
the business engaged in by LAX Two and its Subsidiaries as of December 15, 1995
or to change LAX Two's status as a non-profit corporation to a for-profit
corporation.
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7.12 OTHER CREDIT AGREEMENT; BRIDGE DEBT AGREEMENT. (a) The Borrower
will not voluntarily reduce or terminate any loan commitments under the Other
Credit Agreement.
(b) The Borrower will not voluntarily repay any outstanding loans
under the Other Credit Agreement, at any time when any Revolving Loans are
outstanding hereunder and the Borrower will not voluntarily repay any
outstanding loans under the Bridge Debt Agreement at any time when any Revolving
Loans are outstanding hereunder or there shall exist any Revolving Loan
Commitments; PROVIDED, HOWEVER, that the Borrower may voluntarily repay
outstanding loans under the Bridge Debt Agreement with the proceeds of any
financing secured by the aircraft to which such Bridge Debt Agreement relates
and which financing has an average life of not less than five (5) years.
(c) The Borrower will not incur any loan under the Bridge Debt
Agreement with a maturity date that is earlier than the first anniversary of the
Restatement Effective Date.
(d) The Borrower will not amend the Other Credit Agreement or the
"Credit Documents" (as such term is defined in the Other Credit Agreement).
SECTION 8. EVENTS OF DEFAULT. Upon the occurrence of any of the
following specified events (each, an "Event of Default"):
8.01 PAYMENTS. The Borrower shall (i) default in the payment when
due of any principal of any Revolving Loan or any Revolving Note or (ii)
default, and such default shall continue unremedied for five or more Business
Days, in the payment when due of any interest on any Revolving Loan or Revolving
Note, or any Fees or any other amounts owing hereunder or thereunder, provided
that, in the case of this clause (ii), the Administrative Agent shall have
informed the Borrower of the amount owing; or
8.02 REPRESENTATIONS, ETC. Any representation, warranty or statement
made by any Credit Party herein or in any other Credit Document or in any
certificate delivered pursuant hereto or thereto shall prove to be untrue in any
material respect on the date as of which made or deemed made, and such default
shall continue unremedied for a period of 30 days after written notice to the
Borrower by the Administrative Agent or the Required Banks; or
8.03 COVENANTS. Any Credit Party shall (i) default in any material
respect in the due performance or observance by it of any term, covenant or
agreement contained in Section 7.02, 7.03 or 7.05 or (ii) default in the due
performance or observance by it of any term, covenant or agreement contained in
Section 7.08 or 7.09 and such default shall continue unremedied for a period of
15 days after written notice to the Borrower by the Administrative Agent or the
Required Banks or (iii) default in any material respect in the due performance
or observance by it of any other term, covenant or agreement contained in this
Agreement (other than as described in Section 8.01, 8.03(i) or 8.03(ii)), and
such default shall continue unremedied for a period of 30 days after written
notice to the Borrower by the Administrative Agent or the Required Banks; or
8.04 DEFAULT UNDER OTHER AGREEMENTS. (a) Any Credit Party or any of
its Subsidiaries shall (i) default in any payment of any Indebtedness (other
than the Obligations)
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which default is in excess of $10,000,000 beyond the period of grace (not to
exceed 10 days), if any, provided in the instrument or agreement under which
such Indebtedness was created or (ii) default in the observance or
performance of any agreement or condition relating to any Indebtedness (other
than the Obligations) if such Indebtedness is in excess of $25,000,000 in the
case of any one issue of Indebtedness or in excess of $50,000,000 in the case
of all such Indebtedness when aggregated with all Lease claims described in
clause (c)(ii) or contained in any instrument or agreement evidencing,
securing or relating thereto, or any other event shall occur or condition
exist, the effect of which default or other event or condition is to cause,
or to permit the holder or holders of such Indebtedness (or a trustee or
agent on behalf of such holder or holders) to cause, any such Indebtedness to
become due prior to its stated maturity; or (b) any Indebtedness (other than
the Obligations), individually in excess of $25,000,000, or in the aggregate
in excess of $50,000,000 (when aggregated with all Lease claims described in
clause (c)(ii)), of any Credit Party or any of its Subsidiaries shall be
declared to be due and payable, or required to be prepaid other than by a
regularly scheduled required prepayment, prior to the stated maturity
thereof; or (c) any Credit Party or any of its Subsidiaries shall default in
the observance or performance of any agreement or condition relating to any
Lease if (i) the default is with respect to any payment in excess of
$10,000,000 beyond the period of grace (not to exceed 10 days), if any,
provided in the Lease or (ii) the effect of such default is to give the
lessor pursuant to such Lease a claim against any Credit Party (after
deducting from such claim the value of the property subject to such Lease) in
excess of $25,000,000 in the case of any one Lease or in excess of
$50,000,000 in the case of all Leases and all Indebtedness described in
clause (a)(ii) or (b) of this Section 8.04; or
8.05 BANKRUPTCY, ETC. The Borrower or any Guarantor (each a
"Designated Party") shall commence a voluntary case concerning itself under
Title 11 of the United States Code entitled "Bankruptcy", as now or hereafter
in effect, or any successor thereto (the "Bankruptcy Code"); or an
involuntary case is commenced against a Designated Party and the petition is
not controverted within 10 days after service of notice of such case on such
Designated Party, or is not dismissed within 60 days after commencement of
the case; or a custodian (as defined in the Bankruptcy Code) is appointed
for, or takes charge of, all or substantially all of the property of a
Designated Party; or a Designated Party commences any other proceeding under
any reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any jurisdiction
whether now or hereafter in effect relating to a Designated Party; or there
is commenced against a Designated Party any such proceeding which remains
undismissed for a period of 60 days; or a Designated Party is adjudicated
insolvent or bankrupt; or any order of relief or other order approving any
such case or proceeding is entered; or a Designated Party suffers any
appointment of any custodian or the like for it or any substantial part of
its property to continue undischarged or unstayed for a period of 60 days; or
a Designated Party makes a general assignment for the benefit of creditors;
or any corporate action is taken by a Designated Party for the purpose of
effecting any of the foregoing; or
8.06 ERISA. (i) Any "reportable event" as described in Section
4043 of ERISA or the regulations thereunder (excluding those events for which
the requirement for notice has been waived by the PBGC), or any other event
or condition, which the Required Banks determine constitutes reasonable
grounds under Section 4042 of ERISA for the termination of any Pension
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Plan by the PBGC or for the appointment by the appropriate United States
District Court of a trustee to administer or liquidate any Pension Plan shall
have occurred; or
(ii) A trustee shall be appointed by a United States District Court to
administer any Pension Plan; or
(iii) The PBGC shall institute proceedings to terminate any
Pension Plan or to appoint a trustee to administer any Pension Plan; or
(iv) Newco or any of its ERISA Affiliates shall become liable to the
PBGC or any other party under Section 4062, 4063 or 4064 of ERISA with respect
to any Pension Plan; or
(v) Newco or any of its ERISA Affiliates shall become liable to any
Multiemployer Plan under Section 4201 ET SEQ. of ERISA; or
(vi) Any Pension Plan shall fail to satisfy the minimum funding
standard required for any plan year or part thereof or a waiver of such standard
or extension of any amortization period is sought or granted under Section 412
of the Code; or
(vii) A contribution required to be made to a Pension Plan or a
Multiemployer Plan has not been timely made; or
(viii) Any Credit Party or any Subsidiary of Newco or any ERISA
Affiliate has incurred or is likely to incur a liability to or on account of a
Plan under Section 502(i), or 502(l) of ERISA or Section 4975 of the Code; or
(ix) Any Credit Party or any Subsidiary of any Credit Party has
incurred or is likely to incur liabilities pursuant to one or more employee
welfare benefit plans (as defined in Section 3(1) of ERISA) that provide
benefits to retired employees or other former employees (other than as required
by Section 601 of ERISA) or employee pension benefit plans (as defined in
Section 3(2) of ERISA) other than Pension Plans;
if as of the date thereof or any subsequent date, the sum of each Credit Party's
and its ERISA Affiliates' various liabilities (such liabilities to include,
without limitation, any liability to the PBGC or to any other party under
Section 4062, 4063 or 4064 of ERISA with respect to any Pension Plan, or to any
Multiemployer Plan under Section 4201 ET SEQ. of ERISA, and to be calculated
after giving effect to the tax consequences thereof) as a result of such events
listed in subclauses (i) through (ix) above exceeds $100,000,000; or
8.07 JUDGMENTS. One or more judgments or decrees shall be entered
against any Credit Party or any of its Subsidiaries involving a liability of
$25,000,000 or more in the case of any one such judgment or decree or
$50,000,000 or more in the aggregate for all such judgments and decrees (in each
case to the extent not paid or fully covered by insurance provided by a carrier
that has acknowledged coverage) and any such judgments or decrees shall not have
been vacated, discharged, satisfied or stayed or bonded pending appeal within 60
days from the entry thereof; or
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8.08 GUARANTY. The Guaranty or any provision thereof shall cease to
be in full force or effect, or any Guarantor or any Person acting by or on
behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations
under the Guaranty or any Guarantor shall default in any material respect in the
due performance or observance of any term, covenant or agreement on its part to
be performed or observed pursuant to the Guaranty; or
8.09 SECURITY DOCUMENTS. The Route Security Agreement shall cease to
be in full force and effect or shall cease to give the Collateral Agent for the
benefit of the Secured Creditors the Liens, rights, powers and privileges
purported to be created thereby (including, without limitation, in all cases, a
perfected security interest in, and Lien on, all of the Collateral), in favor of
the Collateral Agent, superior to and prior to the rights of all third Persons
(except for Permitted Liens), or any Credit Party shall default in any material
respect in the due performance or observance of any term, covenant or agreement
on its part to be performed or observed pursuant to the Route Security Agreement
and such default shall continue beyond any grace period specifically applicable
thereto pursuant to the terms of the Route Security Agreement;
then, and in any such event, and at any time thereafter, if any Event of Default
shall then be continuing, the Administrative Agent shall, upon the written
request of the Required Banks, by written notice to Newco and the Borrower, take
any or all of the following actions, without prejudice to the rights of the
Administrative Agent or any Bank to enforce its claims against the Borrower,
except as otherwise specifically provided for in this Agreement (PROVIDED that
if an Event of Default specified in Section 8.05 shall occur with respect to the
Borrower, the result which would occur upon the giving of written notice by the
Administrative Agent as specified in clauses (i) and (ii) below shall occur
automatically without the giving of any such notice): (i) declare the Total
Revolving Loan Commitment terminated, whereupon the Revolving Loan Commitment
of each Bank shall forthwith terminate immediately and all Fees theretofore
accrued shall forthwith become due and payable without any other notice of any
kind; (ii) declare the principal of and any accrued interest in respect of all
Revolving Loans and the Revolving Notes and all Obligations owing hereunder and
thereunder to be, whereupon the same shall become, forthwith due and payable
without presentment, demand, protest or other notice of any kind, all of which
are hereby waived by each Credit Party; and (iii) enforce, as Collateral Agent,
any or all of the Liens and security interests created pursuant to the Route
Security Agreement.
SECTION 9. Definitions and Accounting Terms.
9.01 DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Adjusted Certificate of Deposit Rate" shall mean, on any day, the sum
(rounded to the nearest 1/100 of 1%) of (1) the rate obtained by dividing (x)
the most recent weekly average dealer offering rate for negotiable certificates
of deposit with a three-month maturity in the secondary market as published in
the most recent Federal Reserve System publication entitled "Select Interest
Rates", published weekly on Form H.15 as of the date hereof, or if such
publication or a substitute containing the foregoing rate information shall not
be published by the Federal Reserve System for any week, the weekly average
offering rate determined by the
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Administrative Agent on the basis of quotations for such certificates
received by it from three certificate of deposit dealers in New York of
recognized standing or, if such quotations are unavailable, then on the basis
of other sources reasonably selected by the Administrative Agent, by (y) a
percentage equal to 100% minus the stated maximum rate of all reserve
requirements as specified in Regulation D of the Board of Governors of the
Federal Reserve System applicable on such day to a three-month certificate of
deposit of a member bank of the Federal Reserve System in excess of $100,000
(including, without limitation, any marginal, emergency, supplemental,
special or other reserves), plus (2) the then daily net annual assessment
rate (expressed as a percentage) as estimated by the Administrative Agent for
determining the current annual assessment payable by the Administrative Agent
to the Federal Deposit Insurance Corporation for insuring three-month
certificates of deposit.
"Affiliate" shall mean, with respect to any Person, any other Person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with, such Person; PROVIDED, HOWEVER, that for purposes of
Section 7.07, an Affiliate of Newco shall, in any event, include any Person that
directly or indirectly owns more than 5% of the Voting Stock of Newco and any
officer or director of Newco or any such Person. A Person shall be deemed to
control another Person if such Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of such
other Person, whether through the ownership of Voting Stock, by contract or
otherwise.
"Agent" shall mean and include each of the Administrative Agent and
the Syndication Agent.
"Agreement" shall mean this Credit Agreement, as modified,
supplemented or amended from time to time.
"Air Partners" shall mean Air Partners, L.P., a Texas limited
partnership.
"Appraisal" shall mean an appraisal, dated the date of delivery
thereof to the Banks pursuant to the terms of this Agreement, by an independent
appraisal firm satisfactory, at the time of such Appraisal, to the Borrower and
the Agents setting forth both the fair market value, and the orderly liquidation
value of the Collateral as of the date of such appraisal.
"Appraised Value" shall mean as of any date of determination each of
the aggregate "fair market value" and aggregate "orderly liquidation value" as
of such date of each asset constituting Collateral as provided in the most
recently delivered Appraisal.
"Assignment and Assumption Agreement" shall mean an Assignment and
Assumption Agreement substantially in the form of Exhibit F (appropriately
completed).
"Authorized Officer" of any Credit Party shall mean the Chief
Executive Officer, the Chief Financial Officer or any Vice President and above
who reports directly or indirectly to the Chief Financial Officer.
"Bank" shall have the meaning provided in the first paragraph of this
Agreement.
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<PAGE>
"Bankruptcy Code" shall have the meaning provided in Section 8.05.
"Base Rate" at any time shall mean the higher of (i) 1/2 of 1% in
excess of the Adjusted Certificate of Deposit Rate and (ii) the Prime Lending
Rate.
"Base Rate Loan" shall mean each Revolving Loan designated or deemed
designated as such by the Borrower at the time of the incurrence thereof or
conversion thereto.
"Borrower" shall have the meaning provided in the first paragraph of
this Agreement.
"Borrowing" shall mean the borrowing of one Type of Revolving Loans
from all the Banks on a given date (or resulting from a conversion or
conversions on such date or resulting from a selection of an Interest Period or
Interest Periods on such date) having in the case of Eurodollar Loans the same
Interest Period, PROVIDED that Base Rate Loans incurred pursuant to Section
1.10(b) shall be considered part of the related Borrowing of Eurodollar Loans.
"Bridge Debt Agreement" shall mean the Amended and Restated Credit
Agreement dated as of October 11, 1996, among the Borrower, the lenders from
time to time party thereto, ABN Amro Bank N.V., as Documentation Agent, Bankers
Trust Company, as Administrative Agent, and Chase Securities Inc., as
Syndication Agent.
"Business Day" shall mean (i) for all purposes other than as covered
by clause (ii) below, any day except Saturday, Sunday and any day which shall be
in Minneapolis, Minnesota or New York City a legal holiday or a day on which
banking institutions are authorized or required by law or other government
action to close and (ii) with respect to all notices and determinations in
connection with, and payments of principal and interest on, Eurodollar Loans,
any day which is a Business Day described in clause (i) above and which is also
a day for trading by and between banks in the interbank Eurodollar market.
"Capitalized Lease Obligations" of any Person shall mean all rental
obligations which, under GAAP, are or will be required to be capitalized on the
books of such Person, in each case taken at the amount thereof accounted for as
indebtedness in accordance with GAAP.
"Certificated Air Carrier" shall mean a Citizen of the United States
holding a carrier operating certificate issued by the Secretary of
Transportation pursuant to Chapter 447 of Title 49, United States Code, for
aircraft capable of carrying ten or more individuals or 6,000 pounds or more of
cargo.
"Citizen of the United States" shall have the meaning provided in
Section 40102(a)(15) of Title 49 of the United States Code.
"Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time, and the regulations promulgated and the rulings issued
thereunder. Section references to the Code are to the Code, as in effect at
the date of this Agreement, and to any subsequent provision of the Code,
amendatory thereof, supplemental thereto or substituted therefor.
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<PAGE>
"Collateral" shall mean all of the "Collateral" as defined in the
Route Security Agreement.
"Collateral Agent" shall mean the Administrative Agent acting as
collateral agent for the Secured Creditors pursuant to the Route Security
Agreement.
"Commitment Fee" shall have the meaning provided in Section 2.01(a).
"Consolidated EBITDAR" shall mean, for any period, the consolidated
operating income of Newco and its Subsidiaries for such period plus (i)
consolidated aircraft operating rental expenses of Newco and its Subsidiaries
for such period plus (ii) amortization and depreciation that were deducted in
arriving at the amount of such consolidated operating income for such period
plus (iii) interest income of Newco and its Subsidiaries during such period, all
as determined on a consolidated basis in accordance with GAAP, plus (iv) the
following amount for each of the following periods:
<TABLE>
<CAPTION>
PERIOD AMOUNT
------------------ -----------------------------
<S> <C>
Second Quarter 1998 $ 45,000,000
Third Quarter 1998 $672,000,000
Fourth Quarter 1998 an amount equal to the lesser
of (x) the sum of the publicly
announced costs relating to the
strike by the Northwest Air
Line Pilots Association plus
out-of-period labor costs
associated with the settlement
of such strike for the fourth
quarter of 1998 and (y)
$378,000,000
First Quarter 1999 an amount equal to the lesser
of (x) the sum of the publicly
announced costs relating to the
strike by the Northwest Air
Line Pilots Association plus
out-of-period labor costs
associated with the settlement
of such strike for the first
quarter of 1999 and (y)
$75,000,000
</TABLE>
"Consolidated Fixed Charges" shall mean, for any period, the total
consolidated interest expense of Newco and its Subsidiaries for such period
(calculated without regard to any limitations on the payment thereof, but
excluding all interest expense in connection with any Distribution permitted by
Section 7.05(f) and all interest expense in connection with Indebtedness
permitted by Section 7.06(l) except any such Indebtedness incurred by the
Borrower or any of its Subsidiaries which is not subordinated to the
Obligations) plus, without duplication, that portion
41
<PAGE>
of Capitalized Lease Obligations of Newco and its Subsidiaries representing
the interest factor for such period, plus the total consolidated aircraft
operating rental expenses of Newco and its Subsidiaries for such period.
"Consolidated Indebtedness" shall mean, at any time, the sum of (i)
the aggregate outstanding principal amount of all Indebtedness (including,
without limitation, the current portion thereof, but excluding (1) all
Indebtedness of the type set forth in clause (v) of the definition of
Indebtedness, (2) all Indebtedness of the type set forth in clause (iii) of the
definition of Indebtedness to the extent relating to Indebtedness of the type
described in clause (v) of the definition thereof, (3) all Identified
Indebtedness, and (4) all Indebtedness permitted by Section 7.06(l) except any
such Indebtedness incurred by the Borrower or any of its Subsidiaries which is
not subordinated to the Obligations) and the principal component of Capitalized
Lease Obligations of Newco and its Subsidiaries plus (ii) the capitalized
aircraft operating lease obligations of Newco and its Subsidiaries (calculated
at any time of determination as the product of (x) seven and (y) the aircraft
operating rental expense of Newco and its Subsidiaries for the four fiscal
quarters immediately preceding the date of determination).
"Consolidated Net Income" shall mean, for any period, net after tax
income of Newco and its Subsidiaries determined on a consolidated basis in
accordance with GAAP.
"Continental" shall mean Continental Airlines, Inc., a Delaware
corporation.
"Contingent Obligation" shall mean, as to any Person, any obligation
of such Person guaranteeing or intended to guarantee any Indebtedness, leases,
dividends or other obligations ("primary obligations") of any other Person
(other than Newco or any of its Subsidiaries) (the "primary obligor") in any
manner, whether directly or indirectly, including, without limitation, any
obligation of such Person, whether or not contingent, (i) to purchase any such
primary obligation or any property constituting direct or indirect security
therefor, (ii) to advance or supply funds (x) for the purchase or payment of any
such primary obligation or (y) to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services primarily
for the purpose of assuring the owner of any such primary obligation of the
ability of the primary obligor to make payment of such primary obligation or
(iv) otherwise to assure or hold harmless the holder of such primary obligation
against loss in respect thereof; PROVIDED, HOWEVER, that the term Contingent
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Contingent
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary obligation in respect of which such Contingent Obligation
is made (or, if less, the maximum amount of such primary obligation for which
such Person may be liable pursuant to the terms of the instrument evidencing
such Contingent Obligation) or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof (assuming such Person is
required to perform thereunder) as determined by such Person in good faith.
"Continuing Bank" shall mean each Existing Bank with a Revolving Loan
Commitment under this Agreement (immediately after giving effect to the
Restatement Effective Date).
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<PAGE>
"Coverage Tests" shall have the meaning provided in Section 4A.11(b).
"Credit Documents" shall mean this Agreement (including the Guaranty
herein), the Revolving Notes, the Route Security Agreement and the
Acknowledgment and Amendment.
"Credit Event" shall mean the making of any Revolving Loan.
"Credit Party" shall mean Newco, Holdings, NWA and the Borrower,
except that Newco shall not be deemed to be a Credit Party for purposes of
Sections 5.09, 6.07 or 7.10 or for purposes of the definitions of "Pension Plan"
and "Termination Event" herein.
"Cumulative Net Income Amount" shall mean on any date of
determination, an amount equal to 50% of Consolidated Net Income (determined on
a cumulative basis) for the period commencing on January 1, 1995 and ending on
the date of determination.
"Default" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Designated Party" shall have the meaning provided in Section 8.05.
"Distribution" shall have the meaning PROVIDED in Section 7.05,
provided that loans, advances or dividends by Holdings or any of its
Subsidiaries in an aggregate amount not in excess of $400,000,000 to Newco the
proceeds of which are used to acquire, directly or indirectly, shares of capital
stock of Continental shall be deemed not to be Distributions for all purposes of
this Agreement.
"Dollars" and the sign "$" shall each mean freely transferable lawful
money of the United States.
"Eligible Transferee" shall mean and include a commercial bank,
financial institution or other "accredited investor" (as defined in Regulation D
of the Securities Act) other than an airline, a commercial air carrier, an air
freight forwarder, an entity engaged in the business of parcel transport by air
or other similar Person or a corporation or other entity controlling, controlled
by or under common control with such an airline, commercial air carrier, air
freight forwarder, entity engaged in the business of parcel transport by air or
other similar Person.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended from time to time and the regulations promulgated and rulings
issued thereunder. Section references to ERISA are to ERISA, as in effect at
the date of this Agreement, and any subsequent provisions of ERISA, amendatory
thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in Section 3(9)
of ERISA) which together with Newco or any of its Subsidiaries would be deemed
to be a "single employer" within the meaning of Section 414(b), (c), (m) or (o)
of the Code, provided that in no event shall Air Partners or any of its
Subsidiaries or Continental or any of its Subsidiaries be deemed to be ERISA
Affiliates for any purpose.
43
<PAGE>
"Eurodollar Loan" shall mean each Revolving Loan designated as such by
the Borrower at the time of the incurrence thereof or conversion thereto.
"Eurodollar Rate" shall mean, at the option of the Borrower, (a) (i)
the rate determined by the Administrative Agent to be the arithmetic average of
the offered quotation to first-class banks in the interbank Eurodollar market by
each Reference Bank for Dollar deposits of amounts in immediately available
funds comparable to the outstanding principal amount of the Eurodollar Loan of
such Reference Bank with maturities comparable to the Interest Period applicable
to such Eurodollar Loan commencing two Business Days thereafter as of 10:00 A.M.
(New York time) on the date which is two Business Days prior to the commencement
of such Interest Period, divided (and rounded off to the nearest 1/16 of 1%) by
(ii) a percentage equal to 100% minus the then stated maximum rate of all
reserve requirements (including, without limitation, any marginal, emergency,
supplemental, special or other reserves required by applicable law) applicable
to any member bank of the Federal Reserve System in respect of Eurocurrency
liabilities as defined in Regulation D of the Board of Governors of the Federal
Reserve System (or any successor category of liabilities under Regulation D),
PROVIDED that if one or more of the Reference Banks fails to provide the
Administrative Agent with its aforesaid rate, then the Eurodollar Rate shall be
determined based on the rate or rates provided to the Administrative Agent by
the other Reference Bank or Banks, or (b) the arithmetic average of the offered
rates for deposits in Dollars for the applicable Interest Period (or the period
closest to such applicable Interest Period) which appear on the Reuters Screen
LIBO Page as of 10:00 A.M. (New York time) on the date which is two Business
Days prior to the commencement of such Interest Period.
"Event of Default" shall have the meaning provided in Section 8.
"Event of Loss", with respect to a Route, shall mean the loss by the
Borrower of the right to use such Route.
"Existing Banks" shall mean each Person that was a "Bank" under, and
as defined in, the Existing Credit Agreement.
"Existing Credit Agreement" shall have the meaning provided in the
first recital to this Agreement.
"Existing Revolving Loans" shall mean the "Revolving Loans" under, and
as defined in, the Existing Credit Agreement.
"Express Air I" shall mean Express Airlines I, Inc., a Georgia
corporation, and Phoenix Airline Services, Inc., a Georgia corporation.
"FAA" means the United States Federal Aviation Administration and any
agency or instrumentality of the United States government succeeding to its
functions.
"Federal Aviation Act" shall mean the Federal Aviation Act of 1958, as
amended and recodified in Title 49, United States Code, or any similar
legislation of the United States to supersede, amend or supplement such Act and
the rules and regulations promulgated thereunder.
44
<PAGE>
"Federal Funds Rate" shall mean for any period, a fluctuating interest
rate equal for each day during such period to the weighted average of the rates
on overnight Federal Funds transactions with members of the Federal Reserve
System arranged by Federal Funds brokers, as published for such day (or, if such
day is not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day which
is a Business Day, the average of the quotations for such day on such
transactions received by the Administrative Agent from three Federal Funds
brokers of recognized standing selected by the Administrative Agent.
"Fees" shall mean all amounts payable pursuant to or referred to in
Section 2.01.
"Financial Outlook" shall have the meaning provided in Section
5.05(b).
"GAAP" shall have the meaning provided in Section 11.07(a).
"Guarantor" shall mean each of Newco, Holdings and NWA.
"Guaranty" shall mean the guaranty of Newco, Holdings and NWA pursuant
to Section 12.
"Hedging Obligations" shall mean, as to any Person, all obligations
and liabilities of such Person under any Interest Rate Protection Agreement,
which are payable upon the termination of such agreement.
"Holdings" shall have the meaning provided in the first paragraph of
this Agreement.
"Identified Indebtedness" shall mean and include (i) Contingent
Obligations incurred pursuant to Section 7.06(i), (ii) Contingent Obligations of
Holdings in respect of the Wayne County Special Facilities Revenue Bonds;
PROVIDED that the maximum aggregate liability of Holdings and its Subsidiaries
in respect of all such Contingent Obligations shall not exceed $86,000,000 plus
interest thereon, (iii) Contingent Obligations of NATC for the benefit of a
third party in respect of its space lease in Grand Forks, North Dakota, PROVIDED
that the maximum aggregate liability of NATC in respect of all such Contingent
Obligations shall not exceed $2,500,000, (iv) Indebtedness of the type described
in clause (iii) of the definition thereof in connection with the Borrower's
pledge of its receivables generated through the Scheduled Airline Traffic Office
to secure Indebtedness incurred by the Scheduled Airline Traffic Office, the
proceeds of which are advanced to the Borrower on a non-recourse basis (other
than such pledged receivables) and (v) Indebtedness incurred pursuant to Section
7.06(j) but only to the extent that such credit enhancement letters of credit or
backstop liquidity facilities referred to therein are not drawn upon.
"Indebtedness" shall mean, as to any Person, without duplication, (i)
all indebtedness (including principal, interest, fees and charges) of such
Person for borrowed money or for the deferred purchase price of property or
services but excluding trade accounts payable and accrued expenses incurred in
the ordinary course of business, (ii) the maximum amount available to be drawn
under all letters of credit issued for the account of such Person and all
45
<PAGE>
unpaid drawings in respect of such letters of credit, (iii) all Indebtedness
of the types described in clause (i), (ii), (iv), (v), (vi) or (vii) of this
definition secured by any Lien on any property owned by such Person, whether
or not such Indebtedness has been assumed by such Person (to the extent of
the value of the respective property), (iv) Capitalized Lease Obligations,
(v) all obligations of such person to pay a specified purchase price for
goods or services, whether or not delivered or accepted, I.E., take-or-pay
and similar obligations, (vi) all Contingent Obligations of such Person and
(vii) all Hedging Obligations under any Interest Rate Protection Agreement;
PROVIDED, HOWEVER, that neither (a) the Japanese Land Financing Obligations
nor (b) any obligations of Newco and/or Holdings to repurchase shares of its
common stock owned by KLM to the extent such repurchase would be permitted in
accordance with Section 7.05(g) shall constitute Indebtedness.
"Interest Determination Date" shall mean, with respect to any
Eurodollar Loan, the second Business Day prior to the commencement of any
Interest Period relating to such Eurodollar Loan.
"Interest Period" shall have the meaning provided in Section 1.09.
"Interest Rate Protection Agreement" shall mean any interest rate swap
agreement, interest rate cap agreement, interest collar agreement, interest rate
hedging agreement or other similar agreement or arrangement.
"Japanese Land Financing Obligations" shall mean all obligations of
the Borrower under that certain Second Amended and Restated Loan Agreement,
dated as of September 30, 1995, between the Borrower and Konan City Planning
Co., Ltd., but only to the extent that such obligations are non-recourse with
respect to all Credit Parties and their Subsidiaries and are secured solely by
the following real property: (i) the Azabu property, (ii) the Kamiya-cho
property and (iii) the Sarugaku-cho property.
"KLM" shall mean Koninklijke Luchtvaart Maatschappij N.V., a
Netherlands corporation.
"LAX Two" shall mean LAX TWO CORP., a non-profit California mutual
benefit corporation.
"Lease" shall mean any operating lease entered into by any Credit
Party or any of its Subsidiaries as lessee thereunder.
"Lien" shall mean any mortgage, pledge, hypothecation, assignment,
security deposit arrangement, encumbrance, lien (statutory or other) or other
security agreement or lien of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under the UCC or any other
similar recording or notice statute, and any capital lease having substantially
the same economic effect as any of the foregoing).
"Margin Stock" shall have the meaning provided in Regulation U of the
Board of Governors of the Federal Reserve System.
46
<PAGE>
"Moody's" shall mean Moody's Investors Service, Inc., or any successor
corporation thereto.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA with respect to which the Borrower or any of its
ERISA Affiliates is an "employer" as defined in Section 3(5) of ERISA.
"Narita Hotel Property" shall mean the Narita International Hotel and
the "Flight Kitchen" located on the property on which such hotel is located.
"NATC" shall mean Northwest Aerospace Training Corporation, a Delaware
corporation.
"Net Debt Proceeds" shall mean for any incurrence of Indebtedness, the
gross proceeds of such incurrence, net of (i) underwriting discounts and
commissions and other fees and costs associated therewith, (ii) any taxes
(including income taxes) currently paid or payable in the year of incurrence or
the following year as a result of such incurrence and (iii) in the case of the
incurrence of any such Indebtedness in connection with the substantially
contemporaneous refinancing of other Indebtedness, the aggregate amount of the
outstanding principal amount of, premium, if any, and accrued but unpaid
interest on, such other Indebtedness being refinanced with the proceeds of such
Indebtedness.
"Net Sale Proceeds" shall mean for any sale, lease, transfer or other
disposition of assets, the face amount of any promissory note, receivable or
other deferred payment and the gross cash proceeds plus the fair market value of
any other property received by Newco or any of its Subsidiaries from such sale,
lease, transfer or other disposition, net of reasonable transaction costs, the
payment of the outstanding principal amount of, premium, if any, and interest on
any Indebtedness (other than the Obligations) securing the assets being sold and
required to be repaid as a result thereof and the estimated marginal increase in
income taxes which will be payable by Newco's consolidated group with respect to
the fiscal year in which the sale occurs as a result of such sale.
"New Banks" shall mean and include each of the Persons listed on
Schedule I which is designated as a New Bank.
"Newco" shall have the meaning provided in the preamble to this
Agreement.
"Non-Continuing Bank" shall have the meaning provided in Section
11.18.
"Notice of Borrowing" shall have the meaning provided in Section
1.03(a).
"Notice of Conversion" shall have the meaning provided in Section
1.06.
"Notice Office" shall mean the office of the Administrative Agent
located at One Chase Manhattan Plaza, New York, New York 10081, Attention:
Jesus Sang, Loan and Agency Services Group, 8th Floor, Facsimile: (212)
552-5650, or such other office as the Administrative Agent may hereafter
designate in writing as such to the other parties hereto.
47
<PAGE>
"NWA" shall have the meaning provided in the first paragraph of this
Agreement.
"Obligations" shall mean all amounts owing to any Agent or any Bank
pursuant to the terms of this Agreement or any other Credit Document.
"Original Effective Date" shall mean the Effective Date under, and as
defined in, the Existing Credit Agreement.
"Other Credit Agreement" shall mean the Credit Agreement among Newco,
Holdings, NWA, the Borrower, the lenders from time to time party thereto, ABN
Amro Bank N.V. as Compliance Agent, Bankers Trust Company as Administrative
Agent, Chase Securities Inc. as Syndication Agent, Citibank N.A. as
Documentation Agent, and National Westminster Bank plc and U.S. Bank National
Association (f/k/a First Bank National Association) as Agents, dated as of
December 15, 1995, as amended and restated as of October 16, 1996, as further
amended and restated as of December 29, 1997, and as amended as of January 23,
1998, May 12, 1998, November 12, 1998 and January 19, 1999.
"Payment Office" shall mean the office of the Administrative Agent
located at One Chase Manhattan Plaza, New York, New York 10081 Attention: Jesus
Sang, Loan and Agency Services Group, 8th Floor, Facsimile: (212) 552-5650, or
such other office as the Administrative Agent may hereafter designate in writing
as such to the other parties hereto.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to Section 4002 of ERISA, or any successor thereto.
"Pension Plan" means any plan (other than a Multiemployer Plan)
described in Section 4021(a) of ERISA, and not excluded pursuant to Section
4021(b) of ERISA, with respect to which any Credit Party or any of its ERISA
Affiliates is a "contributing sponsor" as defined in Section 4001(a)(13) of
ERISA and each such plan for the five year period immediately following the last
date on which the Borrower or any of its ERISA Affiliates contributed or had an
obligation to contribute to such plan.
"Percentage" of any Bank at any time shall mean a fraction (expressed
as a percentage) the numerator of which is the Revolving Loan Commitment of such
Bank at such time and the denominator of which is the Total Revolving Loan
Commitment at such time, provided that if the Percentage of any Bank is to be
determined after the Total Revolving Loan Commitment has been terminated, then
the Percentages of the Banks shall be determined immediately prior (and without
giving effect) to such termination.
"Permitted Liens" shall have the meaning set forth in Section 7.04
hereof.
"Person" shall mean any individual, partnership, joint venture, firm,
corporation, association, limited liability company, trust or other enterprise
or any government or political subdivision or any agency, department or
instrumentality thereof.
"Prime Lending Rate" shall mean the rate which the Administrative
Agent announces from time to time as its prime lending rate, the Prime Lending
Rate to change when
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<PAGE>
and as such prime lending rate changes. The Prime Lending Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. The Administrative Agent may make
commercial loans or other loans at rates of interest at, above or below the
Prime Lending Rate.
"Quarterly Payment Date" shall mean the fifteenth day of each March,
June, September and December occurring after the Restatement Effective Date.
"Rating" shall mean the senior unsecured debt rating of the Borrower
as rated by each Rating Agency.
"Rating Agency" shall mean each of S&P and Moody's.
"Reference Banks" shall mean three Banks that are acceptable to the
Borrower, PROVIDED that two of such Banks shall be the Administrative Agent and
the Syndication Agent.
"Register" shall have the meaning set forth in Section 11.17.
"Replaced Bank" shall have the meaning provided in Section 1.13.
"Replacement Bank" shall have the meaning provided in Section 1.13.
"Required Banks" shall mean Banks, the sum of whose outstanding
Revolving Loan Commitments (or after the termination thereof, outstanding
Revolving Loans) represent an amount greater than 50% of the Total Revolving
Loan Commitment (or after the termination thereof, the sum of the total
outstanding Revolving Loans at such time).
"Restatement Effective Date" shall have the meaning provided in
Section 11.10.
"Retired Secured Debt" shall mean (i) all secured letters of credit
issued for the account of Newco or any of its Subsidiaries to the extent same
have been returned undrawn to the respective issuers of such letters of credit
or to the extent of any permanent reduction of the same without any drawing
thereunder, (ii) all secured Contingent Obligations of Newco or any of its
Subsidiaries to the extent that such Contingent Obligations have been terminated
without any Credit Party or any of its respective Subsidiaries making any
payment in respect thereof, (iii) all secured Hedging Obligations of Newco or
any of its Subsidiaries to the extent that such Hedging Obligations have been
terminated without any Credit Party or any of its respective Subsidiaries making
any payment in respect thereof and (iv) all Indebtedness of the type described
in clause (iii) of the definition of Indebtedness of Newco or any of its
Subsidiaries to the extent that such Indebtedness has been permanently
extinguished and the Lien securing such Indebtedness on the property of the
respective Credit Party or any of its Subsidiaries has been unconditionally
released.
"Retired Unsecured Debt" shall mean (i) all unsecured letters of
credit issued for the account of Newco or any of its Subsidiaries to the extent
same have been returned undrawn to the respective issuers of such letters of
credit or to the extent of any permanent reduction of the same without any
drawing thereunder, (ii) all unsecured Contingent Obligations of Newco or any
49
<PAGE>
of its Subsidiaries to the extent that such Contingent Obligations have been
terminated without any Credit Party or any of its respective Subsidiaries
making any payment in respect thereof and (iii) all unsecured Hedging
Obligations of Newco or any of its Subsidiaries to the extent that such
Hedging Obligations have been terminated without any Credit Party or any of
its respective Subsidiaries making any payment in respect thereof.
"Reuters Screen LIBO Page" shall mean the display designated as page
"LIBO" on the Reuters Monitor Money Rates Service (or such other pages as may
replace the LIBO page on the service for the purpose of displaying London
interbank offered rates of major banks).
"Revolving Loan" shall have the meaning provided in Section 1.01.
"Revolving Loan Commitment" shall mean, for each Bank, the amount set
forth opposite such Bank's name in Schedule I hereto directly below the column
entitled "Revolving Loan Commitment", as the same may be (x) reduced from time
to time pursuant to Sections 2.02, 2.03 and/or 9 or (y) adjusted from time to
time as a result of assignments to or from such Bank pursuant to Section 1.13 or
11.04(b).
"Revolving Loan Maturity Date" shall mean the date occurring 364 days
after the Restatement Effective Date.
"Revolving Note" shall have the meaning provided in Section 1.05(a).
"Route Security Agreement" shall have the meaning provided in Section
4.A12 hereof.
"Routes" shall have the meaning provided in the Route Security
Agreement.
"S&P" shall mean Standard & Poor's Ratings Services or any successor
corporation thereto.
"SEC" shall have the meaning provided in Section 6.01(g).
"Section 3.04(b)(ii) Certificate" shall have the meaning provided in
Section 3.04(b).
"Secured Creditors" shall mean the Banks, the Agents and the
Collateral Agent.
"Securities Act" shall mean the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder.
"Security Documents" shall mean the Route Security Agreement.
"Subsidiary" shall mean, as to any Person, (i) any corporation more
than 50% of whose stock having by the terms thereof ordinary voting power to
elect a majority of the directors of such corporation (irrespective of whether
or not at the time stock of any other class or classes of such corporation shall
have or might have voting power by reason of the happening of any
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contingency) is at the time owned by such Person and/or one or more
Subsidiaries of such Person and (ii) any partnership, limited liability
company, association, joint venture or other entity in which such Person
and/or one or more Subsidiaries of such Person has more than a 50% equity
interest at the time; PROVIDED, HOWEVER that notwithstanding anything to the
contrary, (x) LAX Two and its Subsidiaries and (y) Air Partners and
Continental and their Subsidiaries shall be deemed not to be Subsidiaries of
Newco or any of its Subsidiaries for all purposes of this Agreement
(including, without limitation, the calculation of the financial covenants
and the definitions relating thereto) and the other Credit Documents so long
as, in the case of clause (y), Newco does not own, directly or indirectly,
more than 50% of the equity interest (i.e., the economic interest rather than
the voting interest) of Continental.
"Super-Majority Banks" shall mean Banks, the sum of whose outstanding
Revolving Loan Commitments (or after the termination thereof, outstanding
Revolving Loans) represent an amount greater than or equal to 80% of the Total
Revolving Loan Commitment (or after the termination thereof, the sum of the
total outstanding Revolving Loans at such time).
"Taxes" shall have the meaning provided in Section 3.04(a).
"Termination Event" means (i) a "reportable event" described in
Section 4043 of ERISA or in the regulations thereunder (excluding events for
which the requirement for notice of such reportable event has been waived under
subsection .13, .14, .16, .18, .19 or .20 of PBGC Regulation Section 2615), or
(ii) the withdrawal of any Credit Party or any of its ERISA Affiliates from a
Pension Plan during a plan year in which it was a "substantial employer" as
defined in Section 4001(a)(2) of ERISA, or (iii) the filing of a notice of
intent to terminate a Pension Plan or the treatment of a Pension Plan amendment
as a termination under Section 4041 of ERISA, or (iv) the institution of
proceedings to terminate a Pension Plan by the PBGC, or (v) any other event or
condition which might constitute reasonable grounds under Section 4042 of ERISA
for the termination of, or the appointment of a trustee to administer, any
Pension Plan, or (vi) the complete or partial withdrawal (within the meaning of
Sections 4203 and 4205, respectively, of ERISA) of any Credit Party or any of
its ERISA Affiliates from a Multiemployer Plan, or (vii) the insolvency or
reorganization (within the meaning of Section 4245 and 4241, respectively, of
ERISA) of any Multiemployer Plan.
"Total Revolving Loan Commitment" shall mean, at any time, the sum of
the Revolving Loan Commitments of each of the Banks.
"Total Unutilized Revolving Loan Commitment" shall mean, at any time,
the sum of the Unutilized Revolving Loan Commitments of each of the Banks.
"Transaction" shall mean (i) the incurrence of Revolving Loans
hereunder on the Restatement Effective Date, (ii) the execution and delivery of
this Agreement and the other Credit Documents by the Credit Parties and (iii)
the payment of fees and expenses in connection with the foregoing.
"Type" shall mean the type of Revolving Loan determined with regard to
the interest option applicable thereto, I.E., whether a Base Rate Loan or a
Eurodollar Loan.
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"UCC" shall mean the Uniform Commercial Code as from time to time in
effect in the relevant jurisdiction.
"United States" and "U.S." shall each mean the United States of
America.
"Unutilized Revolving Loan Commitment" with respect to any Bank, at
any time, shall mean such Bank's Revolving Loan Commitment at such time less the
aggregate outstanding principal amount of Revolving Loans made by such Bank.
"Voting Stock" means capital stock issued by a corporation, or
equivalent interests in any other Person, the holders of which are ordinarily,
in the absence of contingencies, entitled to vote for the election of directors
(or persons performing similar functions) of such Person, even if the right so
to vote has been suspended by the happening of such a contingency.
"Wholly-Owned Subsidiary" shall mean, as to any Person, (i) any
corporation 100% of whose capital stock (other than director's qualifying
shares) is at the time owned by such Person and/or one or more Wholly-Owned
Subsidiaries of such Person and (ii) any partnership, association, joint venture
or other entity in which such Person and/or one or more Wholly-Owned
Subsidiaries of such Person has a 100% equity interest at such time.
SECTION 10. THE AGENTS.
10.01 APPOINTMENT. The Banks hereby designate each Agent (for
purposes of this Section 10, the term "Agents" shall include The Chase Manhattan
Bank in its capacity as Collateral Agent pursuant to the Route Security
Agreement) to act as specified herein and in the other Credit Documents. Each
Bank hereby irrevocably authorizes, and each holder of any Revolving Note by the
acceptance of such Revolving Note shall be deemed irrevocably to authorize, each
Agent to take such action on its behalf under the provisions of this Agreement,
the other Credit Documents and any other instruments and agreements referred to
herein or therein and to exercise such powers and to perform such duties
hereunder and thereunder as are specifically delegated to or required of each
Agent by the terms hereof and thereof and such other powers as are reasonably
incidental thereto. Each Agent may perform any of its duties hereunder by or
through its respective officers, directors, agents, employees or affiliates.
10.02 NATURE OF DUTIES. Each Agent shall not have any duties or
responsibilities except those expressly set forth in this Agreement and the
other Credit Documents. None of the Agents nor any of their respective officers,
directors, agents, employees or affiliates shall be liable for any action taken
or omitted by it or them hereunder or under any other Credit Document or in
connection herewith or therewith, unless caused by its or their gross negligence
or willful misconduct. The duties of each Agent shall be mechanical and
administrative in nature; each Agent shall not have by reason of this Agreement
or any other Credit Document a fiduciary relationship in respect of any Bank or
the holder of any Revolving Note; and nothing in this Agreement or any other
Credit Document, expressed or implied, is intended to or shall be so construed
as to impose upon any Agent any obligations in respect of this Agreement or any
other Credit Document except as expressly set forth herein or therein.
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10.03 LACK OF RELIANCE ON ANY AGENT. Independently and without
reliance upon each Agent, each Bank and the holder of each Revolving Note, to
the extent it deems appropriate, has made and shall continue to make (i) its own
independent investigation of the financial condition and affairs of Holding and
its Subsidiaries in connection with the making and the continuance of the
Revolving Loans and the taking or not taking of any action in connection
herewith and (ii) its own appraisal of the creditworthiness of Holding and its
Subsidiaries and, except as expressly provided in this Agreement, each Agent
shall not have any duty or responsibility, either initially or on a continuing
basis, to provide any Bank or the holder of any Revolving Note with any credit
or other information with respect thereto, whether coming into its possession
before the making of the Revolving Loans or at any time or times thereafter.
Each Agent shall not be responsible to any Bank or the holder of any Revolving
Note for any recitals, statements, information, representations or warranties
herein or in any document, certificate or other writing delivered in connection
herewith or for the execution, effectiveness, genuineness, validity,
enforceability, perfection, collectibility, priority or sufficiency of this
Agreement or any other Credit Document or the financial condition of Holding and
its Subsidiaries or be required to make any inquiry concerning either the
performance or observance of any of the terms, provisions or conditions of this
Agreement or any other Credit Document, or the financial condition of Holding
and its Subsidiaries or the existence or possible existence of any Default or
Event of Default.
10.04 CERTAIN RIGHTS OF EACH AGENT. If any Agent shall request
instructions from the Required Banks with respect to any act or action
(including failure to act) in connection with this Agreement or any other Credit
Document, such Agent shall be entitled to refrain from such act or taking such
action unless and until it shall have received instructions from the Required
Banks; and such Agent shall not incur liability to any Person by reason of so
refraining. Without limiting the foregoing, neither any Bank nor the holder of
any Revolving Note shall have any right of action whatsoever against any Agent
as a result of such Agent acting or refraining from acting hereunder or under
any other Credit Document in accordance with the instructions of the Required
Banks.
10.05 RELIANCE. Each Agent shall be entitled to rely, and shall be
fully protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message, cablegram,
radiogram, order or other document or telephone message signed, sent or made by
any Person that such Agent believed to be the proper Person, and, with respect
to all legal matters pertaining to this Agreement and any other Credit Document
and its duties hereunder and thereunder, upon advice of counsel selected by such
Agent.
10.06 INDEMNIFICATION. To the extent either Agent is not reimbursed
and indemnified by the Borrower, the Banks will reimburse and indemnify such
Agent, in proportion to their respective Percentages, for and against any and
all liabilities, obligations, losses, damages, penalties, claims, actions,
judgments, costs, expenses or disbursements of whatsoever kind or nature which
may be imposed on, asserted against or incurred by either Agent in performing
its respective duties hereunder or under any other Credit Document, in any way
relating to or arising out of this Agreement or any other Credit Document;
PROVIDED that no Bank shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from such Agent's gross negligence or
willful misconduct.
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10.07 EACH AGENT IN ITS INDIVIDUAL CAPACITY. With respect to its
obligation to make Revolving Loans under this Agreement, each Agent shall have
the rights and powers specified herein for a "Bank" and may exercise the same
rights and powers as though it were not performing the duties specified herein;
and the term "Banks," "Required Banks," "holders of Revolving Notes" or any
similar terms shall, unless the context clearly otherwise indicates, include the
Agent in its individual capacity. Each Agent may accept deposits from, lend
money to, and generally engage in any kind of banking, trust or other business
with any Credit Party or any Affiliate of any Credit Party as if it were not
performing the duties specified herein, and may accept fees and other
consideration from the Borrower or any other Credit Party for services in
connection with this Agreement and otherwise without having to account for the
same to the Banks.
10.08 HOLDERS. Each Agent may deem and treat the payee of any
Revolving Note as the owner thereof for all purposes hereof unless and until a
written notice of the assignment, transfer or endorsement thereof, as the case
may be, shall have been filed with such Agent. Any request, authority or
consent of any Person who, at the time of making such request or giving such
authority or consent, is the holder of any Revolving Note shall be conclusive
and binding on any subsequent holder, transferee, assignee or indorsee, as the
case may be, of such Revolving Note or of any Revolving Note or Revolving Notes
issued in exchange therefor.
10.09 RESIGNATION BY THE AGENTS. (a) Each Agent may resign from the
performance of all its functions and duties hereunder and/or under the other
Credit Documents at any time by giving 15 Business Days' prior written notice to
the Borrower and the Banks. Such resignation shall take effect upon the
appointment of a successor Agent pursuant to clauses (b) and (c) below or as
otherwise provided below.
(b) Upon any such notice of resignation, the Banks shall appoint a
successor Agent hereunder or thereunder who shall be a commercial bank or trust
company reasonably acceptable to the Borrower.
(c) If a successor Agent shall not have been so appointed within such
15 Business Day period, the resigning Agent, with the consent of the Borrower,
shall then appoint a successor Agent who shall serve as Agent hereunder or
thereunder until such time, if any, as the Banks appoint a successor Agent as
provided above.
(d) If no successor Agent has been appointed pursuant to clause (b)
or (c) above by the 20th Business Day after the date such notice of resignation
was given by such Agent, such Agent's resignation shall become effective and the
Required Banks shall thereafter perform all the duties of such Agent hereunder
and/or under any other Credit Document until such time, if any, as the Banks
appoint a successor Agent as provided above.
SECTION 11. MISCELLANEOUS.
11.01 PAYMENT OF EXPENSES, ETC. The Borrower shall: (i) whether or
not the transactions herein contemplated are consummated, pay all reasonable and
adequately documented fees and other out-of-pocket costs and expenses (x) of
each Agent (including,
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without limitation, the reasonable and adequately documented fees and
disbursements of White & Case LLP) arising in connection with the
preparation, execution and delivery of this Agreement and the other Credit
Documents, the commitment letter, the term sheet and the documents and
instruments referred to herein and therein and any amendment, waiver or
consent relating hereto or thereto and of the Agents in connection with their
syndication efforts with respect to this Agreement (but excluding attorneys'
fees and disbursements) and (y) of each Agent and each of the Banks in
connection with the enforcement of this Agreement and the other Credit
Documents and the documents and instruments referred to herein and therein
(including, without limitation, the reasonable and adequately documented fees
and disbursements of counsel for each Agent and for each of the Banks
including any reasonable allocated costs of in-house counsel); (ii) pay and
hold each of the Banks harmless from and against any and all present and
future stamp, excise and other similar taxes with respect to the foregoing
matters and save each of the Banks harmless from and against any and all
liabilities with respect to or resulting from any delay or omission (other
than to the extent attributable to such Bank) to pay such taxes; and (iii)
indemnify each Agent, each Bank and each of their respective affiliates, and
each of their respective officers, directors, employees, representatives and
agents from and hold each of them harmless against any and all liabilities,
obligations (including removal or remedial actions), losses, damages,
penalties, claims, actions, judgments, suits, costs, expenses and
disbursements (including reasonable and adequately documented attorneys' and
consultants' fees and disbursements) incurred by, imposed on or assessed
against any of them as a result of, or arising out of, or in any way related
to, or by reason of, any investigation, litigation or other proceeding
(whether or not any Agent or any Bank is a party thereto) related to the
entering into and/or performance of this Agreement or any other Credit
Document, the commitment letter, the term sheet or the actual or proposed use
of the proceeds of any Revolving Loans hereunder or the consummation of any
transactions contemplated herein or in any other Credit Document or the
exercise of any of their rights or remedies provided herein or in the other
Credit Documents, including, without limitation, the reasonable and
adequately documented fees and disbursements of counsel and other consultants
incurred in connection with any such investigation, litigation or other
proceeding (but excluding any losses, liabilities, claims, damages or
expenses to the extent arising or incurred by reason of (x) a violation of
laws or governmental regulations pertaining to lending by the Person to be
indemnified (or the Agent or the Bank of which such Person is an officer,
director, employee, representative or agent); PROVIDED, HOWEVER, that the
Person to be indemnified shall, in all events, be entitled to the indemnities
set forth in Sections 1.10, 1.11 and 3.04 to the extent provided therein, or
(y) the gross negligence or willful misconduct of the Person to be
indemnified). To the extent that the undertaking to indemnify, pay or hold
harmless any Person set forth in the preceding sentence may be unenforceable
because it is violative of any law or public policy, the Borrower shall make
the maximum contribution to the payment and satisfaction of each of the
indemnified liabilities which is permissible under applicable law.
11.02 RIGHT OF SETOFF. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence and during the continuance of an Event of
Default, each Bank is hereby authorized at any time or from time to time,
without presentment, demand, protest or other notice of any kind to any Credit
Party or to any other Person, any such notice being hereby expressly waived, to
set off and to appropriate and apply any and all deposits (general or special)
and any other Indebtedness at any
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time held or owing by such Bank (including, without limitation, by branches
and agencies of such Bank wherever located) to or for the credit or the
account of any Credit Party against and on account of the Obligations and
liabilities of any Credit Party to such Bank under this Agreement or under
any of the other Credit Documents, including, without limitation, all
interests in Obligations purchased by such Bank pursuant to Section 11.06(b),
and all other claims of any nature or description arising out of or connected
with this Agreement or any other Credit Document, irrespective of whether or
not such Bank shall have made any demand hereunder and although said
Obligations, liabilities or claims, or any of them, shall be contingent or
unmatured.
11.03 NOTICES. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, telecopier or cable communication) and mailed,
telegraphed, telexed, telecopied, cabled or delivered: if to a Credit Party, at
the address specified opposite its signature below; if to an Agent, at its
Notice Office; if to any Bank, at the address specified for such Bank on
Schedule II hereto; or, at such other address as shall be designated by any
party in a written notice to the other parties hereto. All such notices and
communications shall, when mailed, telegraphed, telexed, telecopied, or cabled
or sent by overnight courier, be effective when received.
11.04 BENEFIT OF AGREEMENT. (a) This Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective successors
and assigns of the parties hereto; PROVIDED, HOWEVER, no Credit Party may assign
or transfer any of its rights, obligations or interest hereunder or under any
other Credit Document without the prior written consent of the Banks and,
PROVIDED FURTHER, that, although any Bank may transfer, assign or grant
participations in its rights hereunder, such Bank shall remain a "Bank" for all
purposes hereunder (and may not transfer or assign all or any portion of its
Commitments hereunder except as provided in Section 11.04(b)) and the
transferee, assignee or participant, as the case may be, shall not constitute a
"Bank" hereunder and, PROVIDED FURTHER, that no Bank shall transfer or grant any
participation under which the participant shall have rights to approve any
amendment to or waiver of this Agreement or any other Credit Document except to
the extent such amendment or waiver would (i) extend the final scheduled
maturity of any Revolving Loan or Revolving Note in which such participant is
participating, or reduce the rate or extend the time of payment of interest or
Fees thereon (except in connection with a waiver of applicability of any
post-default increase in interest rates) or reduce the principal amount thereof,
or increase the amount of the participant's participation over the amount
thereof then in effect (it being understood that waivers or modifications of any
conditions precedent, covenants, Default or Event of Default or of a mandatory
reduction in the Total Revolving Loan Commitment shall not constitute a change
in the terms of such participation, and that an increase in any Revolving Loan
Commitment or Revolving Loan shall be permitted without the consent of any
participant if the participant's participation is not increased as a result
thereof) or (ii) consent to the assignment or transfer by the Borrower of any of
its rights and obligations under this Agreement. In the case of any such
participation, the participant shall not have any rights under this Agreement or
any of the other Credit Documents (the participant's rights against such Bank in
respect of such participation to be those set forth in the agreement executed by
such Bank in favor of the participant relating thereto) and all amounts payable
by the Borrower hereunder shall be determined as if such Bank had not sold such
participation.
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(b) Notwithstanding the foregoing, any Bank (or any Bank together
with one or more other Banks) may (x) assign all or a portion of its Revolving
Loan Commitment (and related outstanding Obligations hereunder), and its
outstanding Revolving Loans to its parent company and/or any affiliate of such
Bank or to one or more Banks or (y) assign all, or if less than all, a portion
equal to at least $5,000,000 or an integral multiple of $1,000,000 in excess
thereof, of such Revolving Loan Commitments and outstanding principal amount of
Revolving Loans hereunder to one or more Eligible Transferees, each of which
assignees shall become a party to this Agreement as a Bank by execution of an
Assignment and Assumption Agreement; PROVIDED that, (i) no such assignment shall
be permitted prior to the date which is three months after the Restatement
Effective Date without the consent of the Administrative Agent (which consent
shall not be unreasonably withheld or delayed), (ii) at such time Schedule I
shall be deemed modified to reflect the Revolving Loan Commitments (and/or
outstanding Revolving Loans, as the case may be) of such new Bank and of the
existing Banks, (iii) new Revolving Notes will be issued, at the Borrower's
expense, to such new Bank and to the assigning Bank upon the request of such new
Bank or assigning Bank, such new Revolving Notes to be in conformity with the
requirements of Section 1.05 (with appropriate modifications) to the extent
needed to reflect the revised Revolving Loan Commitments (and/or outstanding
Revolving Loans), (iv) only with respect to any assignment pursuant to clause
(y) of this Section 11.04(b), the consent of both the Administrative Agent and
the Borrower shall be required (which consents shall not be unreasonably
withheld or delayed); PROVIDED, HOWEVER, the consent of the Borrower shall not
be required at any time after an Event of Default shall have occurred and is
then continuing, and (v) the Administrative Agent shall receive at the time of
each such assignment, from the assigning or assignee Bank, the payment of a non-
refundable assignment fee of $3,500 and, PROVIDED FURTHER, that such transfer or
assignment will not be effective until recorded by the Administrative Agent on
the Register pursuant to Section 11.17 hereof. To the extent of any assignment
pursuant to this Section 11.04(b), the assigning Bank shall be relieved of its
obligations hereunder with respect to its assigned Revolving Loan Commitment.
At the time of each assignment pursuant to this Section 11.04(b) to a Person
which is not already a Bank hereunder and which is not a United States person
(as such term is defined in Section 7701(a)(30) of the Code) for Federal income
tax purposes, the respective assignee Bank shall provide to the Borrower and the
Agent the appropriate Internal Revenue Service Forms (and, if applicable a
Section 3.04(b)(ii) Certificate) described in Section 3.04(b).
(c) Any Bank may at any time pledge or assign all or any portion of
its rights under this Agreement or any other Credit Document to any Federal
Reserve Bank without notice to or consent of any Credit Party. No such pledge
or assignment shall release the transferor Bank from its obligations hereunder.
11.05 NO WAIVER; REMEDIES CUMULATIVE. No failure or delay on the
part of any Agent or any Bank or any holder of any Revolving Note in exercising
any right, power or privilege hereunder or under any other Credit Document and
no course of dealing between the Borrower or any other Credit Party and any
Agent or any Bank or the holder of any Revolving Note shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, power or
privilege hereunder or under any other Credit Document preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights, powers and remedies herein or in any other
Credit Document expressly provided are cumulative
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and not exclusive of any rights, powers or remedies which any Agent or any
Bank or the holder of any Revolving Note would otherwise have. No notice to
or demand on any Credit Party in any case shall entitle any Credit Party to
any other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of any Agent or any Bank or the holder of
any Revolving Note to any other or further action in any circumstances
without notice or demand.
11.06 PAYMENTS PRO RATA. (a) Except as otherwise provided in this
Agreement, the Administrative Agent agrees that promptly after its receipt of
each payment from or on behalf of the Borrower in respect of any Obligations
hereunder, it shall distribute such payment to the Banks (other than any Bank
that has consented in writing to waive its PRO RATA share of any such payment)
PRO RATA based upon their respective shares, if any, of the Obligations with
respect to which such payment was received.
(b) Each of the Banks agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise), which is applicable to the payment of the principal of, or interest
on, the Revolving Loans or Fees, of a sum which with respect to the related sum
or sums received by other Banks is in a greater proportion than the total of
such Obligation then owed and due to such Bank bears to the total of such
Obligation then owed and due to all of the Banks immediately prior to such
receipt, then such Bank receiving such excess payment shall purchase for cash
without recourse or warranty from the other Banks an interest in the Obligations
of the respective Credit Party to such Banks in such amount as shall result in a
proportional participation by all the Banks in such amount; PROVIDED that if all
or any portion of such excess amount is thereafter recovered from such Bank,
such purchase shall be rescinded and the purchase price restored to the extent
of such recovery, but without interest.
11.07 CALCULATIONS; COMPUTATIONS. (a) The financial statements to
be furnished to the Banks pursuant hereto shall be made and prepared in
accordance with generally accepted accounting principles in the United States
consistently applied throughout the periods involved (except as set forth in the
notes thereto or as otherwise disclosed in writing by the Borrower to the
Banks); PROVIDED that, except as otherwise specifically provided herein, all
computations determining compliance with Section 7 shall utilize accounting
principles and policies in conformity with those used to prepare the historical
financial statements delivered to the Banks pursuant to Section 5.05(a) (with
the foregoing generally accepted accounting principles, subject to the preceding
proviso, herein called "GAAP").
(b) All computations of interest with respect to Base Rate Loans
shall be made on the basis of a year consisting of 365 (or, if applicable, 366)
days for the actual number of days (including the first day but excluding the
last day) occurring in the period for which such interest is payable. All other
computations of interest and all computations of Fees hereunder shall be made on
the basis of a year of 360 days for the actual number of days (including the
first day but excluding the last day) occurring in the period for which such
interest or Fees are payable.
11.08 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF
JURY TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT
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DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND
THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAWS
OF THE STATE OF NEW YORK. ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO
THIS AGREEMENT OR ANY OTHER CREDIT DOCUMENT MAY BE BROUGHT IN THE COURTS OF
THE STATE OF NEW YORK SITTING IN THE CITY OF NEW YORK OR OF THE UNITED STATES
FOR THE SOUTHERN DISTRICT OF NEW YORK, AND, BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH CREDIT PARTY HEREBY IRREVOCABLY ACCEPTS FOR ITSELF AND IN
RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY, THE JURISDICTION OF
THE AFORESAID COURTS. EACH CREDIT PARTY HEREBY DESIGNATES, APPOINTS AND
EMPOWERS CT CORPORATION SYSTEM, WITH OFFICES ON THE DATE HEREOF AT 1633
BROADWAY, NEW YORK, NEW YORK 10019, AS ITS DESIGNEE, APPOINTEE AND AGENT TO
RECEIVE AND ACKNOWLEDGE FOR AND ON ITS BEHALF, AND IN RESPECT OF ITS
PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS, NOTICES AND
DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF FOR ANY
REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO ACT
AS SUCH, EACH CREDIT PARTY AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND
AGENT IN NEW YORK CITY ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION
SATISFACTORY TO THE AGENT UNDER THIS AGREEMENT. EACH CREDIT PARTY FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO ANY
CREDIT PARTY AT ITS ADDRESS SET FORTH OPPOSITE ITS SIGNATURE BELOW, SUCH
SERVICE TO BECOME EFFECTIVE 30 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL
AFFECT THE RIGHT OF THE AGENT UNDER THIS AGREEMENT, ANY BANK OR THE HOLDER OF
ANY REVOLVING NOTE TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR
TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY CREDIT PARTY
IN ANY OTHER JURISDICTION.
(b) EACH CREDIT PARTY HEREBY IRREVOCABLY WAIVES ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY OF THE AFORESAID
ACTIONS OR PROCEEDINGS ARISING OUT OF OR IN CONNECTION WITH THIS AGREEMENT OR
ANY OTHER CREDIT DOCUMENT BROUGHT IN THE COURTS REFERRED TO IN CLAUSE (a) ABOVE
AND HEREBY FURTHER IRREVOCABLY WAIVES AND AGREES NOT TO PLEAD OR CLAIM IN ANY
SUCH COURT THAT ANY SUCH ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT HAS BEEN
BROUGHT IN AN INCONVENIENT FORUM.
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
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11.09 COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and each
Agent.
11.10 EFFECTIVENESS. (a)This Agreement shall become effective on the
date (the "Restatement Effective Date") on which (i) each Credit Party, each
Agent and each of the Banks (including each Continuing Bank and each New Bank)
and the Required Banks (under, and as determined in, the Existing Credit
Agreement and determined immediately before the occurrence of the Restatement
Effective Date) shall have signed a counterpart hereof (whether the same or
different counterparts) and shall have delivered the same to the Administrative
Agent at its Notice Office or, in the case of the Banks, shall have given to the
Administrative Agent telephonic (confirmed in writing), written, telecopy or
telex notice (actually received) at such office that the same has been signed
and mailed to it and (ii) the conditions set forth in Article 4A hereof are
satisfied.
(b) On the Restatement Effective Date, each New Bank and Continuing Bank shall
have delivered to the Administrative Agent for the account of the Borrower an
amount equal to (i) in the case of each New Bank, the Revolving Loans to be made
by such New Bank on the Restatement Effective Date and (ii) in the case of each
Continuing Bank, the amount by which the principal amount of Revolving Loans to
be made and/or converted by such Continuing Bank on the Restatement Effective
Date exceeds the amount of the Existing Revolving Loans of such Continuing Bank
outstanding on the Restatement Effective Date. Notwithstanding anything to the
contrary contained in this Section 11.10(b), in satisfying the foregoing
condition, unless the Administrative Agent shall have been notified by any Bank
prior to the occurrence of the Restatement Effective Date that such Bank does
not intend to make available to the Administrative Agent such Bank's Revolving
Loans required to be made by it on such date, then the Administrative Agent may,
in reliance on such assumption, make available to the Borrower the corresponding
amounts in accordance with the provisions of Section 1.04 of this Agreement, and
the making available by the Administrative Agent of such amounts shall satisfy
the condition contained in this Section 11.10(b).
11.11 HEADINGS DESCRIPTIVE. The headings of the several sections and
subsections of this Agreement are inserted for convenience only and shall not in
any way affect the meaning or construction of any provision of this Agreement.
11.12 AMENDMENT OR WAIVER; ETC. (a) Neither this Agreement nor any
other Credit Document nor any terms hereof or thereof may be changed, waived,
discharged or terminated unless such change, waiver, discharge or termination is
in writing signed by the respective Credit Parties party thereto and the
Required Banks, PROVIDED that no such change, waiver, discharge or termination
shall, without the consent of each Bank (with Obligations being directly
affected thereby in the case of the following clause (i)), (i) extend the final
scheduled maturity of any Revolving Loan or Revolving Note, or reduce the rate
or extend the time of payment of interest or Fees thereon (except in connection
with a waiver of applicability of any post-default increase in interest rates),
or reduce the principal amount thereof (except to the
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extent repaid in cash), (ii) release all or substantially all of the
Collateral (except as expressly provided in the Security Documents), (iii)
amend, modify or waive any provision of this Section 11.12, (iv) reduce the
percentage specified in the definition of Required Banks (it being understood
that, with the consent of the Required Banks, additional extensions of credit
pursuant to this Agreement may be included in the determination of the
Required Banks on substantially the same basis as the extensions of Revolving
Loan Commitments are included on the Effective Date), (v) release a Guarantor
from its Guaranty or (vi) consent to the assignment or transfer by the
Borrower of any of its rights and obligations under this Agreement; PROVIDED
FURTHER, that no such change, waiver, discharge or termination shall (x)
increase the Revolving Loan Commitments of any Bank over the amount thereof
then in effect without the consent of such Bank (it being understood that
waivers or modifications of conditions precedent, covenants, Defaults or
Events of Default or of a mandatory reduction in the Total Revolving Loan
Commitment shall not constitute an increase of the Revolving Loan Commitment
of any Bank, and that an increase in the available portion of any Revolving
Loan Commitment of any Bank shall not constitute an increase in the
Commitment of such Bank) and (y) without the consent of the Agent, amend,
modify or waive any provision of Section 10 as same applies to the Agent or
any other provision as same relates to the rights or obligations of the Agent.
(b) If, in connection with any proposed change, waiver, discharge or
termination to any of the provisions of this Agreement as contemplated by clause
(a)(i) through (vi), inclusive, of the first proviso to Section 11.12(a), the
consent of the Required Banks is obtained but the consent of one or more of such
other Banks whose consent is required is not obtained, then the Borrower shall
have the right, so long as each non-consenting Bank whose individual consent is
required is treated as described in either clause (A) or (B) below, to either
(A) replace such non-consenting Bank with one or more Replacement Banks pursuant
to Section 1.13 so long as at the time of such replacement, each such
Replacement Bank consents to the proposed change, waiver, discharge or
termination or (B) terminate such non-consenting Bank's Revolving Loan
Commitment and repay in full its outstanding Revolving Loans, in accordance with
Sections 2.02(b) and/or 3.01(b), PROVIDED that, unless the Revolving Loan
Commitment terminated and the Revolving Loans repaid pursuant to preceding
clause (B) are immediately replaced in full at such time through the addition of
new Banks or the increase of the Revolving Loan Commitments and/or outstanding
Revolving Loans of existing Banks (who in each case must specifically consent
thereto), then in the case of any action pursuant to preceding clause (B) the
Required Banks (determined both before and after giving effect to the proposed
action) shall specifically consent thereto, PROVIDED FURTHER, that the Borrower
shall not have the right to replace a Bank solely as a result of the exercise of
such Bank's rights (and the withholding of any required consent by such Bank)
pursuant to the second proviso to Section 11.12(a).
11.13 SURVIVAL. All indemnities set forth herein including, without
limitation, in Sections 1.10, 1.11, 3.04, 11.01 and 11.06 shall, subject to
Section 11.15 (to the extent applicable), survive the execution, delivery and
termination of this Agreement and the Revolving Notes and the making and
repayment of the Revolving Loans.
11.14 DOMICILE OF REVOLVING LOANS. Each Bank may transfer and carry
its Revolving Loans at, to or for the account of any office, Subsidiary or
Affiliate of such Bank. Notwithstanding anything to the contrary contained
herein, to the extent that a transfer of
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Revolving Loans pursuant to this Section 11.14 would, at the time of such
transfer, result in increased costs under Section 1.10, 1.11 or 3.04 from
those being charged by the respective Bank prior to such transfer, then the
Borrower shall not be obligated to pay such increased costs (although the
Borrower shall be obligated to pay any other increased costs of the type
described above resulting from changes giving rise to such increased costs
after the date of the respective transfer).
11.15 LIMITATION ON ADDITIONAL AMOUNTS, ETC. Notwithstanding
anything to the contrary contained in Section 1.10, 1.11 or 3.04 of this
Agreement, unless a Bank gives notice to the Borrower that it is obligated to
pay an amount under such Section within 180 days after the date the Bank incurs
the respective increased costs, Taxes, loss, expense or liability, reduction in
amounts received or receivable or reduction in return on capital, then such Bank
shall only be entitled to be compensated for such amount by the Borrower
pursuant to said Section 1.10, 1.11 or 3.04, as the case may be, to the extent
the costs, Taxes, loss, expense or liability, reduction in amounts received or
receivable or reduction in return on capital are incurred or suffered on or
after the date which occurs 180 days prior to such Bank giving notice to the
Borrower that it is obligated to pay the respective amounts pursuant to said
Section 1.10, 1.11 or 3.04, as the case may be. This Section 11.15 shall have
no applicability to any Section of this Agreement other than said Sections 1.10,
1.11 and 3.04.
11.16 CONFIDENTIALITY. (a) Subject to the provisions of clause (b)
of this Section 11.16, each Bank shall hold all non-public information obtained
pursuant to the requirements of this Agreement which has been identified as such
by any Credit Party in accordance with its customary procedure for handling
confidential information of this nature and in accordance with safe and sound
banking practices and in any event may make disclosure reasonably to any bona
fide prospective transferee or participant in connection with the contemplated
transfer of any Revolving Loan or Revolving Loan Commitment or participation
therein or as required or requested by any governmental agency or representative
thereof or pursuant to legal process or to such Bank's attorneys, affiliates or
independent auditors; PROVIDED that, unless specifically prohibited by
applicable law or court order, each Bank shall notify Newco of any request by
any governmental agency or representative thereof (other than any such request
in connection with an examination of the financial condition of such Bank by
such governmental agency) for disclosure of any such non-public information
prior to disclosure of such information; and PROVIDED FURTHER, that in no event
shall any Bank be obligated or required to return any materials furnished by
Newco or any of its Subsidiaries, PROVIDED that in the case of disclosure to any
prospective transferee or participant, such Person executes an agreement with
such Bank containing provisions substantially the same as to those contained in
this Section 11.16.
(b) Each Credit Party hereby acknowledges and agrees that each Bank
may share with any of its affiliates any information related to Newco or any of
its Subsidiaries (including, without limitation, any nonpublic customer
information regarding the creditworthiness of Newco or any of its Subsidiaries),
PROVIDED such Persons shall be subject to the provisions of this Section 11.16
to the same extent as such Bank.
11.17 REGISTRY. The Borrower hereby designates the Administrative
Agent to serve as the Borrower's agent, solely for purposes of this Section
11.17, to maintain a register
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(the "Register") on which it will record the Revolving Loan Commitments from
time to time of each of the Banks, the Revolving Loans made by each of the
Banks and each repayment in respect of the principal amount of the Revolving
Loans of each Bank. Failure to make any such recordation, or any error in
such recordation shall not affect the Borrower's obligations in respect of
such Revolving Loans. With respect to any Bank, the transfer of the
Revolving Loan Commitment of such Bank and the rights to the principal of,
and interest on, any Revolving Loan made pursuant to such Revolving Loan
Commitment shall not be effective until such transfer is recorded on the
Register maintained by the Administrative Agent with respect to ownership of
such Revolving Loan Commitment and Revolving Loans and prior to such
recordation all amounts owing to the transferor with respect to such
Revolving Loan Commitment and Revolving Loans shall remain owing to the
transferor. The registration of assignment or transfer of all or part of any
Revolving Loan Commitment and Revolving Loans shall be recorded by the
Administrative Agent on the Register only upon the acceptance by the
Administrative Agent of a properly executed and delivered Assignment and
Assumption Agreement pursuant to Section 11.04(b). Coincident with the
delivery of such an Assignment and Assumption Agreement to the Administrative
Agent for acceptance and registration of assignment or transfer of all or
part of a Revolving Loan, or as soon thereafter as practicable, the assigning
or transferor Bank shall surrender the Revolving Note evidencing such
Revolving Loan, and thereupon one or more new Revolving Notes in the same
aggregate principal amount shall be issued to the assigning or transferor
Bank and/or the new Bank. The Borrower agrees to indemnify the
Administrative Agent from and against any and all losses, claims, damages and
liabilities of whatsoever nature which may be imposed on, asserted against or
incurred by the Administrative Agent in performing its duties under this
Section 11.17.
11.18 ADDITION OF NEW BANKS; CONVERSION OF EXISTING REVOLVING LOANS
OF CONTINUING BANKS; TERMINATION OF COMMITMENTS OF NON-CONTINUING BANKS. (a)
On and as of the occurrence of the Restatement Effective Date in accordance with
Section 11.10, each New Bank shall become a "Bank" under, and for all purposes
of, this Agreement and the other Credit Documents.
(b) The parties hereto acknowledge that each Existing Bank has been
offered the opportunity to participate in this Agreement, after the occurrence
of the Restatement Effective Date, as a Continuing Bank hereunder, but that no
Existing Bank is obligated to be a Continuing Bank. By their execution and
delivery hereof, Newco, Holdings, NWA, the Borrower and the Required Banks
(under, and as determined in, the Existing Credit Agreement and determined
immediately before the occurrence of the Restatement Effective Date) consent to
the voluntary repayment by the Borrower of all outstanding Existing Revolving
Loans and other Obligations owing to each Existing Bank which has not elected to
become a Continuing Bank (each such Bank, a "Non-Continuing Bank") on a non-PRO
RATA basis with the Continuing Banks and to the voluntary termination by the
Borrower of the Revolving Loan Commitment (under, and as defined in, the
Existing Credit Agreement) of each Non-Continuing Bank on a non-PRO RATA basis
with the Banks, in each case to be effective on, and contemporaneously with the
occurrence of, the Restatement Effective Date, in each case in accordance with
the provisions of Section 11.18(c).
(c) Notwithstanding anything to the contrary contained in the
Existing Credit Agreement or any Credit Document (under, and as defined in the
Existing Credit Agreement), the
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Borrower and each of the Banks hereby agrees that on the Restatement
Effective Date, (i) each Bank with a Revolving Loan Commitment as set forth
on Schedule I (after giving effect to the Restatement Effective Date) shall
make or maintain (including by way of conversion) that principal amount of
Revolving Loans to the Borrower as is required by Section 1.01, PROVIDED that
if the Existing Revolving Loans of any Continuing Bank outstanding on the
Restatement Effective Date (immediately before giving effect thereto) exceed
the aggregate principal amount of Revolving Loans required to be made
available by such Bank on such date (after giving effect to the Restatement
Effective Date), then Existing Revolving Loans of such Continuing Bank in an
amount equal to such excess shall be repaid on the Restatement Effective Date
to such Continuing Bank, together with interest thereon and any other amounts
owing with respect thereto, including, without limitation, amounts owing
pursuant to Section 1.11 of the Existing Credit Agreement and (ii) in the
case of each Non-Continuing Bank, all of such Non-Continuing Bank's Existing
Revolving Loans outstanding on the Restatement Effective Date shall be repaid
in full on such date, together with interest thereon and all accrued Fees
(under, and as defined in, the Existing Credit Agreement) and any other
amounts owing to such Non-Continuing Bank, including without limitation,
amounts owing pursuant to Section 1.11 of the Existing Credit Agreement, and
the Revolving Loan Commitment (under, and as defined in, the Existing Credit
Agreement) of such Non-Continuing Bank, if any, shall be terminated,
effective upon the occurrence of the Restatement Effective Date.
Notwithstanding anything to the contrary contained in the Existing Credit
Agreement, this Agreement or any other Credit Document under, and as defined
in, this Agreement or the Existing Credit Agreement, the parties hereto
hereby consent to the repayments and reductions required above, and agree
that in the event that any Existing Bank shall fail to execute a counterpart
of this Agreement prior to the occurrence of the Restatement Effective Date,
such Existing Bank shall be deemed to be a Non-Continuing Bank and
concurrently with the occurrence of the Restatement Effective Date, the
Revolving Loan Commitment (under, and as defined in, the Existing Credit
Agreement) of such Existing Bank, if any, shall be terminated, all Existing
Revolving Loans of such Existing Bank outstanding on the Restatement
Effective Date shall be repaid in full, together with interest thereon and
all accrued Fees (under, and as defined in, the Existing Credit Agreement)
and any other amounts owing to such Existing Bank, including, without
limitation, amounts owing pursuant to Section 1.11 of the Existing Credit
Agreement, and concurrently with the occurrence of the Restatement Effective
Date, such Existing Bank shall no longer constitute a "Bank" under this
Agreement and the other Credit Documents, PROVIDED that all indemnities of
the Credit Parties under the Existing Agreement and the other Credit
Documents (as in effect prior to the Restatement Effective Date) for the
benefit of such Existing Bank shall survive in accordance with the terms
thereof.
11.19 SUBSTITUTION. The Banks hereby authorize the
Administrative Agent to enter into the Acknowledgment and Amendment to
acknowledge and agree to the substitution of Schedule I to the Route Security
Agreement with Annex I to the Acknowledgment and Amendment.
SECTION 12. GUARANTY.
12.01 THE GUARANTY. In order to induce the Banks to enter into
this Agreement and to extend credit hereunder and in recognition of the
direct benefits to be received by the Guarantors from the proceeds of the
Revolving Loans, each Guarantor hereby jointly and
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severally agrees with the Agents and the Banks as follows: each Guarantor
hereby jointly and severally, unconditionally and irrevocably guarantees as
primary obligor and not merely as surety the full and prompt payment when
due, whether upon maturity, by acceleration or otherwise, of any and all
indebtedness of the Borrower to each of the Banks and each of the Agents. If
any or all of the indebtedness of the Borrower to the Banks or the Agents
becomes due and payable hereunder, each Guarantor unconditionally promises on
a joint and several basis to pay such indebtedness to the Banks or the
Agents, as the case may be, or order, on demand, together with any and all
expenses which may be incurred by the Agents or the Banks in collecting any
of the indebtedness. The word "indebtedness" is used in this Section 12 to
mean any and all advances, debts, obligations and liabilities of the Borrower
arising in connection with this Agreement and any other Credit Document, in
each case, heretofore, now, or hereafter made, incurred or created, whether
voluntarily or involuntarily, absolute or contingent, liquidated or
unliquidated, determined or undetermined, whether or not such indebtedness is
from time to time reduced, or extinguished and thereafter increased or
incurred, whether the Borrower may be liable individually or jointly with
others, whether or not recovery upon such indebtedness may be or hereafter
become barred by any statute of limitations, and whether or not such
indebtedness may be or hereafter become otherwise unenforceable.
12.02 BANKRUPTCY. Additionally, each Guarantor jointly and
severally, unconditionally and irrevocably guarantees the payment of any and all
indebtedness of the Borrower to each of the Banks and each of the Agents whether
or not due or payable by the Borrower upon the occurrence in respect of the
Borrower of any of the events specified in Section 8.05, and unconditionally
promises to pay such indebtedness to each of the Banks and each of the Agents,
or order, on demand, in lawful money of the United States.
12.03 NATURE OF LIABILITY. The liability of each Guarantor hereunder
is exclusive and independent of any security for or other guaranty of the
indebtedness of the Borrower whether executed by each Guarantor, any other
guarantor or by any other party, and the liability of each Guarantor hereunder
shall not be affected or impaired by (a) any direction as to application of
payment by the Borrower or by any other party, or (b) any other continuing or
other guaranty, undertaking or maximum liability of a guarantor or of any other
party as to the indebtedness of the Borrower, or (c) any payment on or in
reduction of any such other guaranty or undertaking, or (d) any dissolution,
termination or increase, decrease or change in personnel by the Borrower, or (e)
any payment made to the Agents or the Banks on the indebtedness which the Agents
or such Bank repay the Borrower pursuant to court order in any bankruptcy,
reorganization, arrangement, moratorium or other debtor relief proceeding, and
each Guarantor waives any right to the deferral or modification of its
obligations hereunder by reason of any such proceeding.
12.04 INDEPENDENT OBLIGATION. The obligations of each Guarantor
hereunder are independent of the obligations of any other guarantor or the
Borrower, and a separate action or actions may be brought and prosecuted against
each Guarantor whether or not action is brought against any other guarantor or
the Borrower and whether or not any other guarantor or the Borrower be joined in
any such action or actions. Each Guarantor waives, to the fullest extent
permitted by law, the benefit of any statute of limitations affecting its
liability hereunder or the enforcement thereof. Any payment by the Borrower or
other circumstance which operates to toll
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any statute of limitations as to the Borrower shall operate to toll the
statute of limitations as to each Guarantor.
12.05 AUTHORIZATION. Each Guarantor authorizes the Agents and the
Banks without notice or demand (except as shall be required by applicable
statute and which cannot be waived), and without affecting or impairing its
liability hereunder, from time to time to (a) renew, compromise, extend,
increase, accelerate or otherwise change the time for payment of, or otherwise
change the terms of, the indebtedness or any part thereof in accordance with
this Agreement, including any increase or decrease of the rate of interest
thereon, (b) take and hold security from any guarantor or any other party for
the payment of this guaranty or the indebtedness and exchange, enforce, waive
and release any such security, (c) apply such security and direct the order or
manner of sale thereof as the Agents and the Banks in their discretion may
determine and (d) release or substitute any one or more endorsers, guarantors,
the Borrower or other obligors.
12.06 RELIANCE. It is not necessary for the Agents or the Banks to
inquire into the capacity or powers of the Borrower or its Subsidiaries or the
officers, directors, partners or agents acting or purporting to act on its
behalf, and any indebtedness made or created in reliance upon the professed
exercise of such powers shall be guaranteed hereunder.
12.07 SUBORDINATION. Any indebtedness of the Borrower now or
hereafter held by any Guarantor is hereby subordinated to the indebtedness of
the Borrower to the Agents and the Banks; and such indebtedness of the Borrower
to such Guarantor, if any Agent, after an Event of Default has occurred and is
continuing, so requests, shall be collected, enforced and received by such
Guarantor as trustee for the Banks and be paid over to the Banks and the Agents
on account of the indebtedness of the Borrower to the Banks and the Agents, but
without affecting or impairing in any manner the liability of such Guarantor
under the other provisions of this Guaranty. Prior to the transfer by any
Guarantor of any note or negotiable instrument evidencing any indebtedness of
the Borrower to such Guarantor, such Guarantor shall mark such note or
negotiable instrument with a legend that the same is subject to this
subordination.
12.08 WAIVER. (a) Each Guarantor waives any right (except as shall
be required by applicable statute and which cannot be waived) to require the
Agents or the Banks to (a) proceed against the Borrower, any other guarantor or
any other party, (b) proceed against or exhaust any security held from the
Borrower, any other guarantor or any other party or (c) pursue any other remedy
in the Agents' or the Banks' power whatsoever. Each Guarantor waives any
defense based on or arising out of any defense of the Borrower, any other
guarantor or any other party other than payment in full of the indebtedness,
including, without limitation, any defense based on or arising out of the
disability of the Borrower, any other guarantor or any other party, or the
unenforceability of the indebtedness or any part thereof from any cause, or the
cessation from any cause of the liability of the Borrower other than payment in
full of the indebtedness. The Agents and the Banks may, at their election,
foreclose on any security held by the Agents or the Banks by one or more
judicial or nonjudicial sales (to the extent such sale is permitted by
applicable law), or exercise any other right or remedy the Agents and the Banks
may have against the Borrower or any other party, or any security, without
affecting or impairing in any way the liability of each Guarantor hereunder
except to the extent the indebtedness has been paid. Each
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Guarantor waives any defense arising out of any such election by the Agents
and the Banks, even though such election operates to impair or extinguish any
right of reimbursement or subrogation or other right or remedy of such
Guarantor against the Borrower or any other party or any security. Until all
indebtedness of the Borrower to the Banks and to the Agents shall have been
paid in full, each Guarantor agrees that it will not exercise any right of
subrogation, and waives any right to enforce any remedy which the Agents and
the Banks now have or may hereafter have against the Borrower, and waives any
benefit of, and any right to participate in, any security now or hereafter
held by the Agents and the Banks.
(b) Each Guarantor waives all presentments, demands for performance,
protests and notices, including, without limitation, notices of nonperformance,
notices of protest, notices of dishonor, notices of acceptance of this Guaranty,
and notices of the existence, creation or incurring of new or additional
indebtedness. Each Guarantor assumes all responsibility for being and keeping
itself informed of the Borrower's financial condition and assets, and of all
other circumstances bearing upon the risk of nonpayment of the indebtedness and
the nature, scope and extent of the risks which each Guarantor assumes and
incurs hereunder, and agrees that the Agents and the Banks shall have no duty to
advise any Guarantor of information known to them regarding such circumstances
or risks.
12.09 LIMITATION ON ENFORCEMENT. The Banks agree that this Guaranty
may be enforced on their behalf only by the action of an Agent acting upon the
instructions of the Required Banks and that no Bank shall have any right
individually to seek to enforce or to enforce this Guaranty, it being understood
and agreed that such rights and remedies may be exercised by each Agent for the
benefit of the Banks upon the terms of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
NORTHWEST AIRLINES CORPORATION
f/k/a Newbridge Parent Corporation
By: /s/ Rolf S. Andersen
--------------------------------------
Title:
NORTHWEST AIRLINES HOLDINGS CORPORATION
f/k/a Northwest Airlines Corporation
By: /s/ Rolf S. Andersen
--------------------------------------
Title:
NWA INC.
By: /s/ Rolf S. Andersen
--------------------------------------
Title:
NORTHWEST AIRLINES, INC.
By: /s/ Mark D. Powers
--------------------------------------
Title:
<PAGE>
BANKERS TRUST COMPANY
Individually and as Syndication Agent
By: /s/ Robert R. Telesca
--------------------------------------
Title:
THE CHASE MANHATTAN BANK
Individually and as Administrative Agent
By: /s/ Matthew H. Massie
--------------------------------------
Title:
ABN AMRO BANK N.V., CHICAGO BRANCH
By: /s/ Carla S. Waggoner
--------------------------------------
Title:
By: /s/ Claudia C. Heldring
--------------------------------------
Title:
CITICORP USA, INC.
By: /s/ Thomas Boyle
--------------------------------------
Title:
CITIBANK
By: /s/ Thomas Boyle
--------------------------------------
Title:
CREDIT LYONNAIS, NEW YORK BRANCH
By: /s/ Pascal Poupelle
--------------------------------------
Title:
<PAGE>
CREDIT SUISSE FIRST BOSTON
By: /s/ Robert N. Finney
--------------------------------------
Title:
By: /s/ Jennifer Toth
--------------------------------------
Title:
THE FUJI BANK, LIMITED
By: /s/ Peter L. Chinnici
--------------------------------------
Title:
U.S. BANK NATIONAL ASSOCIATION
By: /s/ Mark R. Olmon
--------------------------------------
Title:
THE BANK OF NEW YORK
By: /s/ David G. Shedd
--------------------------------------
Title:
THE MITSUBISHI TRUST & BANKING
CORPORATION, NEW YORK BRANCH
By: /s/ Scott Paige
--------------------------------------
Title:
BANQUE NATIONALE DE PARIS
By: /s/ Arnaud Collin du Bocage
--------------------------------------
Title:
THE BANK OF NOVA SCOTIA
By: /s/ M.D. Smith
--------------------------------------
Title:
<PAGE>
FIRST COMMERCIAL BANK
By: /s/ Jia-Shyang Ou
--------------------------------------
Title: GOLDMAN SACHS CREDIT PARTNERS
By: /s/ Edward C. Forst
--------------------------------------
Title:
MORGAN STANLEY SENIOR FUNDING, INC.
By: /s/ Michael Hart
--------------------------------------
Title:
BW CAPITAL MARKETS, INC.
By: /s/ Thomas A. Lowe
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Title:
INTERNATIONAL TRANSPORT FINANCE, LIMITED
By: /s/ U. Fabian
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Title:
By: /s/ F. Wulf
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Title:
TRANSAMERICA BUSINESS CREDIT
By: /s/ Steven R. Fischer
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Title:
CHINATRUST COMMERCIAL BANK
By: /s/ Jerri Li
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Title:
CITY NATIONAL BANK
By: /s/ Scott J. Kelley
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Title:
<PAGE>
UNION PLANTERS BANK NATIONAL ASSOCIATION
By: /s/ Leonard McKinnon
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Title:
DE NATIONALE INVESTERINGSBANK N.V.
By: /s/ S. Sleeswijk Visser
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Title:
By: /s/ M. A. B. van Wijlen
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Title:
<PAGE>
MANAGEMENT COMPENSATION AGREEMENT
BETWEEN
NORTHWEST AIRLINES, INC.
AND
RICHARD H. ANDERSON
DATED AS OF
SEPTEMBER 1, 1996
<PAGE>
MANAGEMENT COMPENSATION AGREEMENT
MANAGEMENT COMPENSATION AGREEMENT made as of the 1st day of
September, 1996 between Northwest Airlines, Inc., a Delaware corporation (the
"Company") and Richard H. Anderson (the "Executive").
PREAMBLE
The Company and Executive previously entered into a Management
Compensation Agreement dated as of December 1, 1994 (the "Prior Agreement").
As of the date hereof, the Company and Executive have agreed to replace the
Prior Agreement with this Agreement, which shall supersede the Prior
Agreement in all respects.
In consideration of the foregoing and of the respective covenants
and agreements herein contained, the Company and Executive have agreed as
follows:
1. TERMS OF EMPLOYMENT.
1.1 EMPLOYMENT. The Company agrees to continue to employ
Executive, and Executive agrees to continue to serve the Company, on the
terms and conditions set forth herein.
1.2 POSITION AND DUTIES. Executive shall continue to have his
powers and duties as on the Effective Date and shall have such other powers
and duties as may from time to time be prescribed by the Board, provided that
such powers and duties are consistent with or represent a promotion from
Executive's duties as of the Effective Date, unless otherwise consented to in
writing by Executive; provided, however, as long as Executive retains a
substantial portion of his then current oversight responsibility, the Board
shall be permitted to transfer a portion of Executive's oversight
responsibility without the consent of Executive. Executive shall devote
substantially all his working time and efforts to the business and affairs of
the Company and its subsidiaries.
2. COMPENSATION.
2.1 BASE SALARY. Executive's Base Salary shall be his annual base
salary in effect on the Effective Date, as increased thereafter by the
Company. Executive's Base Salary in effect from time to time may only be
reduced in connection with a Company-wide base wage reduction, by an amount
not to exceed 20% of Base Salary in effect on the date of such Company-wide
wage reduction. For purposes of calculating any other payments or benefits
hereunder (except as specified in Section 2.4) any reductions in Base Salary
shall be disregarded. Executive's Base Salary shall be payable in accordance
with the Company's normal payroll policies.
<PAGE>
2
2.2 BONUS. Executive shall be entitled to participate in the
Company's Key Employee Cash Incentive Bonus Program, and any successor annual
bonus plan, the terms and conditions of which shall be established by the
Board in its sole discretion from time to time.
2.3 EXPENSES. During the term of Executive's employment
hereunder, Executive shall be entitled to receive prompt reimbursement for
all reasonable expenses incurred in performing services hereunder, provided
that Executive properly accounts therefor in accordance with written Company
policy.
2.4 COMPENSATION AND BENEFIT PROGRAMS OF THE COMPANY. Except as
set forth below, Executive shall continue while employed hereunder to
participate in the Company's employee compensation and benefit programs (or
any successor programs) at levels in effect on the Effective Date.
Exceptions to the preceding sentence are:
(a) Amounts payable to Executive under the Company's benefit
programs may be reduced to reflect a Company-wide benefit reduction, in
the same manner that Company employees are generally affected by such
reduction.
(b) Executive shall not participate in any severance pay plan or
annual bonus plan maintained by the Company except to the extent
necessary to receive any severance or bonus payments specifically
provided for hereunder.
2.5 MEDICAL BENEFITS. While employed hereunder, Executive shall
be reimbursed by the Company for all out of pocket medical expenses incurred
by him and not otherwise paid or provided for under any medical plan
maintained for the benefit of Executive.
2.6 SERP. Executive shall be a participant in the Company's
Supplemental Executive Retirement Program (the "SERP"), a copy of which is
attached hereto, and shall be entitled to receive the benefits provided for
therein.
(a) As provided for in Section 4.1.1(a)(iii) of the SERP, the
grant to Executive of two additional years of Benefit Service for each actual
year of employment completed shall be with respect to Executive's employment
commencing on and after March 24, 1994.
(b) A pre-retirement death benefit shall be payable, in the event
of Executive's death while employed hereunder, to the individual who was
Executive's spouse on the date of death. Such benefit shall be in an amount
equal to 50% of the Executive's Base Salary at the time of his death and such
amount shall be payable annually for a maximum of ten years or, if earlier,
until Executive would have attained age 65; provided, however, that the
amounts payable hereunder shall be reduced by all pre-retirement death
benefits payable to Executive's spouse
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3
under the Company's qualified pension plan or a supplemental executive
retirement plan.
3. OTHER BENEFITS.
3.1 AIRLINE PASS. Executive is entitled to receive a lifetime
airline pass for the personal use of such Executive and his spouse and
children so long as spouses and children of employees generally are eligible
for nonrevenue travel pursuant to the Company's pass policies (hereinafter,
"Eligible Individuals"). Such airline pass (the "Airline Pass") shall
entitle Executive and Eligible Individuals to travel on regularly scheduled
Northwest domestic and international flights, subject to charges then
applicable to senior executives of the Company and their dependents, with
boarding priority of (i) F-1 or the equivalent thereof for ten years from and
after the date such pass is issued, (ii) Y-1/F-2 or the equivalent thereof for
the next succeeding ten years and (iii) 2-R or the equivalent thereof after
the aggregate twenty-year period described in clauses (i) and (ii) above.
Each Executive shall be responsible for any personal income tax liability
arising from such pass travel. The Airline Pass shall be issued to Executive
upon Executive's termination of employment with the Company; provided,
however, that all benefits under this Section 3.1 shall immediately and
permanently cease in the event Executive is or becomes, at any time
thereafter, an employee of any of the top five airlines in the United States
(other than the Company) ranked by revenue passenger miles (the "Top Five
Airlines").
3.2 OTHER MEDICAL BENEFITS. In the event Executive remains an
employee of the Company from the date of this Agreement to September 1, 1998,
Executive and his covered dependents (only as long as they shall remain
dependents) shall be entitled to medical coverage for the life of Executive
and his spouse; provided, however, if and only so long as Executive is
employed by another employer, medical coverage hereunder will become
secondary to any coverage provided by the new employer.
4. TERMINATION OF EMPLOYMENT.
4.1 UPON DEATH. Executive's employment hereunder shall terminate
upon his death.
4.2 BY THE COMPANY. The Company may terminate Executive's
employment hereunder at any time with or without Cause.
4.3 BY THE EXECUTIVE. Executive may terminate his employment
hereunder at any time for any reason.
4.4 NOTICE OF TERMINATION, PAYMENTS. Any termination of
Executive's employment hereunder (other than by death) shall be communicated
by 30 days advance written Notice of Termination by the terminating party to
the other party to this Agreement; provided that no advance Notice of
Termination of Executive for Cause by the Company is required. Unless
otherwise provided in
<PAGE>
4
Section 5, any amounts owed by the Company to Executive pursuant to Section 5
shall be paid on the Date of Termination.
5. PAYMENTS IN THE EVENT OF TERMINATION OF EMPLOYMENT.
5.1 PAYMENTS IN THE EVENT OF TERMINATION BY THE COMPANY FOR CAUSE
OR VOLUNTARY TERMINATION BY EXECUTIVE. Except as provided in Section 5.3, if
Executive's employment hereunder is terminated by the Company for Cause or by
Executive other than for Good Reason, the Company shall pay Executive (a) his
accrued and unpaid Base Salary through the Date of Termination and (b) any
payments or other rights or benefits Executive may be otherwise entitled to
receive pursuant to the terms of (i) any retirement, pension or other
employee benefit or compensation plan maintained by the Company at the time
or times provided therein or (ii) Section 2.6 and 3 hereof.
5.2 PAYMENTS IN THE EVENT OF ANY OTHER TERMINATION OF EMPLOYMENT.
Except as provided in Section 5.3, if Executive's employment hereunder is
terminated by the Company other than for Cause, as a result of death or
Disability or by Executive for Good Reason:
(a) The Company shall pay Executive (i) his accrued and unpaid Base
Salary through the Date of Termination, (ii) any bonus under the Key
Employee Cash Incentive Bonus Program, or any successor annual bonus
plan, (the "Incentive Bonus") for any calendar year ended before the
Date of Termination, (iii) a pro rata share (based on days employed
during the applicable year) of the Incentive Bonus Executive would
otherwise have received with respect to the year in which the Date of
Termination occurs, payable at the time the Incentive Bonus would
otherwise be payable to Executive; provided, however, that 100% of the
Incentive Bonus shall be determined solely with reference to the
financial performance of the Company for the year (based on the goals
previously established with respect thereto) (rather than a portion of
the Incentive Bonus determined on the basis of individual performance);
provided, further, in the event that Company's performance exceeds 100%
of the financial performance target for the year, that portion of the
Incentive Bonus that would have, but for this Section 5.2(a), related to
the achievement of the individual performance target shall be 100% and
(iv) any payments or other rights or benefits Executive may be
otherwise entitled to receive pursuant to the terms of (x) any
retirement, pension or other employee benefit or compensation plan
maintained by the Company at the time or times provided therein or (y)
Sections 2.6 and 3 hereof.
(b) In addition to the compensation and benefits described in
Section 5.2(a):
(i) The Company shall pay Executive a lump sum amount equal
to two times the sum of (i) Executive's Base Salary and (ii) the
target Incentive Bonus for
<PAGE>
5
Executive with respect to the year in which the Date of
Termination occurs (or if no target has been set for that year,
the target Incentive Bonus for the immediately preceding year).
(ii) Executive's pension shall vest with respect to his
years of employment with the Company and any subsidiary of the
Company. In addition, irrespective of Executive's actual full
years of employment from March 25, 1994 though his termination
under this Section 5.2, Executive shall be granted service
credit as if he were an employee of Company for the number of
full years necessary to achieve the maximum additional accruals
under Section 2.6(a) herein and Section 4.1.1(a)(iii) of the
SERP; provided, however, that any SERP benefit shall continue
to be subject to Section 7 of the SERP. Any such vested pension
benefits which cannot be paid under the Company's qualified
pension plan shall be paid directly by the Company.
(iii) Executive and his covered dependents (only so long
as they shall remain dependents) shall be entitled to medical
coverage for the life of Executive and his spouse; provided,
however, if Executive is employed by another employer, medical
coverage hereunder will become secondary to any coverage
provided by the new employer. With regard to group life
insurance and group disability insurance, until the earlier of
the second anniversary of Executive's Date of Termination or
the date Executive is employed by a new employer, Executive,
his dependents, beneficiaries and estate shall be entitled to
all benefits under such group life insurance and group
disability insurance as if Executive were still employed by the
Company hereunder during such period. If any such benefits
cannot be provided to Executive for any reason, the Company
shall pay to Executive, or pay Executive the cost of obtaining,
such benefits.
(c) Executive shall not be required to mitigate the amount of
any payment provided for in this Section 5.2 by seeking other
employment or otherwise, and no such payment shall be offset or
reduced as a result of Executive obtaining new employment.
(d) Notwithstanding anything else to the contrary in this
Agreement, the Company's obligation to make the payments provided
for in Sections 5.2(a)(iii) and 5.2(b) (i), (ii) and (iii) is
expressly conditioned upon the execution and delivery of a release
in the form attached hereto as Appendix A.
5.3 PAYMENTS FOR CERTAIN TERMINATIONS OF EMPLOYMENT AFTER A
CHANGE IN CONTROL. If Executive elects to terminate his employment
for any reason during the six month period commencing on the second
anniversary of the Change in Control, or in the
<PAGE>
6
event of termination by the Company other than for Cause or termination by
Executive for Good Reason within two years after a Change in Control,
Executive shall receive all of the payments, and shall be accorded all of the
rights, set forth in Section 5.2. All other terminations of Executive's
employment shall be governed by Sections 4 and 5 of this Agreement
irrespective of a Change in Control.
5.4 EXCISE TAX.
(a) If any payment or distribution by the Company to or for the
benefit of Executive (whether paid or payable pursuant to this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 5.4 (a "Payment")) is subject to the excise tax imposed by
Section 4999 of the Code or any interest or penalties thereon (together the
"Excise Tax") then Executive shall be entitled to an additional payment (a
"Gross-Up Payment") in an amount such that after payment by Executive of all
taxes including, without limitation, any income taxes (together with any
interest or penalties any income taxes (together with any interest or
penalties thereon, the "Additional Income tax") or any Excise Tax, imposed
upon the Gross-Up Payment Executive retains an amount of the Gross-up Payment
equal to the Excise Tax imposed upon the Payments.
(b) Subject to Section 5.4(c), all determinations required to be
made under this Section 5.4, including whether a Gross-Up Payment is required
and the amount of such Gross-Up Payment, shall be made by the firm of
independent public accountants selected by the Company to audit its financial
statements (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and executive within fifteen (15) business
days after the receipt of notice from Executive that there has been a
Payment, or such earlier time as is requested by the Company. All fees and
expenses of the Accounting Firm shall be borne solely by the Company. Any
Gross-Up Payment, as determined pursuant to this Section 5.4, shall be paid
to Executive within five (5) business days after the receipt of the
Accounting Firm's determination. Any determination by the Accounting Firm
shall be binding upon the Company and Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
additional Gross-Up payments should have been made by the Company (an
"Underpayment"). If the Company exhausts its remedies pursuant to Section
5.4(c) and Executive thereafter is required to make a payment of any Excise
Tax, the accounting Firm shall determine the amount of the Underpayment that
has occurred and any such Underpayment shall be promptly paid by the Company
to or for the benefit of Executive.
(c) Executive shall notify the Company in writing of any claim by
the Internal Revenue Service that, if successful, would require the payment
by the Company of the Gross-Up Payment. Such notice shall be given as soon as
practicable but no later than ten (10) business days after Executive knows of
such claim
<PAGE>
7
and shall apprise the Company of the nature and date of requested payment of
such claim. Executive shall not pay such claim before the earlier of (x) the
date thirty (30) days after Executive's notice to the Company or (y) the date
on which payment of taxes with respect to such claim is due. If the Company
notifies Executive in writing prior to the expiration of such period that it
desires to contest such claim, Executive shall:
(i) give the Company any reasonable requested information relating
to such claim;
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time, including,
without limitation, accepting legal representation with respect to such claim
by an attorney reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order to
effectively contest such claim; and
(iv) permit the Company to participate in any proceedings relating
to such claim; provided, however that the Company shall bear and pay directly
all costs and expenses (including additional interest and penalties) incurred
in connection with such contest and shall indemnify and hold such Executive
harmless, on an after-tax basis, for any Excise Tax or additional Income Tax
imposed as a result of such representation any payment of costs and expenses.
Without limiting this Section 5.4(c), the Company shall control all
proceedings taken in connection with such contest and, at its sole option,
may (1) pursue or forgo any and all administrative appeals, proceedings,
hearings and conferences with the taxing authority in respect of such claim
and (2) either direct Executive to pay the tax claimed and sue for a refund
or contest the claim in any permissible manner. Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in a
court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs such
Executive to pay such claim and sue for a refund, the Company shall advance
the amount of such payment to Executive, on an interest-free basis, and shall
indemnify and hold Executive harmless, on an after-tax basis, from any Excise
Tax or Income Tax imposed with respect to such advance; and further provided
that any extension of the statute of limitations for the taxable year of
Executive with respect to which such contested amount is claimed to be due is
limited to issues with respect to which a Gross-Up Payment would be payable
hereunder and Executive shall be entitled to settle or contest any other
issue raised by the Internal Revenue Service or any other taxing authority.
(d) If, after the receipt by Executive of any amount advanced by
the Company pursuant to Section 5.4(c), Executive becomes entitled to receive
any refund with
<PAGE>
8
respect to such claim, executive shall (subject to the Company's
complying with the requirements of Section 5.4(c)) promptly pay to the
Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt
by Executive of an amount advanced by the Company pursuant to Section
5.4(c), a determination is made that such Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify
Executive in writing of its intent to contest such denial of refund prior
to the expiration of thirty days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the
amount of such advance shall offset, to the extent thereof, the amount of
any Gross-Up Payment required to be paid.
6. CONFIDENTIALITY; NON-COMPETE.
While employed by the Company and thereafter, Executive shall not
disclose any confidential information either directly or indirectly, to
anyone (other than the Company, its employees and advisors), or use such
information for his own account, or for the account of any other person or
entity, without the prior written consent of the Company or except as
required by law. This confidentiality covenant has no temporal or
geographical restriction. Upon termination of this Agreement, Executive shall
promptly supply to the Company all property and any other tangible product or
document which has been produced by, received by or otherwise submitted to
Executive during or prior to his term of employment, and shall not retain any
copies thereof.
Executive acknowledges that his services are of special, unique and
extraordinary value to the Company. Accordingly, in the event Executive
resigns without Good Reason or is terminated for Cause during the term
hereof, Executive shall not at any time prior to the first anniversary of the
Date of Termination become an employee, consultant, officer, partner or
director of any air carrier which competes with the Company (or any of its
affiliates) or have any significant interest (I.E., 10% or more of the voting
stock) in any such air carrier.
Executive agrees that any breach of the terms of this Section 6
would result in irreparable injury and damage for which there would be no
adequate remedy at law, and that, in the event of said breach or any threat
of breach, the Company shall be entitled to an immediate injunction and
restraining order to prevent such breach or threatened breach, without having
to prove damages, in addition to any other remedies to which the Company may
be entitled at law or in equity. Executive further agrees that the provisions
of the covenant not to compete are reasonable. Should a court determine,
however, that any provision of the covenant not to compete is unreasonable,
either in period of time, geographical area, or otherwise, the parties hereto
agree that the covenant should be interpreted and enforced to the maximum
extent which such court deems reasonable. The provisions of this Section 6
shall survive any termination of
<PAGE>
9
this Agreement and Executive's term of employment. The existence of any claim
or cause of action or otherwise, shall not constitute a defense to the
enforcement of the covenants and agreements of this Section 6.
7. SUCCESSORS AND ASSIGNS.
(a) This Agreement shall bind any successor to Significant Assets,
whether by purchase, merger, consolidation or otherwise, in the same manner
and to the same extent that the Company would be obligated under this
Agreement if no such succession had taken place. Notwithstanding that a
successor to Significant Assets becomes bound to this Agreement, the Company
shall continue to be liable for the obligations hereunder as a guarantor. In
any agreement providing for succession to Significant Assets, the Company
shall cause each and every successor expressly and unconditionally to assume
and agree to perform the Company's obligations under this Agreement.
(b) In the event that another air carrier directly or indirectly
acquires Significant Assets, the Company shall cause such airline to provide
Executive and Eligible Individuals with pass privileges equivalent to those
provided under the Airline Pass described in Section 3.1.
(c) This Agreement and all rights of Executive hereunder shall
inure to the benefit of and be enforceable by, Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devises and legatees.
8. TERM.
The term of this Agreement shall commence on the Effective Date and
end upon the Executive's termination of employment. The rights and
obligations of the Company and Executive shall survive the termination of
this Agreement to the extent necessary to give effect to the terms hereof.
9. NOTICES.
Notices and all other communications provided for in this Agreement
shall be in writing and shall be deemed to have been duly given when
delivered to and mailed by United States mail, addressed: (a) if to Executive,
Richard H. Anderson, 9522 Olympia Drive, Eden Prairie, Minnesota 55347, and
(b) if to the Company, c/o Northwest Airlines, Inc., 5101 Northwest
Drive, St. Paul, Minnesota 55111-3034, Attention: General Counsel, or to such
other address as may have been furnished in writing.
10. COUNSEL FEES AND INDEMNIFICATION.
(a) The Company shall pay, or promptly reimburse on an as-incurred
basis to Executive, the reasonable fees and expenses
<PAGE>
10
of Executive's legal counsel for its services rendered in connection with,
Executive's enforcement of this Agreement provided, however, that if
Executive institutes any proceeding to enforce this Agreement and the judge,
arbitrator or other individual presiding over the proceeding affirmatively
finds that Executive instituted the proceeding in bad faith, Executive shall
pay all costs and expenses, including attorney's fees, of Executive and the
Company.
(b) The Company shall indemnify and hold Executive harmless, to the
maximum extent permitted by law, against judgments, fines, amounts paid in
settlement and reasonable expenses, including attorneys' fees incurred by
Executive, in connection with any action or proceeding (or any appeal from
any action or proceeding) with respect to the Company or activities engaged
in by Executive in the course of employment with the Company in which
Executive is made, or is threatened to be made, a party or a witness.
11. WITHHOLDING.
All payments required to be made by the Company hereunder shall be
subject to the withholding of such amounts as are required to be withheld
pursuant to any applicable law or regulation.
12. CERTAIN DEFINED TERMS.
As used herein, the following terms have the following meanings:
"AGREEMENT" shall mean this Management Compensation Agreement, as the
same may be amended, supplemented or otherwise modified from time to time.
"BASE SALARY" shall mean the annual salary of the Executive in
effect from time to time under Section 2.1.
"BOARD" shall mean the Board of Directors of the Company.
"CAUSE" shall mean with respect to termination of Executive's
employment hereunder (i) an act or acts of personal dishonesty by Executive
intended to result in substantial personal enrichment of Executive at the
expense of the Company, (ii) an act or acts of personal dishonesty by
Executive intended to cause substantial injury to the Company, (iii) material
breach (other than as a result of a Disability) by Executive of Executive's
obligations under this Agreement which action was (a) undertaken without a
reasonable belief that the action was in the best interest of the Company and
(b) not remedied within a reasonable period of time after receipt of written
notice from the Company specifying the alleged breach, or (iv) the conviction
of Executive of a felony.
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11
"CHANGE IN CONTROL" means any one of the following:
(a) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) or the Securities Exchange Act of
1934 (the "Exchange Act")) (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of
either (i) the then outstanding shares of Common Stock of Parent (the
"Outstanding Parent Common Stock") or (ii) the combined voting power of the
then outstanding voting securities of Parent entitled to vote generally in
the election of directors (the "Outstanding Parent Voting Securities");
provided, however, this subsection (a) shall not apply to the Investor
Stockholders party to the Second Amended and Restated Stockholders' Agreement
dated as of December 23, 1993; or
(b) Individuals who, as of June 1, 1994, constitute the Board of
Directors of Parent (the "Incumbent Board") cease for any reason to
constitute at least a majority of such Board; provided, however, that any
individual becoming a director subsequent to June 1, 1994, whose election, or
nomination for election by Parent's shareholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent Board
shall be considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other actual
or threatened solicitation of proxies or consents by or on behalf of a Person
other than the Board of Directors of Parent; or
(c) Approval by the shareholders of Parent of a reorganization,
merger or consolidation (a "Business Combination"), in each case, unless,
following such Business Combination, (i) all or substantially all of the
individuals and entities who were the beneficial owners, respectively, of the
Outstanding Parent Common Stock and Outstanding Parent Voting Securities
immediately prior to such Business Combination beneficially own, directly or
indirectly, more than 50% of, respectively, the then outstanding shares of
common stock and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as the
case may be, of the corporation resulting from such Business Combination
(including, without limitation, a corporation which as a result of such
transaction owns Parent through one or more subsidiaries) in substantially
the same proportions as their ownership immediately prior to such Business
Combination of the Outstanding Parent Stock and Outstanding Parent Voting
Securities, as the case may be and (ii) at least a majority of the members of
the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution
of the initial
<PAGE>
12
agreement or of the action of such Board, providing for such Business
Combination; or
(d) Approval by the shareholders of Parent of (i) a complete
liquidation or dissolution of Parent or (ii) the sale or other disposition
of all or substantially all of the assets of Parent, other than to a
corporation with respect to which following such sale or other
disposition, (X) more than 50% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially
all of the individuals and entities who were the beneficial owners
respectively, of the Outstanding Parent Common Stock and Outstanding
Parent Voting Securities immediately prior to such sale or other
disposition in substantially the same proportion as their ownership
immediately prior to such sale or other disposition of the Outstanding
Parent Common Stock and Outstanding Parent Voting Securities, as the
case may be and (Y) at least a majority of the members of the board of
directors of such corporation were members of the Incumbent Board at the
time of the execution of the initial agreement, or other action of such
Board, providing for such sale or other disposition of assets of Parent
or were elected, appointed or nominated by the Incumbent Board.
"COMMON STOCK" shall mean all issued and outstanding common stock,
of all classes, of the Parent, including any outstanding securities convertible
into such common stock.
"DATE OF TERMINATION" shall mean, with respect to Executive, the
date of termination of Executive's employment hereunder after the notice
period provided by Section 4.4.
"DISABILITY" shall mean Executive's physical and mental condition
which prevents continued performance of his duties hereunder, if Executive
establishes by medical evidence that such condition will be permanent and
continuous during the remainder of Executive's life or is likely to be of at
least three years' duration.
"EFFECTIVE DATE" shall mean September 1, 1996.
"GOOD REASON" shall mean with respect to an Executive, any one or
more of the following:
(a) a material reduction in Executive's compensation or other
benefits (except as permitted hereunder);
(b) any material change in Executive's job responsibilities;
provided that, so long as Executive retains a substantial part of his
then current oversight responsibility, a transfer of a portion of such
oversight responsibility of Executive shall not in and of itself
<PAGE>
13
constitute a material change in Executive's job responsibilities;
(c) the relocation of the Company's principal executive offices to
a location outside the Minneapolis-St. Paul Metropolitan Area;
(d) a failure by the Company to comply with any material provision
of this Agreement which has not been cured within ten (10) days after
the Company knows or has notice of such noncompliance.
In order for an Executive's termination of his employment to be
considered for Good Reason, such termination must occur within one year
after the event giving rise to such Good Reason. Executive's continued
employment shall not constitute consent to, or a waiver of rights with
respect to, any circumstance constituting Good Reason hereunder.
"NOTICE OF TERMINATION" shall mean a notice specifying the
Date of Termination, which notice shall (i) indicate the specific termination
provision (if any) in this Agreement applicable to the termination, and (ii)
set forth in reasonable detail the facts and circumstances claimed to provide
a basis for termination of Executive's employment under the provision so
indicated.
"PARENT" shall mean Northwest Airlines Corporation.
"PERSON" shall mean an individual, a corporation, a company, a
voluntary association, a partnership, a trust, an unincorporated
organization or a government or any agency, instrumentally or political
subdivision thereof.
"SIGNIFICANT ASSETS" shall mean (i) all or substantially all
of the assets and/or business or outstanding voting securities, of the
Company (ii) all or substantially all of Northwest's routes between the
United States and Japan.
"SUBSIDIARY" of a Person shall mean any corporation,
partnership (limited or general), trust or other entity of which a majority
of the stock (or equivalent ownership or controlling interest) having voting
power to elect a majority of the board of directors (if a corporation) or to
select the trustee or equivalent controlling interest, shall at the time such
reference becomes operative, be directly or indirectly owned or controlled by
such Person or one or more of the other subsidiaries of such Person or any
combination thereof.
"2-R" shall mean space available travel in first, business or
coach class, with boarding priority (i) ahead of the categories specified
below category "2-R" on Exhibit A attached hereto and (ii) within category
"2-R," based on seniority with the Company.
<PAGE>
14
"F-1" shall mean confirmed mean confirmed seating in first class or
business class if first class is not offered, with boarding priority (i)
ahead of the categories specified below category "F-I" on Exhibit A attached
hereto and (ii) within category "F-I," based on seniority with the Company.
"Y-1/F-2" shall mean confirmed seating travel in coach class and
space available travel in first or business class, with boarding priority (i)
ahead of the categories specified below category "Y-a/F-2" in Exhibit A
attached hereto, and (ii) within category "Y-1/F-2," based on seniority with
the Company.
13. MISCELLANEOUS.
No provision of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed
by Executive and such officer as may be specifically designated by the Board.
No agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter hereof have been made by either party which are
not set forth expressly in this Agreement. There shall be no right of set-off
or counterclaim, in respect of any claim, debt or obligation, against any
payments to Executive, his dependents, beneficiaries or estate provided for
in this Agreement. The validity, interpretation, construction and performance
of this Agreement shall be governed by the laws of the State of Minnesota,
without regard to principles of conflicts of laws.
14. VALIDITY.
The invalidity or unenforceability of any provision or provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement which shall remain in full force and effect.
15. DISPUTES; REMEDIES.
If either the Company, on the one hand, or Executive, on the other
hand, breaches or threatens to commit a breach of the terms and conditions
hereof, the other party shall have the following rights and remedies:
(a) Specific performance (I.E., the right and remedy to have the terms
and conditions hereof specifically enforced by any court of competent
jurisdiction), it being agreed that any breach or threatened breach of
the terms and conditions hereof would cause irreparable injury and that
money damages may not provide an adequate remedy; and
(b) Damages (I.E., the right to receive from any violator of the
terms and conditions hereof, any and all damages, costs and expenses
incurred by the injured party as a result of the breach of the terms and
conditions hereof).
<PAGE>
15
16. PARENT UNDERTAKING.
Northwest Airlines Corporation, as parent corporation to the
Company, hereby agrees to cause the Company to perform all of its obligations
hereunder and Executive shall be deemed to have entered into this Agreement
in reliance upon the undertaking set forth herein.
NORTHWEST AIRLINES, INC.
by: /s/ Douglas M. Steenland
----------------------------------
NORTHWEST AIRLINES CORPORATION
by: /s/ Douglas M. Steenland
----------------------------------
/s/ Richard H. Anderson
----------------------------------
RICHARD H. ANDERSON
<PAGE>
Exhibit 10.74
Amendment No. 2
to
NORTHWEST AIRLINES CORPORATION
1996 RETENTION AND LONG TERM INCENTIVE COMPENSATION PLAN
1. Section 1(e) is hereby amended to read in its entirety as follows:
e. "Fair Market Value" with respect to a share of Common Stock means
$53.37.
<PAGE>
EXHIBIT 12.1
NORTHWEST AIRLINES CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Income (loss) before income taxes and 1997 and 1995
extraordinary items.................................... $ (430.0) $ 984.6 $ 872.4 $ 543.5 $ 498.3
Less: Income (loss) from less than 50% owned investees... 8.9 19.4 15.7 (10.3) (4.8)
Add:
Rent expense representative of interest(1)............. 193.2 197.7 191.5 193.4 185.7
Interest expense net of capitalized interest........... 294.0 228.5 251.7 374.3 374.0
Interest of preferred security holder.................. 22.5 24.3 27.2 7.1 --
Amortization of debt discount and expense.............. 18.1 5.7 10.8 13.1 9.7
Amortization of interest capitalized................... 3.4 3.0 2.9 4.0 3.3
--------- --------- --------- --------- ---------
ADJUSTED EARNINGS.................................. $ 92.3 $ 1,424.4 $ 1,340.8 $ 1,145.7 $ 1,075.8
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
FIXED CHARGES:
Rent expense representative of interest(1)............... $ 193.2 $ 197.7 $ 191.5 $ 193.4 $ 185.7
Interest expense net of capitalized interest............. 294.0 228.5 251.7 374.3 374.0
Interest of preferred security holder.................... 22.5 24.3 27.2 7.1 --
Amortization of debt discount and expense................ 18.1 5.7 10.8 13.1 9.7
Capitalized interest..................................... 16.8 10.6 7.3 13.9 3.5
--------- --------- --------- --------- ---------
FIXED CHARGES...................................... $ 544.6 $ 466.8 $ 488.5 $ 601.8 $ 572.9
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
RATIO OF EARNINGS TO FIXED CHARGES....................... -- (2) 3.05 2.74 1.90 1.88
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
- ------------------------
(1) Calculated as one-third of rentals, which is considered representative of
the interest factor.
(2) Earnings were inadequate to cover fixed charges by $452.3 million for the
year ended December 31, 1998.
<PAGE>
EXHIBIT 12.2
NORTHWEST AIRLINES CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK REQUIREMENTS
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1998 1997 1996 1995 1994
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
EARNINGS:
Income (loss) before income taxes
and 1997 and 1995 extraordinary
items............................ $(430.0) $ 984.6 $ 872.4 $ 543.5 $ 498.3
Less: Income (loss) from less than
50% owned investees.............. 8.9 19.4 15.7 (10.3) (4.8)
Add:
Rent expense representative of
interest(1).................... 193.2 197.7 191.5 193.4 185.7
Interest expense net of
capitalized interest........... 294.0 228.5 251.7 374.3 374.0
Interest of preferred security
holder......................... 22.5 24.3 27.2 7.1 --
Amortization of debt discount and
expense........................ 18.1 5.7 10.8 13.1 9.7
Amortization of interest
capitalized.................... 3.4 3.0 2.9 4.0 3.3
------- -------- -------- -------- --------
ADJUSTED EARNINGS............ $ 92.3 $1,424.4 $1,340.8 $1,145.7 $1,075.8
------- -------- -------- -------- --------
------- -------- -------- -------- --------
FIXED CHARGES AND PREFERRED STOCK
REQUIREMENTS:
Rent expense representative of
interest(1)...................... $ 193.2 $ 197.7 $ 191.5 $ 193.4 $ 185.7
Interest expense net of capitalized
interest......................... 294.0 228.5 251.7 374.3 374.0
Preferred stock requirements....... 1.2 21.9 61.0 91.8 100.0
Interest of preferred security
holder........................... 22.5 24.3 27.2 7.1 --
Amortization of debt discount and
expense.......................... 18.1 5.7 10.8 13.1 9.7
Capitalized interest............... 16.8 10.6 7.3 13.9 3.5
------- -------- -------- -------- --------
FIXED CHARGES AND PREFERRED
STOCK REQUIREMENTS......... $ 545.8 $ 488.7 $ 549.5 $ 693.6 $ 672.9
------- -------- -------- -------- --------
------- -------- -------- -------- --------
RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK
REQUIREMENTS..................... -- (2) 2.91 2.44 1.65 1.60
------- -------- -------- -------- --------
------- -------- -------- -------- --------
</TABLE>
- ------------------------
(1) Calculated as one-third of rentals, which is considered representative of
the interest factor.
(2) Earnings were inadequate to cover fixed charges and preferred stock
requirements by $453.5 million for the year ended December 31, 1998.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the use of our report dated January 18, 1999 included in the
Annual Report (Form 10-K) of Northwest Airlines Corporation.
Our audit also included the financial statement schedule of Northwest
Airlines Corporation listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audit. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
We also consent to the incorporation by reference in the Registration
Statement on Form S-3 (No. 333-41579) of Northwest Airlines Corporation and
Northwest Airlines, Inc. and in the related Prospectuses in the Registration
Statement on Form S-3 (No. 333-69655) of Northwest Airlines Corporation and
in the related Prospectus and in the Registration Statements on Form S-8
(Nos. 33-85220, 333-14445, 333-12571, 333-46045 and 333-66253) of Northwest
Airlines Corporation of our report dated January 18, 1999 with respect to the
consolidated financial statements and the financial statement schedule
included in this Annual Report (Form 10-K) of Northwest Airlines Corporation
for the year ended December 31, 1998.
Minneapolis, Minnesota
March 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 480
<SECURITIES> 48
<RECEIVABLES> 665
<ALLOWANCES> 24
<INVENTORY> 387
<CURRENT-ASSETS> 1,870
<PP&E> 7,823
<DEPRECIATION> 2,164
<TOTAL-ASSETS> 10,281
<CURRENT-LIABILITIES> 3,462
<BONDS> 0
261
0
<COMMON> 0
<OTHER-SE> (477)
<TOTAL-LIABILITY-AND-EQUITY> 10,281
<SALES> 9,045
<TOTAL-REVENUES> 9,045
<CGS> 0
<TOTAL-COSTS> 9,236
<OTHER-EXPENSES> 239
<LOSS-PROVISION> 9
<INTEREST-EXPENSE> 329
<INCOME-PRETAX> (430)
<INCOME-TAX> (144)
<INCOME-CONTINUING> (286)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (286)
<EPS-PRIMARY> (3.48)
<EPS-DILUTED> (3.48)
</TABLE>
