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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
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<C> <S>
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-5424
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DELTA AIR LINES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 58-0218548
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
HARTSFIELD ATLANTA INTERNATIONAL AIRPORT 30320
ATLANTA, GEORGIA (Zip Code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA (404) 715-2600
CODE:
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
Common Stock, par value $3.00 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
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SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
None
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 and non-voting common equity held
by non-affiliates of the registrant as of August 29, 1997, was approximately
$6,367,210,000. As of August 29, 1997, 73,722,230 shares of the registrant's
common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and II of this Form 10-K incorporate by reference certain
information from the registrant's 1997 Annual Report to Stockholders. Part III
of this Form 10-K incorporates by reference certain information from the
registrant's definitive Proxy Statement dated September 15, 1997, for its Annual
Meeting of Stockholders to be held on October 23, 1997.
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DELTA AIR LINES, INC.
PART I
ITEM 1. BUSINESS
General Description
Delta Air Lines, Inc. ("Delta" or the "Company") is a major air carrier
providing scheduled air transportation for passengers, freight and mail over a
network of routes throughout the United States and abroad. Based on calendar
1996 data, Delta is the largest United States airline as measured by aircraft
departures and passengers enplaned, and the third largest United States airline
as measured by operating revenues and revenue passenger miles flown. As of
August 15, 1997, the Company served 149 domestic cities in 42 states, the
District of Columbia, Puerto Rico and the United States Virgin Islands, as well
as 41 cities in 25 foreign countries.
An important characteristic of Delta's domestic route system is its four
hub airports in Atlanta, Cincinnati, Dallas-Fort Worth and Salt Lake City. Each
of these hub operations includes Delta flights that gather and distribute
traffic from markets in the geographic region surrounding the hub to other major
cities and to other Delta hubs. These hubs also provide connecting passengers
with access to Delta's international gateway at New York's Kennedy Airport and
its Pacific gateway in Portland, Oregon.
Delta conducts operations in various foreign countries, principally in
North America, Europe and Asia. Operating revenues from the Company's foreign
operations were approximately $2.8 billion, $2.7 billion and $2.8 billion in the
years ended June 30, 1997, 1996 and 1995, respectively.
For the year ended June 30, 1997, passenger revenues accounted for 92% of
Delta's operating revenues. Cargo revenues, which include freight and mail,
accounted for 4% of Delta's operating revenues, and other sources accounted for
4% of the Company's operating revenues.
Delta's operating results for any interim period are not necessarily
indicative of operating results for an entire year because of seasonal
variations in the demand for air travel. In general, demand for air travel is
higher in the June and September quarters, particularly in international
markets, because there is more vacation travel during these periods than during
the remainder of the year. Demand for air travel, especially by leisure and
other discretionary customers, is also affected by factors such as general
economic conditions and fare levels.
Delta is incorporated under the laws of the State of Delaware. Its
principal executive offices are located at Hartsfield Atlanta International
Airport, Atlanta, Georgia 30320, and its telephone number is (404) 715-2600.
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Regulatory Environment
While the United States Department of Transportation (the "DOT") and the
Federal Aviation Administration (the "FAA") exercise regulatory authority over
air carriers under the Federal Aviation Act of 1958, as amended (the "Act"),
most domestic economic regulation of passenger and freight services was
eliminated pursuant to the Airline Deregulation Act of 1978 and other statutes
amending the Act. The DOT has jurisdiction over international tariffs and
pricing; international routes; computer reservations systems; and certain
economic and consumer protection matters such as advertising, denied boarding
compensation, baggage liability and smoking aboard aircraft. The FAA regulates
flying operations generally, including control of navigable air space, flight
personnel, aircraft certification and maintenance, and other matters affecting
air safety. The United States Department of Justice has jurisdiction over
airline competition matters, including mergers and acquisitions.
As a result of the economic deregulation of the industry, any air carrier
which the DOT finds "fit" to operate is given unrestricted authority to operate
domestic air transportation (including the carriage of passengers and cargo).
Authority to operate international routes continues to be regulated by the DOT
and by the foreign governments involved. International route awards are also
subject to the approval of the President of the United States for conformance
with national defense and foreign policy objectives.
The economic deregulation of the industry permits unfettered competition
with respect to domestic routes, services, fares and rates, and Delta faces
significant competition on its routes. Except for constraints imposed by the
Act's Essential Air Service provisions, which are applicable to certain small
communities, airlines may terminate service to a city without restriction.
The FAA has implemented a number of requirements which are incorporated
into Delta's maintenance programs. These matters relate to, among other things,
inspection and maintenance of aging aircraft, and corrosion control.
Delta is also subject to various other federal, state, local and foreign
laws and regulations. The United States Postal Service has authority over
certain aspects of the transportation of mail, and rates for the carriage of
domestic mail are determined through negotiations or competitive bidding. The
Communications Act of 1934, as amended, governs Delta's use and operation of
radio facilities. Labor relations in the airline industry are generally governed
by the Railway Labor Act. Environmental matters (including noise pollution) are
regulated by various federal, state and local governmental entities.
Fares and Rates
Airlines are permitted to set domestic ticket prices without governmental
regulation, and the industry is characterized by substantial price competition.
International fares and rates are subject to the jurisdiction of the DOT and
governments of the foreign countries involved. Most international markets are
characterized by significant price competition and substantial commissions,
overrides and discounts to travel agents, brokers and wholesalers.
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The system passenger mile yield declined 2% in fiscal 1997 compared to
fiscal 1996. The domestic passenger mile yield decreased 3%, reflecting the
Company's use of more competitive pricing strategies; the continued presence of
low-cost, low-fare carriers in domestic markets served by Delta; and the March
7, 1997 reimposition of the United States transportation excise tax. The
international passenger mile yield decreased 2%, due to the Company's use of
more competitive pricing strategies.
Delta expects that low-fare competition is likely to continue in domestic
and international markets. If price reductions are not offset by increases in
traffic or changes in the mix of traffic that improve the passenger mile yield,
Delta's operating results will be adversely affected.
Competition and Route Authority
All domestic routes served by Delta are subject to competition from both
new and existing carriers, and service over virtually all of Delta's domestic
routes is highly competitive. On most of its principal domestic routes, the
Company competes with at least one, and usually more than one, major airline.
Delta also competes with regional and national carriers, all-cargo carriers,
charter airlines and, particularly on its shorter routes, with surface
transportation. Service over most of Delta's international routes is also highly
competitive.
International alliances between foreign and domestic carriers, such as the
marketing and code-sharing arrangements between KLM-Royal Dutch Airlines and
Northwest Airlines, Inc., and among Lufthansa German Airlines, Scandinavian
Airline Systems and United Air Lines, Inc., have significantly increased
competition in international markets. A proposed marketing alliance between
British Airways Plc and American Airlines, Inc. is under review by United States
governmental authorities. Through code-sharing arrangements with United States
carriers, foreign carriers have obtained access to interior United States
passenger traffic. Similarly, United States carriers have increased their
ability to sell transatlantic services and destinations to and beyond European
cities.
On June 14, 1996, Delta, Swissair, Sabena and Austrian Airlines received
antitrust immunity from the DOT to pursue a global marketing alliance. The
alliance agreements, which were effective as of February 1, 1997, establish the
framework that allowed these four carriers to form a transatlantic air transport
system which links Delta's domestic system with the European hubs of Swissair,
Sabena and Austrian Airlines. The alliance enables the carriers to pursue a
coordinated approach to worldwide sales and marketing; common pricing and
inventory control; coordination of airline schedules and route planning; and the
pooling of revenues on certain code-share flights.
Delta's flight operations are authorized by certificates of public
convenience and necessity and, to a limited extent, by exemptions issued by the
DOT. The requisite approvals of other governments for international operations
are provided by bilateral agreements with, or permits issued by, foreign
countries. Because international air transportation is governed by bilateral or
other agreements between the United States and the foreign country or countries
involved, changes in United States or foreign government aviation policies could
result in the alteration or termination of such agreements, diminish the value
of Delta's international route authorities or
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otherwise affect Delta's international operations. Bilateral agreements between
the United States and various foreign countries served by Delta are subject to
renegotiation from time to time.
Certain of Delta's international route authorities are subject to periodic
renewal requirements. Delta requests extension of these authorities when and as
appropriate. While the DOT usually renews temporary authorities on routes where
the authorized carrier is providing a reasonable level of service, there is no
assurance of this result. Dormant authority may not be renewed in some cases,
especially where another United States carrier indicates a willingness to
provide service.
Code-Sharing
Delta has entered into marketing agreements with certain foreign carriers
to maintain or improve Delta's access to international markets. Under these dual
designator code-sharing arrangements, Delta and the foreign carriers publish
their respective airline designator codes on a single flight operation, thereby
allowing Delta and the foreign carrier to provide joint service with one
aircraft rather than operating separate services with two aircraft.
Most of Delta's international code-sharing arrangements operate in
discrete international city pairs. Delta purchases seats that are marketed under
Delta's "DL" designator code and sells seats that are marketed under foreign
carriers' two-letter designator code pursuant to code-sharing arrangements with
certain foreign airlines. In addition to its agreements with Swissair, Sabena
and Austrian Airlines, as of August 15, 1997, Delta had code-sharing agreements
with eleven foreign carriers.
Airport Access
Operations at four major United States and certain foreign airports served
by Delta are regulated by governmental entities through "slot" allocations. Each
slot represents the authorization to land at or take off from the particular
airport during a specified time period. In the United States, the FAA regulates
slot allocations at Kennedy Airport in New York, La Guardia Airport in New York,
National Airport in Washington, D. C., and O'Hare International Airport in
Chicago. The Delta Shuttle requires slot allocations at La Guardia and National
Airports, as do Delta's other operations at those four airports. Certain foreign
airports also have slot allocations.
Delta currently has sufficient slot authorizations to operate its existing
flights, and has generally been able to obtain slots to expand its operations
and to change its schedules. There is no assurance, however, that Delta will be
able to obtain slots for these purposes in the future because, among other
reasons, slot allocations are subject to changes in governmental policies.
Delta Express
On October 1, 1996, Delta began Delta Express, a low-fare,
leisure-oriented operation which provides service from certain cities in the
Northeast and Midwest to Orlando and four other
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Florida destinations. Delta Express operates a dedicated fleet of 25 B-737-200
aircraft. Effective October 1, 1997, Delta Express will offer 126 daily non-stop
flights to 16 cities.
The Delta Connection Program
Delta has marketing agreements with four air carriers serving principally
the following areas of the United States: Atlantic Southeast Airlines, Inc.
("ASA") operates in the Southeast through Atlanta and in the Southwest through
Dallas-Fort Worth; Business Express, Inc. operates in the Northeast through
Boston and New York; Comair, Inc. ("Comair") serves Florida and operates in the
Midwest through Cincinnati; and SkyWest Airlines, Inc. ("SkyWest") serves
California and operates in other western states through Salt Lake City. These
carriers, which are known as "Delta Connection" airlines, use Delta's "DL" code
on their flights and exchange connecting traffic with Delta. At June 30, 1997,
Delta held equity interests in ASA Holdings, Inc. (the parent of ASA), Comair
Holdings, Inc. (the parent of Comair) and SkyWest, Inc. (the parent of SkyWest)
of 27%, 21% and 15%, respectively.
Computer Reservation System Partnership
Delta owns 38% of WORLDSPAN, L.P. ("WORLDSPAN"), a Delaware limited
partnership which operates and markets a computer reservation system ("CRS") and
related systems for the travel industry. Northwest Airlines, Inc., Trans World
Airlines, Inc. and ABACUS Distribution Systems Pte Ltd. own 32%, 25% and 5%,
respectively, of WORLDSPAN.
CRS services are used primarily by travel agents to book airline, hotel,
car rental and other travel reservations and issue airline tickets. CRS services
are provided by several companies in the United States and worldwide. In the
United States, other CRS competitors are SABRE (owned primarily by AMR, Inc.),
Galileo International, Inc. (owned by United Air Lines, Inc., US Airways, Inc.
and certain foreign carriers) and AMADEUS (owned by Continental Airlines, Inc.,
and certain foreign carriers). CRS vendors are subject to regulations
promulgated by the DOT and certain foreign governments.
The CRS industry is highly competitive. Delta believes that, based on the
number of travel agents in the United States using a CRS, WORLDSPAN ranks third,
behind SABRE and the Galileo International, Inc. in market share among travel
agents in the United States.
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Fuel
Delta's operations are significantly affected by the availability and
price of jet fuel. Based on the Company's fiscal 1997 jet fuel consumption, a
one-cent change in the average annual price per gallon of jet fuel would have
caused an approximately $26 million change in Delta's annual fuel costs. The
following table shows Delta's jet fuel consumption and costs for fiscal years
1993-1997.
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<CAPTION>
Gallons Percent of
Fiscal Consumed Cost Average Price Operating
Year (Millions) (Millions) Per Gallon Expenses*
------ ---------- ---------- ------------- ---------
<S> <C> <C> <C> <C>
1993 2,529 $1,592 62.95(cent) 13%
1994 2,550 1,411 55.34 12
1995 2,533 1,370 54.09 12
1996 2,500 1,464 58.53 13
1997 2,599 1,723 66.28 14
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* Excluding restructuring and other non-recurring charges
Aircraft fuel expense increased 18% in fiscal 1997 compared to fiscal
1996, as the average fuel price per gallon rose 13% to 66.28(cent), and fuel
gallons consumed increased 4%.
Changes in jet fuel prices have industry-wide impact and benefit or harm
Delta's competitors as well as Delta. Accordingly, lower jet fuel prices may be
offset by increased price competition and lower revenues for all air carriers.
Moreover, there can be no assurance that Delta will be able to increase its
fares in response to any future increases in fuel prices.
Delta's jet fuel contracts do not provide material protection against
price increases or for assured availability of supplies. The Company purchases
most of its jet fuel from petroleum refiners under contracts which establish the
price based on various market indices. The Company also purchases aircraft fuel
on the spot market, from off-shore sources and under contracts which permit the
refiners to set the price and give the Company the right to terminate upon short
notice if the price is unacceptable. Information regarding Delta's fuel hedging
program is set forth in Note 4 of the Notes to Consolidated Financial Statements
on page 36 of Delta's 1997 Annual Report to Stockholders, and is incorporated
herein by reference.
Although Delta is currently able to obtain adequate supplies of jet fuel,
it is impossible to predict the future availability or price of jet fuel.
Political disruptions in the oil producing countries, changes in government
policy concerning aircraft fuel production, transportation or marketing, changes
in aircraft fuel production capacity, environmental concerns and other
unpredictable events may result in fuel supply shortages and fuel price
increases in the future. Such shortages and price increases could have a
material adverse effect on Delta's business.
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Personnel
At June 30, 1997, Delta employed 63,441 full-time equivalent personnel,
compared to 60,289 full-time equivalent personnel at June 30, 1996.
The following table presents certain information concerning Delta's
domestic collective bargaining agreements.
<TABLE>
<CAPTION>
Approximate
Number of Contract
Personnel Amendable
Personnel Group Represented Union Date
- --------------- ------------ ------------------- ---------------
<S> <C> <C> <C>
Pilots 8,400 Air Line Pilots May 2, 2000
Association,
International
Flight 190 Professional Airline January 1, 1998
Superintendents Flight Control
Association
</TABLE>
Delta's relations with labor unions in the United States are governed by
the Railway Labor Act. Under the Railway Labor Act, a labor union seeking to
represent a craft or class of employees is required to file with the National
Mediation Board ("NMB") an application alleging a representation dispute, along
with representation cards signed by at least 35% of the employees in that craft
or class. The NMB then investigates the dispute and, if it finds the labor union
has obtained a sufficient number of representation cards, will conduct an
election to determine whether to certify the labor union as the collective
bargaining representative of that craft or class.
On September 16, 1997, the Transport Workers Union of America filed an
application with the NMB seeking to represent an alleged craft or class
consisting of Delta's approximately 8,000 "Fleet Service" employees for purposes
of collective bargaining. The NMB is investigating the application. The outcome
of this matter cannot presently be determined.
Approximately 2,200 of Delta's personnel are based outside the United
States. Delta personnel in certain foreign countries are represented by labor
organizations.
Environmental Matters
The Airport Noise and Capacity Act of 1990 (the "ANCA") requires the
phase-out of Stage 2 aircraft by December 31, 1999, subject to certain
exceptions. In 1991, the FAA issued regulations which implement the ANCA by
requiring air carriers to reduce (by modification or retirement) the number of
Stage 2 aircraft operated by 25% by December 31, 1994, 50% by December 31, 1996,
75% by December 31, 1998, and 100% by December 31, 1999.
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Alternatively, a carrier may satisfy the regulations by operating a fleet that
is at least 55%, 65%, 75% and 100% Stage 3 by the respective dates set forth in
the preceding sentence.
Delta complied with the ANCA's December 31, 1994 and 1996 requirements. As
of September 9, 1997, Delta operated 407 Stage 3 aircraft, constituting 73% of
its fleet. The Company expects to comply with the ANCA's (1) December 31, 1998
requirement by operating a fleet comprised of at least 75% Stage 3 aircraft; and
(2) December 31, 1999 requirement by hushkitting or retiring its remaining Stage
2 aircraft. Delta has entered into definitive agreements to purchase Stage 3
engine hushkits for a number of its B-727-200 and B-737-200 aircraft.
The ANCA recognizes the rights of operators of airports with noise
problems to implement local noise abatement procedures so long as such
procedures do not interfere unreasonably with interstate or foreign commerce or
the national air transportation system. It generally provides that local noise
restrictions on Stage 3 aircraft first effective after October 1, 1990, require
FAA approval, and establishes a regulatory notice and review process for local
restrictions on Stage 2 aircraft first proposed after October 1, 1990. While
Delta has had sufficient scheduling flexibility to accommodate local noise
restrictions in the past, the Company's operations could be adversely impacted
if locally-imposed regulations become more restrictive or widespread.
The European Union has adopted a uniform policy requiring member states to
phase-out Stage 2 aircraft. Under the policy provisions, the phase-out of Stage
2 aircraft began on April 1, 1995, and will extend for seven years. Each Stage 2
aircraft will be assured a 25 year operating life, but not extending beyond
April 1, 2002. Delta anticipates it will be able to comply with this Stage 2
aircraft phase-out program, which will apply at all airports in the member
states. Other local European airport regulations which penalize or restrict
operations by Stage 2 aircraft have not in the past had an adverse effect on
Delta's operations. Delta's operations could be adversely impacted, however, if
such regulations become more restrictive or widespread.
The United States Environmental Protection Agency (the "EPA") is
authorized to regulate aircraft emissions. The engines on Delta's aircraft
comply with the applicable EPA standards.
Delta has been identified by the EPA as a potentially responsible party (a
"PRP") with respect to the following federal Superfund Sites: the Operating
Industries, Inc. Site in Monterey Park, California; the Peak Oil Site in Tampa,
Florida; the Petroleum Products Corporation Site in Pembroke Park, Florida; and
the Safety Engineered Disposal Site in Hillsboro, Ohio. Delta's alleged
volumetric contribution at each of these sites is small when compared to the
total contributions of all PRPs at that site. Delta is currently aware of soil
and/or ground water contamination present on its current or former leaseholds at
several domestic airports; the Company has a program in place to investigate
and, if appropriate, remediate these sites. Management presently believes that
the resolution of these matters is not likely to have a material adverse effect
on the Company's consolidated financial condition, results of operations or
liquidity.
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Frequent Flyer Program
Delta, like other major airlines, has established a frequent flyer program
offering incentives to maximize travel on Delta. This program allows
participants to accrue mileage for travel awards while flying on Delta, the
Delta Connection carriers and participating airlines. Mileage credit may also be
accrued for the use of certain services offered by program partners such as
hotels, car rental agencies and credit card companies. Delta reserves the right
to terminate the program with six months advance notice, and to change the
program's terms and conditions at any time without notice.
Effective May 1, 1995, Delta modified its frequent flyer program in
certain respects. The modifications included reducing the threshold for a free
travel award from 30,000 miles to 25,000 miles; making free travel awards more
readily transferable; providing that miles earned expire in certain
circumstances; and reducing minimum mileage credit.
Mileage credits earned can be redeemed for free or upgraded air travel,
for membership in Delta's Crown Room Club and for other program partner awards.
Travel awards are subject to certain transfer restrictions and, in most cases,
blackout dates and capacity controlled seating. Miles earned prior to May 1,
1995 do not expire so long as Delta has a frequent flyer program. Miles earned
on or after May 1, 1995 are valid for 36 months from the month of the
participant's last qualifying Delta or Delta Connection flight; every time a
participant completes a qualifying Delta or Delta Connection flight, his mileage
balance is extended for another 36 months.
Delta accounts for its frequent flyer program obligations by recording a
liability for the estimated incremental cost of flight awards the Company
expects to be redeemed. The estimated incremental cost associated with a flight
award does not include any contribution to overhead or profit. Such incremental
cost is based on Delta's system average cost per passenger for fuel; food and
food supplies; passenger insurance, injuries, losses and damages; interrupted
trips and oversales; porter service; ticket forms; bag tags; boarding forms;
in-flight entertainment; and customs. Delta does not record a liability for
mileage earned by participants who have not reached the level to become eligible
for a free travel award. Delta believes this exclusion is immaterial and
appropriate because the large majority of these participants are not expected to
earn a free flight award. Delta does not account for the redemption of
non-travel awards since the cost of these awards to Delta is negligible.
Delta estimated the potential number of roundtrip flight awards
outstanding to be 8.8 million at June 30, 1995, 8.6 million at June 30, 1996 and
9.1 million at June 30, 1997. Of these earned awards, Delta expected that
approximately 5.7 million, 5.7 million and 6.0 million, respectively, would be
redeemed. At June 30, 1995, 1996 and 1997, Delta had recorded a liability for
these awards of $101 million, $103 million and $122 million, respectively. The
difference between the roundtrip awards outstanding and the awards expected to
be redeemed is the estimate, based on historical data, of awards which will (1)
never be redeemed; (2) be redeemed for something other than a free trip; or (3)
be redeemed on another carrier participating in the program.
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Frequent flyer program participants flew 2.0 million, 1.7 million and 1.7
million free round-trips in fiscal years 1995, 1996 and 1997, respectively.
These round-trips accounted for approximately 8%, 8% and 6% of the total
passenger miles flown for the respective periods. Delta believes that the low
percentage of free passenger miles, its load factor and the restrictions applied
to free travel awards minimize the displacement of revenue passengers.
The DOT is conducting a review of the frequent flyer programs of the
larger U.S. airlines. The focus of the review relates to limitations placed by
the carriers on the availability of award seats and the adequacy of consumer
notices concerning such limitations.
Civil Reserve Air Fleet Program
Delta is a participant in the Civil Reserve Air Fleet Program pursuant to
which the Company has agreed to make available, during the period beginning
October 1, 1997 and ending September 30, 1998, up to 21 of its international
range aircraft for use by the United States military under certain stages of
readiness related to national emergencies.
ITEM 2. PROPERTIES
Flight Equipment
Information relating to Delta's aircraft fleet is set forth in the charts
titled "Aircraft Fleet at June 30, 1997" and "Aircraft Delivery Schedules" on
page 13, and in Notes 8 and 9 of the Notes to Consolidated Financial Statements
on pages 40-41, of Delta's 1997 Annual Report to Stockholders, and is
incorporated herein by reference.
Delta's long-term aircraft fleet plan is to simplify its fleet by reducing
aircraft family types from six to three, while replacing older aircraft types
with newer Boeing 767 and 737 aircraft over several years. The Company plans to
remove all L-1011 aircraft from transatlantic service by the end of fiscal 1998,
and to retire all L-1011 aircraft from its fleet within the next several years.
Ground Facilities
Delta leases most of the land and buildings that it occupies. The
Company's largest aircraft maintenance base, various computer, cargo, flight
kitchen and training facilities and most of its principal offices are located at
or near Hartsfield Atlanta International Airport in Atlanta, Georgia, on land
leased from the City of Atlanta under long-term leases. Delta owns a portion of
its principal offices, its Atlanta reservations center and other improved and
unimproved real property in Atlanta, as well as a limited number of radio
transmitting and receiving sites and certain other facilities.
Delta leases ticket counter and other terminal space, operating areas and
air cargo facilities in most of the airports which it serves. These leases
generally run for periods of from less than one year to thirty years or more,
and contain provisions for periodic adjustment of lease rates. At
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most airports which it serves, Delta has entered into use agreements which
provide for the non-exclusive use of runways, taxiways, and other facilities;
landing fees under these agreements normally are based on the number of landings
and weight of aircraft. The Company also leases aircraft maintenance facilities
at certain airports, generally under long-term leases which cover the cost of
providing, operating and maintaining such facilities. In addition, Delta leases
marketing, ticket and reservations offices in certain major cities which it
serves; these leases are generally for shorter terms than the airport leases.
Additional information relating to Delta's ground facilities is set forth in
Notes 4, 8 and 9 of the Notes to Consolidated Financial Statements on pages 36,
and 40-41, of Delta's 1997 Annual Report to Stockholders, and is incorporated
herein by reference.
In recent years, some airports have increased or sought to increase the
rates charged to airlines to levels that, in the airlines' opinion, are
unreasonable. The extent to which such charges are limited by statute or
regulation and the ability of airlines to contest such charges has been subject
to litigation and to administrative proceedings before the DOT. If the
limitations on such charges are relaxed or the ability of airlines to challenge
such charges is restricted, the rates charged by airports to airlines may
increase substantially.
ITEM 3. LEGAL PROCEEDINGS
On November 2, 1995, Delta reached an agreement with Trans World Airlines,
Inc. ("TWA") to lease ten takeoff/landing slots ("Slots") at New York's La
Guardia Airport ("La Guardia"). On November 9, 1995, ValuJet Airlines, Inc.
("ValuJet") filed suit against Delta and TWA in the United States District Court
for the Northern District of Georgia. ValuJet alleges, among other things, that
(1) TWA breached an alleged agreement to lease the Slots to ValuJet; (2) Delta
tortiously interfered with the alleged contract between ValuJet and TWA; (3)
Delta and TWA conspired to restrain trade in violation of Section 1 of the
Sherman Act; and (4) Delta engaged in acts of monopolization and attempted
monopolization in violation of Section 2 of the Sherman Act. ValuJet, which has
requested a jury trial, is seeking injunctive relief, unspecified compensatory
damages, treble damages under the antitrust laws, punitive damages, costs and
attorney's fees, and such other relief as the District Court deems appropriate.
On December 7, 1995, Delta filed its answer denying liability and asserting
various affirmative defenses. On July 12, 1996, the District Court granted TWA's
motion for summary judgment in whole, granted Delta's motion for summary
judgment with respect to ValuJet's claims of tortious interference and
conspiracy, and denied Delta's motion for summary judgment with respect to
ValuJet's remaining claims under Section 2 of the Sherman Act on the ground that
those claims were not subject to resolution without further discovery. On August
14, 1997, the District Court denied Delta's renewed motion for summary judgment
with respect to ValuJet's claims under Section 2 of the Sherman Act. Delta
intends to defend this matter vigorously.
Delta received a Civil Investigative Demand from the United States
Department of Justice requesting information and documents concerning Delta's
lease of the Slots. Delta has responded to this request.
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Delta is also a defendant in certain other legal actions relating to
alleged employment discrimination practices, other matters concerning past and
present employees, environmental issues and other matters concerning Delta's
business. Although the ultimate outcome of these matters and the matters
discussed above in this Item 3 cannot be predicted with certainty and could have
a material adverse effect on Delta's consolidated financial condition, results
of operations or liquidity, management presently believes that the resolution of
these actions is not likely to have a material adverse effect on Delta's
consolidated financial condition, results of operations or liquidity.
For a discussion of certain environmental matters, see "ITEM 1. Business -
Environmental Matters" on pages 7-8 of this Form 10-K.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information concerning Delta's executive officers follows. Unless
otherwise indicated, all positions shown are with Delta. There are no family
relationships between any of Delta's executive officers.
Leo F. Mullin Mr. Mullin has been President and Chief Executive
Officer of Delta since August 14, 1997. He was
Vice Chairman of Unicom Corporation and its
principal subsidiary, Commonwealth Edison Company,
from 1995 through August 13, 1997. Mr. Mullin was
an executive of First Chicago Corporation from
1981 to 1995, serving as that company's President
and Chief Operating Officer from 1993 to 1995, and
as Chairman and Chief Executive Officer of
American National Bank, a subsidiary of First
Chicago Corporation, from 1991 to 1993. Age 54.
Maurice W. Worth Chief Operating Officer, August 14, 1997 to date;
Acting Chief Executive Officer, August 1, 1997
through August 13, 1997; Executive Vice President -
Customer Service and Acting Chief Operating
Officer, May 12, 1997 through July 31, 1997;
Executive Vice President - Customer Service,
September 13, 1995 through May 11, 1997; Senior
Vice President - Personnel, May 1991 through
September 12, 1995; Vice President - Personnel,
November 1989 through April 1991. Age 57.
12
<PAGE> 14
Harry C. Alger Executive Vice President - Operations, March 1993
to date; Senior Vice President - Operations,
February 1992 through February 1993; Vice
President - Flight Operations, August 1987 through
January 1992. Age 59.
Robert W. Coggin Executive Vice President - Marketing, September
13, 1995 to date; Senior Vice President -
Marketing, August 1992 through September 12,
1995; Senior Vice President - Marketing
Development and Planning, February 1992 through
July 1992; Vice President - Marketing
Development and Planning, November 1991 through
January 1992; Vice President - Marketing
Development, November 1988 through October 1991.
Age 61.
Robert G. Adams Senior Vice President - Personnel, November 1,
1996 to date; Vice President - Personnel,
September 16, 1995 through October 31, 1996; Vice
President - Personnel Services, November 1, 1993
through September 15, 1995; Assistant Vice
President - Personnel Services, August 1, 1993
through October 31, 1993; Assistant Vice President
- Personnel - International, November 1, 1991
through July 31, 1993; Vice President - Human
Resources, Pan American World Airways, Inc., 1982
through October 31, 1991. Age 59.
Robert S. Harkey Senior Vice President - General Counsel and
Secretary, November 1994 to date; Senior Vice
President - General Counsel, November 1990 through
October 1994; Vice President - General Counsel,
November 1988 through October 1990. Age 56.
Thomas J. Roeck, Jr. Senior Vice President - Finance and Chief
Financial Officer, June 1988 to date. Age 53.
13
<PAGE> 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Information required by this item is set forth under "Common Stock",
"Number of Shareholders" and "Market Prices and Dividends" on page 52 of Delta's
1997 Annual Report to Stockholders, and is incorporated herein by reference.
Under the Delta Air Lines, Inc. Directors' Deferred Compensation Plan
("Plan"), members of the Company's Board of Directors may defer for a specified
period all or any part of their cash compensation earned as a director. A
participating director may choose an investment return on the deferred amount
from among the 17 investment return choices available under the Delta
Family-Care Savings Plan, a qualified defined contribution pension plan for
eligible Delta personnel. One of the investment return choices under the Delta
Family-Care Savings Plan is a fund invested primarily in Delta's common stock
("Delta Common Stock Fund"). During the quarter ended June 30, 1997,
participants in the Plan deferred a total of $39,750 in the Delta Common Stock
Fund investment return choice (equivalent to approximately 463 shares of Delta
common stock at prevailing market prices). These transactions were not
registered under the Securities Act of 1933, as amended, in reliance on Section
4(2) of such Act.
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is set forth on pages 50-51 of Delta's
1997 Annual Report to Stockholders, and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Information required by this item is set forth on pages 21-27 of Delta's
1997 Annual Report to Stockholders, and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information required by this item is set forth under "Market Risks
Associated With Financial Instruments" on page 25, and in Note 4 of the Notes to
Consolidated Financial Statements on page 36, of Delta's 1997 Annual Report to
Stockholders, and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is set forth on pages 28-48, and in
"Report of Independent Public Accountants" on page 49, of Delta's 1997 Annual
Report to Stockholders, and is incorporated herein by reference.
14
<PAGE> 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is set forth on pages 5-7, and under
"Other Matters Involving Directors and Executive Officers - Section 16(a)
Beneficial Ownership Reporting Compliance" on page 22, of Delta's Proxy
Statement dated September 15, 1997, and is incorporated herein by reference.
Certain information regarding executive officers is contained in Part I of this
Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is set forth on pages 4, and 16-22, of
Delta's Proxy Statement dated September 15, 1997, and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information required by this item is set forth on pages 8-10 of Delta's
Proxy Statement dated September 15, 1997, and is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. George D. Busbee and Mr. Peter D. Sutherland are members of the
Company's Board of Directors. Mr. Busbee is of counsel to the law firm of King
& Spalding, which provided certain legal services to the Company in fiscal 1997
and is expected to provide similar services in fiscal 1998. Mr. Sutherland is a
general partner of Goldman, Sachs & Co., which provided certain investment
banking services to the Company in fiscal 1997 and is expected to provide
similar services in fiscal 1998.
Additional information required by this item is set forth on pages 20-22
of Delta's Proxy Statement dated September 15, 1997, and is incorporated herein
by reference.
15
<PAGE> 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1), (2). The financial statements and schedule required by this item are
listed in the Index to Consolidated Financial Statements and Schedule on page 19
of this Form 10-K.
(3). The exhibits required by this item are listed in the Exhibit
Index on pages 24-26 of this Form 10-K. The management contracts and
compensatory plans or arrangements required to be filed as an exhibit to this
Form 10-K are listed as Exhibit 10.1 and Exhibits 10.7 to 10.16 in the Exhibit
Index.
(b) During the quarter ended June 30, 1997, Delta did not file any
Current Reports on Form 8-K.
16
<PAGE> 18
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, on the 26th day of
September, 1997.
DELTA AIR LINES, INC.
By: /s/ Leo F. Mullin
--------------------------------------
Leo F. Mullin
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on the 26th day of September, 1997 by the following
persons on behalf of the registrant and in the capacities indicated.
Signature Title
--------- -----
Edwin L. Artzt* Director
- -------------------------------
Edwin L. Artzt
Henry A. Biedenharn, III* Director
- -------------------------------
Henry A. Biedenharn, III
James L. Broadhead* Director
- -------------------------------
James L. Broadhead
Edward H. Budd* Director
- -------------------------------
Edward H. Budd
George D. Busbee* Director
- -------------------------------
George D. Busbee
R. Eugene Cartledge* Director
- -------------------------------
R. Eugene Cartledge
17
<PAGE> 19
Signature Title
Mary Johnston Evans* Director
- -------------------------------
Mary Johnston Evans
Gerald Grinstein* Non-executive Chairman of the Board
- -------------------------------
Gerald Grinstein
Jesse Hill, Jr.* Director
- -------------------------------
Jesse Hill, Jr.
/s/ Leo F. Mullin President and Chief Executive
- ------------------------------- Officer and a Director
Leo F. Mullin (Principal Executive Officer)
/s/ Thomas J. Roeck, Jr. Senior Vice President-Finance
- ------------------------------- and Chief Financial Officer
Thomas J. Roeck, Jr. (Principal Financial Officer
and Principal Accounting Officer)
Peter D. Sutherland* Director
- -------------------------------
Peter D. Sutherland
Andrew J. Young* Director
- -------------------------------
Andrew J. Young
*By: /s/ Thomas J. Roeck, Jr. Attorney-In-Fact
---------------------------
Thomas J. Roeck, Jr.
18
<PAGE> 20
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS - Incorporated herein by reference to
"Report of Independent Public Accountants" on page 49 of Delta's 1997
Annual Report to Stockholders.
FINANCIAL STATEMENTS - All of which are incorporated herein by reference to
Delta's 1997 Annual Report to Stockholders.
Consolidated Balance Sheets - June 30, 1997 and 1996
Consolidated Statements of Operations for the years ended June 30, 1997,
1996 and 1995
Consolidated Statements of Cash Flows for the years ended June 30, 1997,
1996 and 1995
Consolidated Statements of Shareholders' Equity for the years ended June
30, 1997, 1996 and 1995
Notes to Consolidated Financial Statements - June 30, 1997, 1996 and 1995
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
SCHEDULE SUPPORTING FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
Schedule
Number
-------
<S> <C>
II Valuation and Qualifying Accounts for the fiscal years ended June
30, 1997, 1996 and 1995
</TABLE>
All other schedules have been omitted as not applicable.
19
<PAGE> 21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Delta Air Lines, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements included in Delta Air Lines, Inc.'s annual
report to stockholders incorporated by reference in this Form 10-K and have
issued our report thereon dated August 15, 1997. Our audit was made for the
purpose of forming an opinion on those statements taken as a whole. The schedule
listed in the accompanying index is the responsibility of the Company's
management, is presented for purposes of complying with the Securities and
Exchange Commission's rules, and is not part of the basic financial statements.
The schedule has been subjected to the auditing procedures applied in the audit
of the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
August 15, 1997
20
<PAGE> 22
SCHEDULE II
DELTA AIR LINES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
(Amounts in Millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
---------
Charged to
Balance at Charged to Other Balance at
Beginning of Costs and Accounts- Deductions- End of
Description Period Expenses describe describe Period
----------- ------------ ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
DEDUCTION (INCREASE) IN THE
BALANCE SHEET FROM THE
ASSET TO WHICH IT APPLIES:
Allowance for uncollectible
accounts receivable: $ 44 $ 30 - $ 26 (a) $ 48
Allowance for unrealized gains
on marketable equity
securities: $(206) - - $ 40 (b) $(166)
</TABLE>
(a) Represents write-off of accounts considered to be uncollectible, less
collections.
(b) Represents net unrealized loss recognized resulting from changes in market
values.
21
<PAGE> 23
SCHEDULE II
DELTA AIR LINES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
(Amounts in Millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
---------
Charged to
Balance at Charged to Other Balance at
Beginning of Costs and Accounts- Deductions- End of
Description Period Expenses describe describe Period
----------- ------------ ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
DEDUCTION (INCREASE) IN THE
BALANCE SHEET FROM THE
ASSET TO WHICH IT APPLIES:
Allowance for uncollectible
accounts receivable: $ 29 $ 15 - - $ 44
Allowance for unrealized
gains on marketable equity
securities: $(131) - $(75) (a) - $(206)
</TABLE>
(a) Represents net unrealized gain recognized resulting from changes in market
values.
22
<PAGE> 24
SCHEDULE II
DELTA AIR LINES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED JUNE 30, 1995
(Amounts in Millions)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
Additions
Charged to
Balance at Charged to Other Balance at
Beginning of Costs and Accounts- Deductions- End of
Description Period Expenses describe describe Period
----------- ------------ ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
DEDUCTION (INCREASE) IN THE
BALANCE SHEET FROM THE
ASSET TO WHICH IT APPLIES:
Allowance for uncollectible
accounts receivable: $ 50 $ 21 - $ 42 (a) $ 29
Allowance for unrealized
gains on marketable equity
securities: $(85) - $(46) (b) - $(131)
</TABLE>
(a) Represents write-off of accounts considered to be uncollectible, less
collections.
(b) Represents net unrealized gain recognized resulting from changes in market
values.
23
<PAGE> 25
EXHIBIT INDEX
3.1 Delta's Certificate of Incorporation (Filed as Exhibit 4.1 to Delta's
Registration Statement on Form S-8 (Registration No. 333-16471)).*
3.2 Delta's By-Laws (Filed as Exhibit 3 to Delta's Current Report on Form
8-K dated November 17, 1993).*
4.1 Rights Agreement dated as of October 24, 1996, between Delta and First
Chicago Trust Company of New York, as Rights Agent (Filed as Exhibit 1 to
Delta's Form 8-A/A Registration Statement dated November 4, 1996).*
4.2 Certificate of Designations, Preferences and Rights of Series B ESOP
Convertible Preferred Stock and Series D Junior Participating Preferred Stock
(Filed as part of Exhibit 3.1 of this Form 10-K).
4.3 Indenture dated as of March 1, 1983, between Delta and The Citizens
and Southern National Bank, Trustee, as supplemented by the First and Second
Supplemental Indentures thereto dated as of January 27, 1986 and May 26, 1989,
respectively (Filed as Exhibit 4 to Delta's Registration Statement on Form S-3
(Registration No. 2-82412), Exhibit 4(b) to Delta's Registration Statement on
Form S-3 (Registration No. 33-2972), and Exhibit 4.5 to Delta's Annual Report on
Form 10-K for the year ended June 30, 1989).*
4.4 Agreement dated May 31, 1989, among Delta, The Citizens and Southern
National Bank and The Citizens and Southern National Bank of Florida relating to
the appointment of a successor trustee under the Indenture dated as of March 1,
1983, as supplemented, between Delta and The Citizens and Southern National Bank
(Filed as Exhibit 4.6 to Delta's Annual Report on Form 10-K for the year ended
June 30, 1989).*
4.5 Indenture dated as of April 30, 1990, between Delta and The Citizens
and Southern National Bank of Florida, Trustee (Filed as Exhibit 4(a) to
Amendment No. 1 to Delta's Registration Statement on Form S-3 (Registration No.
33-34523)).*
4.6 Indenture dated as of May 1, 1991, between Delta and The Citizens and
Southern National Bank of Florida, Trustee (Filed as Exhibit 4 to Delta's
Registration Statement on Form S-3 (Registration No. 33-40190)).*
4.7 Credit Agreement dated as of May 2, 1997, by and among Delta, Certain
Banks and NationsBank, N.A. (South), as Agent Bank.
4.8 Note Purchase Agreement dated February 22, 1990, among the Delta
Family-Care Savings Plan, Issuer, Delta, Guarantor, and Various Lenders relating
to the Guaranteed Serial ESOP Notes (Filed as Exhibit 10 to Delta's Current
Report on Form 8-K dated April 25, 1990).*
24
<PAGE> 26
4.9 Indenture of Trust dated as of August 1, 1993, among Delta, Fidelity
Management Trust Company, ESOP Trustee, and Wilmington Trust Company, Trustee,
relating to the Guaranteed Serial ESOP Notes (Filed as Exhibit 4.12 to Delta's
Annual Report on Form 10-K for the year ended June 30, 1993).*
Delta is not filing any other instruments evidencing any indebtedness
because the total amount of securities authorized under any single such
instrument does not exceed 10% of the total assets of Delta and its subsidiaries
on a consolidated basis. Copies of such instruments will be furnished to the
Securities and Exchange Commission upon request.
10.1 Delta's Incentive Compensation Plan, as amended (Filed as Appendix A
to Delta's Proxy Statement dated September 16, 1996).*
10.2 Stock Purchase Agreement dated July 10, 1989, between Delta and
Swissair, Swiss Air Transport Company Ltd. (Filed as Exhibit 10.2 to Delta's
Current Report on Form 8-K dated July 24, 1989).*
10.3 Stock Purchase Agreement dated August 21, 1989, between Delta and
Swissair, Swiss Air Transport Company Ltd. (Filed as Exhibit 10.9 to Delta's
Annual Report on Form 10-K for the year ended June 30, 1989).*
10.4 Stock Purchase Agreement dated October 26, 1989, between Singapore
Airlines Limited and Delta (Filed as Exhibit 10.1 to Delta's Current Report on
Form 8-K dated November 2, 1989).*
10.5 Stock Purchase Agreement dated October 26, 1989, between Delta and
Singapore Airlines Limited (Filed as Exhibit 10.2 to Delta's Current Report on
Form 8-K dated November 2, 1989).*
10.6 Sixth Amended and Restated Limited Partnership Agreement of
WORLDSPAN, L.P. dated as of April 30, 1993 (Filed as Exhibit 10.6 to Delta's
Annual Report on Form 10-K for the year ended June 30, 1993).*
10.7 Employment Agreement dated July 29, 1987, between Delta and Mr.
Ronald W. Allen, as amended by the Amendments thereto dated February 1, 1992,
August 15, 1992, October 28, 1993, and August 16, 1996 (Filed as Exhibit 10.8 to
Delta's Annual Report on Form 10-K for the year ended June 30, 1987, Exhibit 10
to Delta's Quarterly Report on Form 10-Q for the quarter ended March 31, 1992,
Exhibit 10.13 to Delta's Annual Report on Form 10-K for the year ended June 30,
1992, Exhibit 10 to Delta's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1993 and Exhibit 10.9 to Delta's Annual Report on Form 10-K for the
year ended June 30, 1996).*
10.8 Agreement dated as of July 31, 1997 between Delta and Mr. Ronald W.
Allen.
25
<PAGE> 27
10.9 Delta's 1989 Stock Incentive Plan, as amended (Filed as Exhibit
10.10 to Delta's Annual Report on Form 10-K for the year ended June 30, 1996).*
10.10 Delta's Executive Deferred Compensation Plan, as amended (Filed as
Exhibit 10.11 to Delta's Annual Report on Form 10-K for the year ended June 30,
1995).*
10.11 Directors' Deferred Compensation Plan (Filed as Exhibit 10.12 to
Delta's Annual Report on Form 10-K for the year ended June 30, 1996).*
10.12 Directors' Charitable Award Program (Filed as Exhibit 10.14 to
Delta's Annual Report on Form 10-K for the year ended June 30, 1993).*
10.13 1991 Delta Excess Benefit Plan, The Delta Supplemental Excess
Benefit Plan and Form of Excess Benefit Plan Agreement (Filed as Exhibit 10.18
to Delta's Annual Report on Form 10-K for the year ended June 30, 1992).*
10.14 Delta's Non-employee Directors' Stock Plan (Filed as Exhibit 4.5 to
Delta's Registration Statement on Form S-8 (Registration No. 33-65391)).*
10.15 Form of Stock Option and Restricted Stock Award Agreements under
1989 Stock Incentive Plan (Filed as Exhibit 10.17 to Delta's Annual Report on
Form 10-K for the year ended June 30, 1996).*
10.16 Forms of Executive Retention Protection Agreements for Certain
Officers.
10.17 Agreement dated April 29, 1996, between Delta and The Air Line
Pilots in the service of Delta as represented by the Air Line Pilots
Association, International (Filed as Exhibit 10 to Delta's Quarterly Report on
Form 10-Q for the Quarter ended March 31, 1996).*
11. Statement regarding computation of per share earnings for the years
ended June 30, 1997, 1996 and 1995.
12. Statement regarding computation of ratio of earnings to fixed charges
for the years ended June 30, 1997, 1996, 1995, 1994 and 1993.
13. Portions of Delta's 1997 Annual Report to Stockholders.
18. Letter re Change in Accounting Principles.
23. Consent of Arthur Andersen LLP.
24. Powers of Attorney.
27. Financial Data Schedule.
- ----------------------------
*Incorporated herein by reference
26
<PAGE> 1
EXHIBIT 4.7
================================================================================
CREDIT AGREEMENT
DATED AS OF MAY 2, 1997
BY AND AMONG
DELTA AIR LINES, INC.,
EACH OF THE FINANCIAL INSTITUTIONS INITIALLY A SIGNATORY HERETO,
TOGETHER WITH THOSE ASSIGNEES PURSUANT TO SECTION 12.6 HEREOF
AND
NATIONSBANK, N.A. (SOUTH),
AS AGENT BANK
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1. DEFINITIONS.................................................... 1
Section 1.1. Definitions........................................... 1
ARTICLE 2. AMOUNT AND TERMS OF CREDIT..................................... 8
Section 2.1. Commitment............................................ 8
Section 2.2. The Banks............................................. 9
Section 2.3. Increases in the Total Commitments of the Banks....... 10
ARTICLE 3. THE LOANS...................................................... 12
Section 3.1. Syndicated Loans...................................... 12
Section 3.2. Notice and Place of Borrowing for Syndicated Loans.... 12
Section 3.3. Competitive Bid Loans................................. 13
Section 3.4. The Notes............................................. 16
Section 3.5. Interest.............................................. 17
Section 3.6. Place of Payment...................................... 18
Section 3.7. Voluntary Prepayment.................................. 18
Section 3.8. Pro Rata Treatment.................................... 18
Section 3.9. Initial Determination of Interest Rate and
Conversion of Loans Between Eurodollar Rate and Base Rate...... 19
Section 3.10. Failure to Borrow.................................... 19
Section 3.11. Commitment Fee....................................... 20
Section 3.12. Termination of Credit Facility....................... 21
Section 3.13. Optional Reduction of Commitments. .................. 21
Section 3.14. Substitution of Banks................................ 22
Section 3.15. Capital Requirements................................. 24
Section 3.16. Mandatory Termination of Commitments Upon
Change in Control.............................................. 25
Section 3.17. Agent Fees........................................... 25
Section 3.18. Extension of Term of Credit Facility................. 25
ARTICLE 4. LETTER OF CREDIT FACILITY...................................... 26
Section 4.1. Letters of Credit..................................... 26
Section 4.2. Method of Issuance of Letters of Credit............... 28
Section 4.3. Letter of Credit Fees................................. 28
Section 4.4. Letter of Credit Reimbursement........................ 29
Section 4.5. Letter of Credit Banks................................ 31
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 5. CONDITIONS TO EFFECTIVENESS OF AGREEMENT, FOR
BORROWINGS AND ISSUANCE OF LETTERS OF CREDIT........................ 32
Section 5.1. Effectiveness, Initial Borrowing and Issuance
of Letters of Credit........................................ 32
Section 5.2. All Borrowings........................................ 34
ARTICLE 6. REPRESENTATIONS AND WARRANTIES................................. 35
Section 6.1. Organization; Standing, Etc........................... 35
Section 6.2. Financial Statements.................................. 35
Section 6.3. Litigation............................................ 35
Section 6.4. Business; Status as Air Carrier....................... 35
Section 6.5. Funded Debt........................................... 36
Section 6.6. Title to Properties, Etc.............................. 36
Section 6.7. Tax Returns and Payments.............................. 36
Section 6.8. Compliance With Other Instruments..................... 36
Section 6.9. Offering of Notes..................................... 37
Section 6.10. Use of Proceeds...................................... 37
Section 6.11. Governmental Regulation.............................. 37
Section 6.12. Subsidiaries......................................... 37
Section 6.13. ERISA................................................ 37
Section 6.14. Environmental Matters................................ 38
ARTICLE 7. AFFIRMATIVE COVENANTS.......................................... 38
Section 7.1. Insurance............................................. 38
Section 7.2. Payment of Taxes...................................... 38
Section 7.3. Financial Statements.................................. 39
Section 7.4. Maintenance of Equipment.............................. 40
Section 7.5. Inspection............................................ 40
Section 7.6. Security for Notes.................................... 40
Section 7.7. Notice of Any Default or Event of Default............. 40
Section 7.8. ERISA Reporting Requirements.......................... 40
ARTICLE 8. NEGATIVE COVENANTS............................................. 40
Section 8.1. Liens................................................. 41
Section 8.2. Debt.................................................. 41
Section 8.3. Mergers; Disposition of Assets........................ 42
Section 8.4. Leases................................................ 42
ARTICLE 9. DEFAULTS....................................................... 42
Section 9.1. Events of Default..................................... 42
ARTICLE 10. YIELD PROTECTION.............................................. 45
Section 10.1. Increased Cost of Eurodollar Rate Loans.............. 45
Section 10.2. Change of Law........................................ 46
Section 10.3. Funding Losses....................................... 47
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
Section 10.4. Increased Cost of Maintaining Letters of Credit...... 47
Section 10.5. Mandatory Repayment or Conversion on Certain Events.. 48
Section 10.6. Survival............................................. 48
ARTICLE 11. THE AGENT BANK................................................ 48
Section 11.1. Authorization and Action............................... 48
Section 11.2. Agent Bank's Reliance, Etc............................. 49
Section 11.3. Agent Bank and Affiliates.............................. 49
Section 11.4. Representations of the Banks........................... 50
Section 11.5. Events of Default...................................... 50
Section 11.6. Right to Indemnity..................................... 50
Section 11.7. Indemnification........................................ 51
Section 11.8. Successor Agent Bank................................... 51
ARTICLE 12. MISCELLANEOUS.................................................. 52
Section 12.1. Rights and Remedies.................................... 52
Section 12.2. Notices................................................ 52
Section 12.3. Expenses, Indemnification, Etc......................... 53
Section 12.4. Amendments to this Agreement and the Notes............. 55
Section 12.5. Agreement as to Right of Set-off, Sharing of Losses.... 55
Section 12.6. Successors and Assigns................................. 56
Section 12.7. Holidays............................................... 56
Section 12.8. Law Governing.......................................... 56
Section 12.9. Disclosure to Other Persons............................ 57
Section 12.10. Execution and Effective Date.......................... 57
Section 12.11. Representation of Banks............................... 57
Section 12.12. Severability.......................................... 57
Section 12.13. Entire Agreement...................................... 58
</TABLE>
Exhibit A-1 Form of Syndicated Note
Exhibit A-2 Form of Competitive Bid Note
Exhibit B Form of Notice of Increased Commitment
Exhibit C-1 Form of Notice and Agreement Regarding Addition of Bank
Exhibit C-2 Form of Agreement of Existing Bank to Replace Replaced Bank
Exhibit D Form of Assignment and Assumption Agreement
Exhibit E Form of Competitive Bid Quote Confirmation
Exhibit F Form of Acceptance of Competitive Bid Quotes
Exhibit G Form of Letter Acknowledging Termination of Existing Credit
Agreement
-iii-
<PAGE> 5
Schedule I Funded Debt of the Company
Schedule II Subsidiaries of the Company
Schedule III Certain Excluded Guaranty Liabilities
-iv-
<PAGE> 6
CREDIT AGREEMENT
THIS CREDIT AGREEMENT dated as of May 2, 1997 (this "Agreement") by and
among DELTA AIR LINES, INC., a corporation organized under the laws of the State
of Delaware (the "Company"), each of the financial institutions initially a
signatory hereto together with those assignees pursuant to Section 12.6. hereof
(collectively, the "Banks" and each individually, a "Bank") and NATIONSBANK, N.
A. (SOUTH), in its capacity as agent for the Banks (the "Agent Bank").
WHEREAS, the parties hereto desire to make available to the Company
certain financial accommodations on the terms and conditions contained herein;
NOW THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties hereto, the parties
hereto hereby agree as follows:
ARTICLE 1. DEFINITIONS
SECTION 1.1 DEFINITIONS.
In addition to terms defined elsewhere herein, the following terms
shall have the following meanings for the purposes of this Agreement:
"Absolute Rate" shall have the meaning assigned to such term in
Section 3.3.(c)(ii)(C) hereof.
"Agent Bank" shall mean NationsBank, N.A. (South) in its capacity as
agent for the Banks; provided, however, that if NationsBank, N.A. (South) shall
have resigned or been removed as Agent Bank, then "Agent Bank" shall mean the
bank selected as Agent Bank pursuant to the provisions of Section 11.8. hereof.
"Applicable Margin" shall mean, as of any date of determination, the
percentage rate set forth below for each type of Loan corresponding to the long
term senior unsecured debt rating of the Company, as rated by S&P (the "S&P
Rating") and Moody's (the "Moody's Rating"; each of the S&P Rating and the
Moody's Rating referred to herein as a "Rating"):
<PAGE> 7
<TABLE>
<CAPTION>
===================================================================================
LONG TERM SENIOR UNSECURED APPLICABLE MARGIN
LEVEL DEBT RATING OF THE COMPANY FOR EURODOLLAR RATE APPLICABLE MARGIN
(S&P/MOODY'S) LOANS FOR BASE RATE LOANS
===================================================================================
<S> <C> <C> <C>
1 BBB+ or higher or Baa1 or 0.30% 0%
higher
- -----------------------------------------------------------------------------------
2 BBB or Baa2 0.33% 0%
- -----------------------------------------------------------------------------------
3 BBB- or Baa3 0.375% 0%
- -----------------------------------------------------------------------------------
4 BB+ or Ba1 0.50% 0%
- -----------------------------------------------------------------------------------
5 BB or lower or Ba2 or lower 0.75% 0%
===================================================================================
</TABLE>
The Agent Bank shall determine the Applicable Margin from time to time
in accordance with the above table and notify the Company and the Banks of such
determination from time to time. In the event the S&P Rating and the Moody's
Rating correspond to different levels on the above table resulting in different
Applicable Margin determinations, the following provisions shall apply. In the
event the S&P Rating and the Moody's Rating differ by one level, the Applicable
Margin shall be that corresponding to the higher Rating. For example, a "BBB+"
S&P Rating and a "Baa2" Moody's Rating would result in an Applicable Margin for
Eurodollar Rate Loans equal to 0.30%. In the event the S&P Rating and the
Moody's Rating differ by two levels, the Applicable Margin shall be that
corresponding to that level which is in between the two applicable levels. For
example, a "BBB" S&P Rating and a "Ba1" Moody's Rating would result in an
Applicable Margin for Eurodollar Rate Loans equal to 0.375%. In the event the
S&P Rating and the Moody's Rating differ by three levels, the Applicable Margin
shall be that corresponding to the level immediately above the lower of such
Ratings. For example, a "BBB+" S&P Rating and a "Ba1" Moody's Rating would
result in an Applicable Margin for Eurodollar Rate Loans equal to 0.375%. In the
event the S&P Rating and the Moody's Rating differ by four levels (i.e. a
ratings split between level 1 and level 5), the Applicable Margin shall be that
corresponding to level 4. For example, a "BBB+" S&P Rating and a "Ba2" Moody's
Rating would result in an Applicable Margin for Eurodollar Rate Loans equal to
0.50%.
In the event only one rating agency exists or continues rating the
Company's long term senior unsecured debt, such agency's rating shall be used
for purposes of the above table. In the event: (i) neither agency exists or
continues rating the Company's long term senior unsecured debt or (ii) the
Company no longer has any outstanding long term senior unsecured debt to be
rated, the Applicable Margin for the first 90 days after such occurrence shall
be the Applicable Margin in effect as determined using the above immediately
prior to such occurrence. During such 90-day period, the Agent Bank and the
Company shall negotiate in good faith to agree upon a new pricing grid or other
appropriate pricing terms. Any such new grid or pricing terms shall be approved
by the Majority Banks. In the event the Agent Bank, the Company and Majority
Banks cannot agree upon such new pricing grid or pricing terms by the end of
such 90-day period, the Applicable Margin shall be that corresponding to level 3
of the above table for the remainder of the term of the Agreement.
-2-
<PAGE> 8
Any necessary adjustment in the Applicable Margin pursuant to the terms
hereof shall become effective immediately upon any change in a Rating.
"Available Commitment" shall mean, on any date, the Total Commitments
of the Banks in effect on such date minus the sum of: (i) the aggregate Stated
Amount of Letters of Credit outstanding on such date, (ii) the aggregate
outstanding principal amount of Syndicated Loans on such date, (iii) the
aggregate outstanding principal amount of Competitive Bid Loans on such date,
and (iv) any Reimbursement Obligations unpaid on such date (other than any such
Reimbursement Obligations to be paid on such date with the proceeds of a
Syndicated Loan).
"Base Rate" shall mean the rate per annum which is the Prime Rate in
effect from time to time at a majority of the Reference Banks (or if no two of
such Banks have the same Prime Rate in effect, the Prime Rate in effect at such
Bank whose Prime Rate is neither the highest nor the lowest) plus the Applicable
Margin.
"Base Rate Loan" shall mean any Syndicated Loan which bears interest at
the Base Rate.
"Business Day" shall mean any day during which the Main Office of the
Agent Bank is scheduled to be open for the conduct of its banking business and
during which national banking associations located in New York, New York and
Charlotte, North Carolina are open for the conduct of banking business.
"Commitment" shall have the meaning set forth in Section 2.1. hereof.
"Commitment Fee" shall mean the fee required to be paid to the Agent
Bank, for the account of the Banks, by the Company pursuant to Section 3.11.
hereof.
"Competitive Bid Loan" shall mean any Loan which bears interest at the
Absolute Rate.
"Competitive Bid Quote" shall mean an offer in accordance with Section
3.3. hereof by a Bank to make a Competitive Bid Loan with one single specified
interest rate.
"Competitive Bid Quote Request" shall have the meaning assigned to such
term in Section 3.3.(b) hereof.
"Convertible Subordinated Debt" shall mean any debt of the Company
convertible into shares of any or all classes of stock of the Company and
containing, or issued under agreements or indentures containing, provisions
effectively subordinating the same to the debt created by this Agreement.
-3-
<PAGE> 9
"Credit Facility" shall mean the credit facility extended to the
Company by the Banks pursuant hereto.
"Current Debt" shall mean any obligation for borrowed money (including
notes payable and drafts accepted representing extensions of credit whether or
not representing obligations for borrowed money) payable on demand or within a
period of one year from the date of the creation thereof.
"Default" means any of the events specified in paragraphs (a) through
(h) of Section 9.1. hereof, whether or not there has been satisfied any
requirement for giving of notice, lapse of time or the happening of any other
condition.
"Dollar" and "$" shall mean lawful money of the United States of
America.
"Drawing" shall mean a drawing by a beneficiary under a Letter of
Credit.
"Effective Date" shall mean the date upon which: (i) all of the
conditions of Section 5.1. hereof have been satisfied and (ii) the Company has
paid to the Agent Bank the fees required by Section 3.17. hereof.
"Equity" shall mean the sum of: (i) the par value (or value stated on
the books of the Company) of the capital stock of all classes of the Company
(other than the Company's Series B ESOP Convertible Preferred Stock), (ii) the
amount of additional paid-in capital and reinvested earnings of the Company,
(iii) the amount of taxes deferred and unamortized investment tax credits under
Sections 167 and 168 of the Internal Revenue Code or similar provisions of any
applicable tax law and carried on the balance sheet under those captions, (iv)
the amount of any gain on the sale and leaseback of assets which is deferred
pursuant to generally accepted accounting principles, (v) the principal amount
of any Convertible Subordinated Debt outstanding, (vi) the amount of any
postretirement benefits (other than pensions) of the Company accrued in
accordance with the Statement of Financial Accounting Standards No. 106
(Financial Accounting Standards Board 1990) and generally accepted accounting
principles and classified as long term liabilities on the balance sheet of the
Company, and (vii) the difference between (a) the stated and liquidation value
of the Company's Series B ESOP Convertible Preferred Stock and (b) the unearned
compensation under the Company's employee stock ownership plan; minus (viii) the
unrealized loss on noncurrent marketable equity securities, net of any deferred
tax benefits, and minus (ix) treasury stock at cost.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time and any successor statute.
"Eurodollar Business Day" shall mean any day on which banks are
scheduled to be open for business and quoting interest rates for Dollar deposits
on the London interbank market and which is also a Business Day.
-4-
<PAGE> 10
"Eurodollar Lending Office" shall mean with respect to each Bank the
office of such Bank identified as such from time to time to the Agent Bank and
the Company as the office of such Bank or of its affiliate at which the
Eurodollar Rate Loans held by such Bank are to be maintained.
"Eurodollar Rate" shall mean a rate per annum (rounded upward, if
necessary, to the nearest 1/100th of 1%) determined by Agent Bank pursuant to
the following formula:
Eurodollar Rate = LIBOR plus Applicable Margin.
"LIBOR" shall mean, with respect to any Interest Period for Eurodollar Rate
Loans, the offered rate in the London interbank market for deposits in United
States dollars of amounts equal or comparable to the principal amount of such
Eurodollar Rate Loan offered for a term comparable to such Interest Period, as
currently shown on the Reuters Screen LIBO page as of 11:00 a.m., GMT, two
Eurodollar Business Days prior to the first day of such Interest Period;
provided, however, that (A) if more than one offered rate as described above
appears on the Reuters Screen LIBO page, the rate used to determine LIBOR will
be the arithmetic average (rounded upward, if necessary, to the next higher
1/100 of 1%) of such offered rates, or (B) if no such offered rates appear, the
rate used for such Interest Period will be the arithmetic average (rounded
upward, if necessary, to the next higher 1/100 of 1% ) of rates quoted by the
Reference Banks at approximately 10:00 a.m., New York time, two Eurodollar
Business Days prior to the first day of such Interest Period for deposits in
United States dollars offered to leading European banks for a period comparable
to such Interest Period in an amount comparable to the principal amount of such
Eurodollar Rate Loans. If the Agent Bank ceases to use the Reuters Screen LIBO
page for determining interest rates based on eurodollar deposit rates, a
comparable internationally recognized interest rate reporting service shall be
used to determine such offered rates.
"Eurodollar Rate Loan" shall mean any Syndicated Loan which bears
interest at the Eurodollar Rate.
"Event of Default" means any one of the events specified in paragraphs
(a) through (h) of Section 9.1. hereof, provided that any requirement for notice
or lapse of time or other condition contained therein has been satisfied.
"Funded Debt" shall mean any obligation for borrowed money or the
deferred purchase price of property, or any obligation arising under a capital
lease, other than Convertible Subordinated Debt, payable more than one year from
the date of the creation thereof which, under generally accepted accounting
principles in effect from time to time, is shown on the balance sheet of the
obligor as a liability; provided that any obligation shall be treated as Funded
Debt, regardless of its term, if such obligation is renewable pursuant to the
terms thereof or of a revolving credit or similar agreement effective for more
than one (1) year after the date of the creation of such obligation or may be
payable
-5-
<PAGE> 11
out of the proceeds of a similar obligation pursuant to the terms of such
obligation or of any such agreement.
"Immediate Replacement Event" shall mean a change in any law, rule, or
regulation, or any change in the interpretation or administration thereof, or, a
new law, rule, or regulation, having any of the consequences specified in
Section 10.1. hereof.
"Interest Period" means (i) for each Eurodollar Rate Loan, the period
beginning on the date of such Loan or conversion thereof or on the last day of
an immediately preceding Interest Period for such Loan and ending one, two,
three, or six months later, as specified in the notice given by the Company to
the Agent Bank; provided, however, that if the last day of any Interest Period
would fall on a day which is not a Eurodollar Business Day that Interest Period
shall be extended to the next succeeding day which is a Eurodollar Business Day,
unless the result of such extension should be to carry such Interest Period to
the next succeeding calendar month in which event such Interest Period shall end
on the immediately preceding Eurodollar Business Day, further provided that any
Interest Period that would extend beyond the Termination Date shall end on such
date and (ii) for each Competitive Bid Loan, the period beginning on the date of
borrowing of such Competitive Bid Loan and ending on such Business Day as may be
mutually agreed upon by the Company and the Bank or Banks making such
Competitive Bid Loan or Loans, as the case may be, comprising such Competitive
Bid Loan; provided, however, that (i) no Competitive Bid Loan shall have an
Interest Period greater than 180 days and (ii) any Interest Period that would
extend beyond the Termination Date shall end on such date.
"Interest Rate" shall mean:
(a) With respect to a Competitive Bid Loan, the Absolute Rate;
(b) With respect to a Eurodollar Rate Loan, the Eurodollar Rate;
and
(c) With respect to a Base Rate Loan, the Base Rate.
"L/C Commitment Amount" shall mean $700,000,000.
"Letter of Credit Banks" shall mean NationsBank, N.A. (South)or any
other Bank under this Agreement approved by the Company that agrees, pursuant to
documentation in form and substance satisfactory to the Agent Bank and the
Company, to issue Letters of Credit hereunder.
"Loans" shall mean, collectively, the Syndicated Loans and the
Competitive Bid Loans.
"Main Office" of the Agent Bank shall be NationsBank, N.A. (South), 600
Peachtree Street, Atlanta, Georgia.
-6-
<PAGE> 12
"Majority Banks" shall mean, as of any date, Banks on such date having
Credit Exposures (as defined below) aggregating at least 51% of the aggregate
Credit Exposures of all the Banks on such date. For purposes of the preceding
sentence, the amount of the "Credit Exposure" of each Bank shall be equal to:
(i) prior to the occurrence of an Event of Default and the acceleration of the
Loans pursuant to the terms hereof, the aggregate principal amount of the
Syndicated Loans owing to such Bank plus the unutilized amount of such Bank's
Commitment and (ii) after an Event of Default has occurred and the Loans have
been accelerated pursuant to the terms hereof, the aggregate principal amount of
Syndicated Loans and Competitive Bid Loans owing to such Bank plus the
unutilized amount of such Bank's Commitment.
"Moody's" shall mean Moody's Investors Services, Inc.
"Moody's Rating" has the meaning set forth in the definition of
Applicable Margin.
"Notes" shall have the meaning set forth in Section 3.4. hereof.
"Officer's Certificate" shall mean a certificate signed by the Chairman
of the Board, the President, or a principal financial officer of the Company.
"Orderly Replacement Event" shall mean as to any Eurodollar Rate Loan,
the determination by the Agent Bank not later than two (2) Eurodollar Business
Days prior to the first day of any Interest Period that: (a) for any reason
whatsoever rates are not quoted for the offering of Dollars in the London
interbank market for deposit for a period comparable to such Interest Period; or
(b) the quoted rate for purposes of computing the rate of interest on the
Eurodollar Rate Loan does not accurately reflect the funding cost to the Banks
of making or maintaining such Loans.
"Person" shall mean and include an individual, a partnership, a joint
venture, an estate, a corporation, a trust, an unincorporated organization, a
limited liability company, and a government or any department or agency or
political subdivision thereof.
"Prime Rate" shall mean, for any day, the rate which is quoted by each
Reference Bank as the respective bank's prime, reference, base, or alternate
base rate, as the case may be. The Company acknowledges that the Prime Rate of
any Reference Bank may not be the lowest or best interest rate offered by such
Reference Bank to its customers.
"Rating" has the meaning set forth in the definition of Applicable
Margin.
"Reference Banks" means Citibank, N.A., Bank of America National Trust
and Savings Association and the Agent Bank, and each of their respective
successors and assigns.
"Reimbursement Obligation" shall mean the obligation of the Company to
reimburse the Agent Bank for any Drawing pursuant to Section 4.4. hereof.
-7-
<PAGE> 13
"Required Number" shall mean in the case of notices relating to
Syndicated Loans hereunder to the Agent Bank: (a) relative to borrowings,
prepayments, elections of, and conversions into, the Eurodollar Rate, selections
of Interest Periods and other transactions in respect of Eurodollar Rate Loans,
not less than three (3) Eurodollar Business Days; and (b) relative to all
transactions in respect to Base Rate Loans, not less than one Business Day.
"S&P" shall mean Standard & Poor's Ratings Services.
"S&P Rating" has the meaning set forth in the definition of Applicable
Margin.
"Stated Amount" shall mean the amount available to be drawn by a
beneficiary under a Letter of Credit outstanding under this Agreement from time
to time, as such amount may be increased or reduced from time to time in
accordance with the terms of such Letter of Credit.
"Subsidiary" shall mean any corporation, association or other business
entity, a majority (by number of votes) of the outstanding stock or other
ownership interest of which is, at the time at which any determination is being
made, owned by the Company either directly or through Subsidiaries.
"Syndicated Loan" shall mean, collectively, the Eurodollar Rate Loans
and the Base Rate Loans.
"Termination Date" shall mean May 1, 2002 (or the date to which the
Credit Facility has been extended pursuant to Section 3.18. hereof) unless the
Credit Facility is earlier terminated pursuant to the applicable provisions of
this Agreement."
"Total Commitments of the Banks" shall have the meaning set forth in
Section 2.1. hereof.
ARTICLE 2. AMOUNT AND TERMS OF CREDIT
SECTION 2.1. COMMITMENT.
Each Bank severally agrees to extend credit to the Company at any time
and from time to time from the date hereof until the Termination Date in the
manner and upon, and subject to, the terms and conditions hereinafter set forth
up to an amount at any one time outstanding equal to such Bank's Commitment as
set forth in Section 2.2. hereof, as such Commitment may be adjusted from time
to time in accordance with the terms of this Agreement; provided, however, that
any Loan made hereunder shall not exceed the Available Commitment in effect at
such time. The participation of each Bank in the Credit Facility shall consist
of each such Bank's respective Commitment as stated opposite such Bank's name in
Section 2.2. hereof as such Commitment may be adjusted from time to
-8-
<PAGE> 14
time in accordance with the terms of this Agreement. The obligation of each Bank
to make Syndicated Loans to the Company, and to participate in the Reimbursement
Obligations with respect to Letters of Credit issued hereunder, is hereby
referred to as the Bank's "Commitment" and collectively as the "Total
Commitments of the Banks".
SECTION 2.2. THE BANKS.
<TABLE>
<CAPTION>
BANK COMMITMENT
---- ----------
<S> <C>
AGENT BANK
- ----------
NationsBank, N.A. (South) $ 100,000,000
MANAGING AGENTS
- ---------------
Bank of America, National Trust and
Savings Association 85,000,000
The Chase Manhattan Bank 85,000,000
Citicorp USA, Inc. 85,000,000
Royal Bank of Canada 85,000,000
CO-MANAGING AGENTS
- ------------------
The Mitsubishi Trust and Banking Corporation 70,000,000
SunTrust Bank, Atlanta 70,000,000
Wachovia Bank of Georgia, N.A. 70,000,000
CO-AGENTS
- ---------
The Bank of Tokyo-Mitsubishi, Ltd., New York Branch 55,000,000
CIBC Inc. 55,000,000
The Industrial Bank of Japan, Limited, Atlanta Agency 55,000,000
The Northern Trust Company 55,000,000
PARTICIPANTS
- ------------
Bank of Montreal 30,000,000
The Bank of New York 30,000,000
Bayerische Vereinsbank AG 30,000,000
The Dai-Ichi Kangyo Bank, Limited, Atlanta Agency 30,000,000
The First National Bank of Chicago 30,000,000
Kredietbank N.V., Grand Cayman Branch 30,000,000
PNC Bank, National Association 30,000,000
The Sanwa Bank, Limited, Atlanta Agency 30,000,000
The Toyo Trust & Banking Co., Ltd. 30,000,000
Morgan Guaranty Trust Company of New York 27,500,000
The Fuji Bank, Limited 22,500,000
Credit Lyonnais New York Branch 20,000,000
Star Bank, N.A. 20,000,000
The Sumitomo Bank, Limited 20,000,000
Total Commitments of the Banks $1,250,000,000
</TABLE>
-9-
<PAGE> 15
SECTION 2.3. INCREASES IN THE TOTAL COMMITMENTS OF THE BANKS.
(a) The Company, the Agent Bank, the Letter of Credit Banks and the
Banks acknowledge and agree that the aggregate principal amount of the Total
Commitments of the Banks may be increased from time to time in accordance with
this Section 2.3. So long as no Event of Default then exists or would be caused
thereby, the Total Commitments of the Banks may be increased by up to
$250,000,000 from that in existence on the Effective Date at any time with the
prior written consent of the Agent Bank, which will not be unreasonably
withheld. So long as no Event of Default then exists or would be caused thereby,
the Total Commitments of the Banks may be increased by up to $500,000,000 from
that in existence on the Effective Date, with the prior written consent of the
Agent Bank and the Majority Banks. Any increase in the Total Commitments of the
Banks beyond the parameters set forth above or other than as expressly permitted
by this Section 2.3. shall require the prior written consent of the Agent Bank
and each of the Banks. No increase in the Total Commitments of the Banks
pursuant to this Section 2.3. shall effect an increase in the aggregate dollar
amount of the Commitment of any Bank hereunder other than as a result of an
express written agreement between the Company and such Bank.
(b) Any increase in the Total Commitments of the Banks contemplated by
paragraph (a) above may be effected as a result of an agreement by any Bank
hereunder to increase the Commitment of such Bank hereunder, provided that the
following conditions are satisfied:
(i) The Bank which has agreed to increase its Commitment
hereunder and the Company and such Bank shall jointly notify the Agent
Bank, in writing, of (A) the agreement of such Bank to increase its
Commitment hereunder, (B) the aggregate principal amount of the
increase in such Bank's Commitment and (C) the effective date of such
agreement, which notice shall be substantially in the form of Exhibit B
attached hereto; and
(ii) The Company shall execute and deliver to such Bank a
new Note to the order of such Bank in an original principal amount
equal to the aggregate principal amount of the increase in such Bank's
Commitment hereunder.
(c) Any increase in the Total Commitments of the Banks contemplated by
paragraph (a) above may also be effected as a result of an agreement by a
financial institution which is not then a Bank hereunder to become a Bank
hereunder, provided that the following conditions are satisfied prior to or
contemporaneously with the effectiveness of the increase in the Total
Commitments of the Banks:
(i) The financial institution which has agreed to become
a Bank hereunder shall execute and deliver to the Agent Bank, for
itself and on behalf of the Banks, an agreement to assume the rights
and obligations of a Bank hereunder
-10-
<PAGE> 16
and to accept and ratify, in full, the terms of this Agreement, which
agreement shall set forth (A) the aggregate principal amount of such
institution's Commitment hereunder, (B) the effective date of such
agreement and (C) such institution's address for notices pursuant to
Section 12.2. hereof, and which agreement shall be substantially in the
form of Exhibit C-1 attached hereto, and which shall be acknowledged
and agreed to by the Company; and
(ii) the Company shall execute and deliver to such
institution a Note to the order of such institution in an original
principal amount equal to the aggregate principal amount of such
institution's Commitment hereunder.
Upon the Agent Bank's receipt of the items described in clause (c)(i) above,
together with any other agreement, amendment or other document which the Agent
Bank deems necessary to implement the intent and terms of this Section 2.3. (all
of which shall be in form and substance satisfactory to the Agent Bank), such
financial institution shall thereupon and thereafter be deemed to be a Bank for
all purposes hereunder.
(d) The amount of the Total Commitments of the Banks hereunder shall be
deemed to be increased (i) by the aggregate principal amount by which any
existing Bank hereunder increases its Commitment hereunder in accordance with
Section 2.3.(b) above, and (ii) by the aggregate principal amount of any
Commitment hereunder by any new financial institution in accordance with Section
2.3.(c) hereof. Simultaneously with any increase in the Total Commitments of the
Banks pursuant to, and in accordance with, this Section 2.3., the respective pro
rata share of the Banks (including any new Banks) of the Total Commitments of
the Banks shall be deemed to be automatically adjusted to reflect the increase
in the amount of the Total Commitments of the Banks and the Agent Bank shall
notify the Banks of such increase and of each Bank's new pro rata share
hereunder.
(e) Any increase in the Total Commitments of the Banks hereunder shall
not affect any other term or condition of this Agreement. However, any such
increase in the Total Commitments of the Banks shall cause a reallocation of
each Bank's pro rata share of each Syndicated Loan and/or each Letter of Credit
outstanding on the effective date of such increase. Such reallocation shall be
accomplished by a payment to the Agent Bank, for the account of the Banks, by
(a) the existing Bank that has increased its Commitment or (b) the new financial
institution that has become a Bank, as the case may be, of an amount equal to
such Bank's pro rata share of all outstanding Syndicated Loans and unpaid
Reimbursement Obligations. The Agent Bank shall then immediately transmit the
applicable pro rata share of such payment so received by the Agent Bank in
immediately available funds to each Bank entitled thereto in the manner
specified by such Bank. The existing Bank increasing its Commitment or the new
financial institution that has become a Bank shall be deemed to have
automatically assumed its pro rata share of the obligations set forth in Section
4.1.(b) hereof with respect to all issued and outstanding Letters of Credit.
-11-
<PAGE> 17
ARTICLE 3. THE LOANS
SECTION 3.1. SYNDICATED LOANS.
Subject to the terms and conditions hereof, during the period from the
Effective Date to the Termination Date, each Bank severally and not jointly
agrees to make Syndicated Loans to the Company in an aggregate principal amount
at any one time outstanding up to, but not exceeding, such Bank's Commitment;
provided, however, that any given borrowing of Syndicated Loans made pursuant to
this Section 3.1. shall not exceed the Available Commitment at the time of such
borrowing. Subject to the terms and conditions of this Agreement, during the
period from the Effective Date to the Termination Date, the Company may borrow,
repay and reborrow Syndicated Loans hereunder.
SECTION 3.2. NOTICE AND PLACE OF BORROWING FOR SYNDICATED LOANS.
The Company shall give written, facsimile or telephonic (confirmed
immediately in writing) notice to the Agent Bank, such notice to be given not
later than 11:00 a.m. Atlanta, Georgia time on a Business Day which is at least
the Required Number of days prior to each borrowing of Syndicated Loans and to
contain the date of such borrowing, the amount of such borrowing, the Interest
Rate option selected, and, where applicable, the length of the Interest Period.
Upon receiving notice from the Company, the Agent Bank shall promptly give
written, facsimile or telegraphic notice to each Bank, such notice to contain
the date of such borrowing, the amount to be borrowed from such Bank, the
Interest Rate option selected, and, where applicable, the length of the Interest
Period. Funds are to be disbursed pursuant to this Agreement at the Main Office
of the Agent Bank. Not later than 11:00 a.m. Atlanta time on the date of
borrowing of Syndicated Loans as specified in the notice from the Agent Bank to
the Banks, each Bank shall have made available at the Main Office of the Agent
Bank, in immediately available funds, the amount of Syndicated Loans to be
advanced by such Bank, and the Agent Bank shall immediately pay such funds to or
upon the order of the Company. Unless the Agent Bank shall have received notice
from a Bank prior to the date of any such borrowing that such Bank will not make
available to the Agent Bank such Bank's ratable portion of such borrowing, the
Agent Bank may assume that such Bank has made such portion available to the
Agent Bank on the date of such borrowing in accordance with this Section 3.2.,
and the Agent Bank may, in reliance upon such assumption, make available to the
Company on such date a corresponding amount. If and to the extent such Bank
shall not have made such ratable portion available to the Agent Bank, such Bank
and the Company severally agree to repay to the Agent Bank immediately on demand
such corresponding amount together with interest thereon, for each day from the
date such amount is made available to the Company and until the date such amount
is repaid to the Agent Bank, at (i) with respect to the Company, the interest
rate applicable at the time to the type of Loan comprising such borrowing, or
(ii) with respect to the Bank, at the applicable overnight federal funds rate.
If such Bank shall repay to the Agent Bank such corresponding
-12-
<PAGE> 18
amount, such amount so repaid shall constitute such Bank's advance as part of
such borrowing for purposes of this Agreement.
SECTION 3.3. COMPETITIVE BID LOANS.
(a) Competitive Bid Loans. Subject to the terms and conditions hereof,
during the period from the Effective Date to the Termination Date, the Company
may request the Banks to make offers to make Competitive Bid Loans to the
Company in Dollars. The Banks may, but shall have no obligation to, make such
offers and the Company may, but shall have no obligation to, accept any such
offers in the manner set forth in this Section 3.3. There may be no more than
ten different Interest Periods for both Syndicated Loans and Competitive Bid
Loans outstanding at the same time. There shall not be outstanding at any one
time more than ten Competitive Bid Loans. Further, the aggregate principal
amount of all Competitive Bid Loans outstanding at any time, together with the
aggregate principal amount of all Syndicated Loans outstanding at such time, the
aggregate Stated Amount of Letters of Credit outstanding at such time and all
Reimbursement Obligations outstanding at such time shall not exceed the Total
Commitments of the Banks in effect at such time. However, the aggregate
principal amount of Competitive Bid Loans extended by a Bank hereunder from time
to time may exceed the Commitment of such Bank then in effect at such time.
Further, for purposes of this Agreement, Competitive Bid Loans made pursuant to
the same Competitive Bid Quote Request and having the same maturity date but
extended by different Banks shall be deemed to be a single Competitive Bid Loan
made hereunder.
(b) Request for Competitive Bid Loans. When the Company elects to
request offers to make Competitive Bid Loans, it shall give the Agent Bank
notice (a "Competitive Bid Quote Request") to be received by the Agent Bank no
later than 11:00 a.m. Atlanta, Georgia time on the date one Business Day prior
to the date of borrowing proposed therein (or such other time and date as the
Company and the Agent Bank, with the consent of the Majority Banks, may agree).
The Company may request offers to make Competitive Bid Loans for up to two
different Interest Periods in a single notice; provided, however, that the
request for each separate Interest Period shall be deemed to be a separate
Competitive Bid Quote Request for a separate borrowing. In connection with any
Competitive Bid Quote Request, the Company shall furnish each Bank with the
following as to each Competitive Bid Loan:
(i) the proposed date of a borrowing of such Competitive
Bid Loan, which shall be a Business Day;
(ii) the amount of such Competitive Bid Loan, which shall
be at least $10,000,000 (and integral multiples of $1,000,000 in excess thereof)
but shall not cause the limits specified in paragraph (a) above to be violated;
(iii) the duration of the Interest Period applicable
thereto; and
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<PAGE> 19
(iv) the date on which the Competitive Bid Quotes are to
be submitted if it is before the proposed date of borrowing (the date on which
such Competitive Bid Quotes are to be submitted is called the "Quotation Date").
Except as otherwise provided in this Section 3.3.(b), no Competitive Bid Quote
Request will be made by the Company within five (5) Business Days (or such other
number of days as the Company and the Agent Bank, with the consent of the
Majority Banks, may agree) of any other Competitive Bid Quote Request.
(c) Competitive Bid Quotes.
(i) Each Bank may submit one or more Competitive Bid
Quotes, each containing an offer to make a Competitive Bid Loan in response to
any Competitive Bid Quote Request; provided, however, that, if the Company's
request under paragraph (b) above specified more than one Interest Period, such
Bank may make a single submission containing one or more Competitive Bid Quotes
for each such Interest Period. Each Competitive Bid Quote must be submitted to
the Company not later than 10:30 a.m. Atlanta, Georgia time on the Quotation
Date (or such other time and date as the Company and the Agent Bank, with the
consent of the Majority Banks, may agree). Subject to terms hereof, any
Competitive Bid Quote so made shall be irrevocable once made except with the
consent of the Agent Bank given on the instructions of the Company.
(ii) Each Competitive Bid Quote may be given to the
Company by telephone and shall be promptly confirmed in writing via facsimile.
Such confirmation shall be substantially in the form of Exhibit E hereto and
shall specify:
(A) the proposed date of borrowing and the Interest
Period therefor;
(B) the principal amount of the Competitive Bid Loan
for which each such offer is being made, which principal amount shall be at
least $10,000,000 (and integral multiples of $1,000,000 in excess thereof);
provided that (1) the aggregate principal amount of all Competitive Bid Loans
for which a Bank submits Competitive Bid Quotes may not exceed the maximum
aggregate principal amount of the Available Commitment and (2) the Company may
not accept Competitive Bid Quotes that would result in an aggregate principal
amount outstanding greater than the then current Available Commitment;
(C) the rate of interest per annum (rounded upwards,
if necessary, to the nearest 1/10,000th of 1%) offered for each such Competitive
Bid Loan (the "Absolute Rate"); and
(D) the identity of the quoting Bank.
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<PAGE> 20
Unless otherwise agreed by the Agent Bank and the Company, no Competitive Bid
Quote shall contain qualifying, conditional or similar language or propose terms
other than or in addition to those set forth in the applicable Competitive Bid
Quote Request and, in particular, no Competitive Bid Quote may be conditioned
upon acceptance by the Company of all (or some specified minimum) of the
principal amount of the Competitive Bid Loan for which such Competitive Bid
Quote is being made.
(d) Notification by Company. The Company shall, as promptly as
practicable after the Competitive Bid Quotes are submitted (but in any event not
later than 11:30 a.m. Atlanta, Georgia time on the Quotation Date), notify the
Agent Bank of the terms (i) of any Competitive Bid Quote submitted by a Bank
that is in accordance with Section 3.3.(c) hereof and (ii) of any Competitive
Bid Quote that amends, modifies or is otherwise inconsistent with a previous
Competitive Bid Quote submitted by such Bank with respect to the same
Competitive Bid Quote Request. Any such subsequent Competitive Bid Quote shall
be disregarded by the Company unless such subsequent Competitive Bid Quote is
submitted solely to correct a manifest error in such former Competitive Bid
Quote. The Company's notice to the Agent Bank shall specify (A) the aggregate
principal amount of the Competitive Bid Loan borrowing for which offers have
been received and (B) the respective principal amounts and Absolute Rates so
offered by each Bank (identifying the Bank that made each Competitive Bid
Quote).
(e) Acceptance of Competitive Bid Quotes. In the case of acceptance of
Competitive Bid Quotes, such notice shall be substantially in the form of
Exhibit F and shall specify the aggregate principal amount of offers that are
accepted for each Interest Period and shall be delivered to the Agent Bank and
all Banks whose competitive Bid Quotes have been accepted by the Company not
later than 1:00 p.m. Atlanta, Georgia time on the Quotation Date. The Company
may accept any Competitive Bid Quote in whole or in part if the following
conditions are met:
(i) the aggregate principal amount of each borrowing of a
Competitive Bid Loan may not exceed the applicable amount set forth in the
related Competitive Bid Quote Request;
(ii) the aggregate principal amount of each borrowing of a
Competitive Bid Loan shall be at least $10,000,000 (and integral multiples of
$1,000,000 in excess thereof) but shall not cause the limits specified in
Section 3.3.(a) hereof to be violated;
(iii) except as provided below, acceptance of offers may be
made only in ascending order of Absolute Rates in each case beginning with the
lowest rate so offered; and
(iv) the Company may not accept any offer where such offer
fails to comply with Section 3.3.(c) hereof or otherwise fails to comply with
the requirements of this Agreement (including, without limitation, this Section
3.3.).
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<PAGE> 21
In the event that two or more Banks quote the same Absolute Rates for a related
Interest Period and the aggregate principal amount, after acceptance of all
lower Absolute Rates, is greater than the principal amount for which the Company
has requested Competitive Bid Quotes, then the principal amount of Competitive
Bid Loans shall be allocated by the Company in proportion to the aggregate
principal amount of such offers. Determinations by the Company of the amounts of
Competitive Bid Loans and the lowest bid shall be conclusive in the absence of
manifest error.
(f) Bank's Obligation to Make Competitive Bid Loans. Any Bank whose
offer to make any Competitive Bid Loan has been accepted shall, not later than
1:00 p.m. Atlanta, Georgia time on the date specified for the making of such
Loan, make the amount of such Loan available to the Company on such date by
depositing the same, in Dollars and in immediately available funds, in an
account designated by the Company for the deposit of such funds. Subject to the
last sentence of Section 3.3.(a), the making of Competitive Bid Loans by a Bank
shall not affect or reduce the obligation of such Bank to make Syndicated Loans
under Section 3.1. hereof.
(g) Repayment of Competitive Bid Loans. Unless payable earlier pursuant
to the terms hereof, the Company shall repay the outstanding principal amount
of, and all accrued but unpaid interest on, each Competitive Bid Loan at the end
of the Interest Period applicable thereto.
SECTION 3.4. THE NOTES.
Each of the Syndicated Loans made pursuant to this Agreement shall be
evidenced by a promissory note executed and delivered by the Company in form
substantially the same as Exhibit A-1 attached hereto and made a part hereof
(each a "Syndicated Note"), each dated the date of this Agreement, each drawn to
the order of one of the Banks in the amount of such Bank's respective
Commitment, and each maturing on the Termination Date. Each of the Competitive
Bid Loans made pursuant to this Agreement shall be evidenced by a promissory
executed and delivered by the Company in form substantially the same as Exhibit
A-2 attached hereto and made a part hereof (each a "Competitive Bid Note"), each
dated the date of this Agreement, drawn to the order of the Bank making such
Competitive Bid Loan, and each maturing on the Termination Date. Each of the
Syndicated Notes and the Competitive Bid Notes are hereinafter referred to as
the "Notes" and each as a "Note". Each Bank's records with respect to advances
and repayments of Loans hereunder shall, absent manifest error, be deemed to
prevail as to the Company's obligations hereunder.
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<PAGE> 22
SECTION 3.5. INTEREST.
The Company shall pay interest on the outstanding principal amount of
each Loan for the period commencing on the date of each such Loan until such
Loan shall be due and payable at the rates and times set forth below.
(a) Interest on Eurodollar Rate Loans. Subject to the provisions of
subsection (d) immediately below, interest on each Eurodollar Rate Loan shall be
payable (i) on the last day of each Interest Period with respect thereto;
provided, however, that if such Interest Period is for a period of duration in
excess of three months, then such interest shall also be payable on the date
three months after the first day of such Interest Period, (ii) on the date of
conversion of such Eurodollar Rate Loan to a Base Rate Loan and (iii) at
maturity of such Loan (and after maturity of such Loan (whether by acceleration
or otherwise) upon demand), at an interest rate per annum during the Interest
Period for such Loan equal to the Eurodollar Rate for the Interest Period in
effect for such Eurodollar Rate Loan. Each determination by the Agent Bank of an
interest rate hereunder shall be conclusive and binding on the Banks and the
Company for all purposes, absent manifest error.
(b) Interest on Base Rate Loans. Subject to the provisions of
subsection (d) immediately below, interest on each Base Rate Loan shall be
payable quarterly in arrears on the last day of each March, June, September and
December of each year and at maturity (and after maturity (whether by
acceleration or otherwise) upon demand) at an interest rate per annum equal to
the Base Rate.
(c) Interest on Competitive Bid Loans. Subject to the provisions of
subsection (d) immediately below, interest on each Competitive Bid Loan shall be
payable for each Interest Period applicable thereto on the last day of such
Interest Period (and after maturity (whether by acceleration or otherwise) upon
demand); provided, however, that if such Interest Period is for a period of
duration in excess of three months, then such interest shall also be payable on
the date three months after the first day of such Interest Period at a rate per
annum equal to the Absolute Rate applicable to such Competitive Bid Loan.
(d) Interest Upon Event of Default. Any payment of principal or
interest on any Loan which is not paid when due, as herein provided, shall bear
interest (to the extent permitted by law) at that rate which is one-quarter of
one percent (1/4%) above the Base Rate in effect on each respective day
thereafter until paid in full and such interest shall be payable on demand.
(e) Prepayment. Upon prepayment of any Loan hereunder, interest accrued
and unpaid on the amount so prepaid shall become due on the date of such
prepayment.
(f) Computations. Interest on Base Rate Loans shall be computed on the
basis of a year of 365/366 days and an actual day month. Interest on Eurodollar
Rate Loans
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<PAGE> 23
and Competitive Bid Loans shall be computed on the basis of a year of 360 days
and an actual day month.
SECTION 3.6. PLACE OF PAYMENT.
Each payment (whether required or voluntary and whether of principal or
interest or both) on each Note and each payment of fees or other amounts owing
by the Company hereunder shall be payable, on or before 11:00 a.m., Atlanta
time, on the due date of each payment, in immediately available funds, to the
Agent Bank at its Main Office at such account as the Agent Bank shall from time
to time notify the Company in writing. The Agent Bank shall then immediately
transmit the applicable pro rata share of such payment, in the case of a
Syndicated Loan, and, subject to Section 3.8. hereof, the full amount of such
payment in the case of a Competitive Bid Loan, so received by the Agent Bank in
immediately available funds to each Bank entitled thereto in the manner
specified by such Bank. Any required payment which would otherwise be due on a
day not a Business Day shall be made on the immediately succeeding Business Day.
SECTION 3.7. VOLUNTARY PREPAYMENT.
The Company may voluntarily prepay, at any time and from time to time
prior to maturity on one day's prior notice to the Agent Bank, any part or the
whole of the principal of the Notes; provided, however, that any voluntary
prepayment shall be in a minimum amount of $25,000,000 and integral multiples of
$5,000,000 in excess thereof. Upon any such prepayment, the Company shall
simultaneously pay all accrued and unpaid interest on the amount of principal
voluntarily prepaid. However, any such prepayment of a Competitive Bid Loan or
Eurodollar Rate Loan shall be made only on the last day of the Interest Period
therefor. Any such voluntary prepayment of principal shall, in the case of a
Syndicated Loan, to that extent increase the amount (immediately prior to such
prepayment) of the unused Total Commitments of the Banks available to the
Company under the terms of this Agreement. All voluntary prepayments provided
for in this Section 3.7. shall be without premium or penalty.
SECTION 3.8. PRO RATA TREATMENT.
Except for Competitive Bid Loans and Section 3.14. hereof, and except
with respect to payments to be made to a Bank pursuant to Sections 3.10., 3.15.
or 12.3. and any other indemnity in favor of a Bank or Banks hereunder, each
borrowing from, payment to, and utilization of and reduction of the Commitments
of, the Banks hereunder shall, be prorated among the Banks according to the
respective Commitments of the Banks as set forth in Section 2.2. hereof, as the
same may be adjusted from time to time under Section 2.3., 3.13., 3.14. or 3.15.
hereof. Each borrowing of Syndicated Loans hereunder shall (in the aggregate) be
made in integral multiples of $5,000,000, with a minimum of $25,000,000;
provided, however, that any Syndicated Loans made pursuant to Section
4.4.(c)(ii) may, in the aggregate, be in the amount necessary to reimburse the
Agent Bank. Except as otherwise provided herein, (i) payments with respect to
the outstanding principal of, or accrued interest on, the Syndicated Loans shall
be made pro
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<PAGE> 24
rata to only those Banks that funded such Loans (including any Bank that
advanced monies pursuant to the provisions of Section 2.3.(e) hereof) and not to
any defaulting Bank or a Bank not otherwise participating in such Loan, (ii) so
long as no Event of Default has occurred, each payment of principal and interest
on the Competitive Bid Loans shall be made to the Agent Bank for the account of
the respective Bank making such Competitive Bid Loan, and the principal amount
of Competitive Bid Loans shall be paid on the last day of the Interest Period
for such Competitive Bid Loan, (iii) after the occurrence of an Event of
Default, each payment on account of principal and interest on any outstanding
Loans shall be made to the Agent Bank for the account of the Banks pro rata in
accordance with the aggregate principal amount of all Loans then outstanding,
and (iv) all payments to be made by the Company for the account of each of the
Banks on account of principal, interest and fees, shall be made without set-off
or counterclaim.
SECTION 3.9. INITIAL DETERMINATION OF INTEREST RATE AND CONVERSION OF LOANS
BETWEEN EURODOLLAR RATE AND BASE RATE.
Prior to the initial or any subsequent borrowings, the Company will
specify the Interest Rate to be applicable to such borrowings, and on any
Business Day or Eurodollar Business Day, as applicable, the Company may convert
on a pro rata basis among the Banks any outstanding Base Rate Loans or
Eurodollar Rate Loans into the other type of Syndicated Loans, subject to the
following limitations:
(a) No such conversion of any Eurodollar Rate Loan may be made except
on the last day of an Interest Period with respect thereto; and
(b) The Company shall give Agent Bank the Required Number of days
notice for such borrowing or conversion.
If, at the end of an Interest Period of a Eurodollar Rate Loan, the Company has
failed to specify in a timely manner the Interest Rate option applicable to such
Loan for the period after the expiration of the then current Interest Period,
the Company shall be deemed to have selected that such Loan shall bear interest
at the Base Rate and, at the end of such Interest Period, such Loan shall
automatically convert to a Base Rate Loan.
SECTION 3.10. FAILURE TO BORROW.
The Company shall indemnify and hold harmless each Bank in respect of
any funding costs and/or losses in the event that any borrowing notified to the
Banks pursuant to Section 3.2. or 3.3., relative to Eurodollar Rate Loans or
Competitive Bid Loans, shall not be consummated because of the Company's failure
to satisfy one or more of the applicable conditions precedent in Article 5. or
because the Company fails to borrow such Loans at the specified time.
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<PAGE> 25
SECTION 3.11. COMMITMENT FEE.
The Company shall pay to the Agent Bank, for the account of the Banks
to be distributed to the Banks pro rata in accordance with their respective
Commitments, a Commitment Fee on the daily average amount of the Available
Commitment for the period from the Effective Date to the Termination Date at the
per annum percentage rate set forth below corresponding to the long term senior
unsecured debt rating of the Company, as rated by S&P and Moody's, respectively,
in effect from time to time; provided, however, that, solely for purposes of
calculating the Commitment Fee under this Section 3.11., the outstanding
principal amount of all Competitive Bid Loans shall not be subtracted when
determining the Available Commitment.
<TABLE>
<CAPTION>
==================================================================
LONG TERM SENIOR UNSECURED DEBT
RATING OF THE COMPANY COMMITMENT FEE
LEVEL (S&P/MOODY'S) PERCENTAGE
==================================================================
<S> <C> <C>
1 BBB+ or higher or Baa1 or higher 0.10%
- ------------------------------------------------------------------
2 BBB or Baa2 0.11%
- ------------------------------------------------------------------
3 BBB- or Baa3 0.125%
- ------------------------------------------------------------------
4 BB+ or Ba1 0.15%
- ------------------------------------------------------------------
5 BB or lower or Ba2 or lower 0.25%
==================================================================
</TABLE>
Commitment Fee shall be computed on the basis of a year of 365/366 days, on an
actual day month. Accrued Commitment Fee shall be payable in arrears and in
immediately available funds on the last day of each March, June, September and
December during the term of this Agreement and on the Termination Date,
commencing on June 30, 1997. The Agent Bank shall forthwith pay to each Bank its
ratable share of each payment of Commitment Fee under this Section 3.11. in
immediately available funds.
The Agent Bank shall determine the Commitment Fee from time to time in
accordance with the above table and notify the Company and the Banks of such
determination from time to time. In the event the S&P Rating and the Moody's
Rating correspond to different levels on the above table resulting in different
Commitment Fee determinations, the following provisions shall apply. In the
event the S&P Rating and the Moody's Rating differ by one level, the Commitment
Fee shall be that corresponding to the higher Rating. For example, a "BBB+" S&P
Rating and a "Baa2" Moody's Rating would result in a Commitment Fee percentage
equal to 0.10%. In the event the S&P Rating and the Moody's Rating differ by two
levels, the Commitment Fee shall be that corresponding to that level which is in
between the two applicable levels. For example, a "BBB" S&P Rating and a "Ba1"
Moody's Rating would result in a Commitment Fee percentage equal to 0.125%. In
the event the S&P Rating and the Moody's Rating differ by three levels, the
Commitment Fee shall be that corresponding to the level immediately above the
lower of such Ratings. For example, a "BBB+" S&P Rating and a "Ba1" Moody's
Rating would result in a Commitment Fee percentage equal to 0.125%. In the event
the S&P Rating and the Moody's Rating differ by four levels (i.e. a ratings
split between level 1 and level 5), then the Commitment Fee shall be that
corresponding to
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<PAGE> 26
level 4. For example a "BBB+" S&P Rating and a "Ba2" Moody's Rating would result
in a Commitment Fee percentage equal to 0.15%.
In the event only one rating agency exists or continues rating the
Company's long term senior unsecured debt, such agency's rating shall be used
for purposes of the above table. In the event: (i) neither agency exists or
continues rating the Company's long term senior unsecured debt or (ii) the
Company no longer has any outstanding long term senior unsecured debt to be
rated, the Commitment Fee for the first 90 days after such occurrence shall be
the Commitment Fee in effect as determined using the above immediately prior to
such occurrence. During such 90-day period, the Agent Bank and the Company shall
negotiate in good faith to agree upon a new pricing grid or other appropriate
pricing terms. Any such new grid or pricing terms shall be approved by the
Majority Banks. In the event the Agent Bank, the Company and Majority Banks
cannot agree upon such new pricing grid or pricing terms by the end of such
90-day period, the Commitment Fee shall be that corresponding to level 3 of the
above table for the remainder of the term of this Agreement.
Any necessary adjustment in the Commitment Fee pursuant to the terms
hereof shall become effective immediately upon any change in a Rating.
SECTION 3.12. TERMINATION OF CREDIT FACILITY.
Unless earlier terminated pursuant to the terms hereof, the Commitments
of the Banks, and the Credit Facility, shall terminate on the Termination Date.
Accordingly, the Company shall pay the entire outstanding principal amount of,
and all accrued but unpaid interest on, the Loans and Notes, together with any
and all other amounts owing by the Company to the Bank, the Letter of Credit
Banks and the Agent Bank hereunder or under the Notes, on the Termination Date.
SECTION 3.13. OPTIONAL REDUCTION OF COMMITMENTS.
The Company shall have the right at any time or from time to time upon
not less than two Business Days' prior written notice to the Agent Bank to
reduce the Total Commitments of the Banks, in whole or in part, provided that
each partial reduction shall be in an aggregate amount of not less than
$25,000,000 and an integral multiple of $5,000,000, and shall reduce the
respective Commitments of all the Banks proportionately; provided, however, that
the Company shall not reduce the Total Commitments of the Banks to an amount
which is less than the aggregate of (i) the aggregate principal amount of all
Eurodollar Rate Loans and Competitive Bid Loans having Interest Periods ending
after the effective date of the reduction plus (ii) the Stated Amount of all
Letters of Credit with an expiration date after the effective date of the
reduction; and further, provided, that in no event shall the Total Commitments
of the Banks be reduced to an amount less than $400,000,000, unless the Total
Commitments of the Banks are terminated in full. The Agent Bank shall give
prompt written notice to each Bank of each such reduction. Upon any optional
reduction of the Total Commitments of the Banks, the Company shall prepay such
amount of each Bank's outstanding Loans, if
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<PAGE> 27
any, as may be necessary so that after such prepayment the sum of the aggregate
unpaid principal amount of such Bank's Loans, such Bank's pro rata share of
unpaid Reimbursement Obligations, and such Bank's liability in respect of all
outstanding Letters of Credit does not exceed the amount of such Bank's
Commitment as then reduced. Once the Company voluntarily reduces the Commitments
pursuant to this Section 3.13., the Company may not thereafter increase the
Commitments pursuant to Section 2.3. or otherwise.
SECTION 3.14. SUBSTITUTION OF BANKS.
3.14.1.
If any Bank shall default in the performance of its Commitment, whether
in whole or in part, then:
(a) such default shall not relieve any other Bank of its Commitment;
and
(b) the Company may, with the prior written approval of the Agent Bank
(such approval not to be unreasonably withheld), terminate the Commitment of
such defaulting Bank and arrange for the Commitment of the defaulting Bank to be
taken over by one or more of the other Banks, and to the extent that such other
Banks will not take over such Commitment, arrange for its assumption by one or
more banks which are not at that time parties hereto, each of which banks shall,
except as otherwise provided herein upon execution and delivery to the Company
of a counterpart hereof, become a Bank hereto to the extent of the Commitment
taken over by it; and
(c) the defaulting Bank shall immediately refund to the Company that
portion of all Commitment Fees which have been paid to it by the Company with
respect to the amount of its Commitment not made available to the Company and
shall be liable to the Company for any and all additional costs and expenses
incurred by the Company in connection with arranging, obtaining and funding any
substitute loan or loans and/or substitute commitment or commitments; provided,
however, that neither the payments by a defaulting Bank required by this
subsection, nor any action of the Company pursuant to this Section 3.14., nor
the prepayment of Notes pursuant to Section 3.14.2 hereof shall constitute a
waiver of or release of any right which the Company shall have against the
defaulting Bank for its failure to perform its obligations hereunder.
3.14.2.
Loans previously made hereunder by a defaulting or withdrawing Bank, or
any portion thereof, which are included in the Commitment taken over by any
other Bank or Banks or by a bank or banks not then parties hereto, shall be
prepaid by the Company without penalty or premium but subject to offset of the
amounts due from such withdrawing Bank pursuant to Section 3.14.1(c).
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<PAGE> 28
3.14.3.
From time to time, the Company may replace a non-defaulting Bank (the
"Replaced Bank") with another financial institution (or institutions) desiring
to be a Bank hereunder (the "New Bank(s)") and/or with one or more Banks already
a party hereto ("Existing Bank(s)") so long as (a) the Replaced Bank consents in
writing to such replacement and receives all amounts owing to such Replaced Bank
hereunder on the effective date of such replacement, (b) the New Bank(s) and/or
Existing Bank(s), as the case may be, assume(s) all of the obligations of a Bank
hereunder having a Commitment equal to the Replaced Bank's by executing, in the
case of a New Bank(s), a letter agreement in substantially the form of Exhibit
C-1 attached hereto or, in the case of an Existing Bank(s), a letter agreement
in substantially the form of Exhibit C-2 hereto, (c) the Commitment(s) of the
New Bank(s), together with the additional Commitment(s) of the Existing Bank(s)
assumed by the Existing Bank(s) pursuant hereto, is equal to the Commitment of
the Replaced Bank and (d) the Company and the Agent Bank acknowledge and consent
that the New Bank(s) shall become a Bank hereunder (and/or that the Existing
Bank(s) shall have an additional Commitment hereunder equal to that of the
Replaced Bank) by signing the respective acknowledgments contained in the
appropriate letter agreement referred to in subparagraph (c) above.
3.14.4.
Upon the increase in any Bank's Commitment or any bank or banks
becoming a party to this Agreement as herein provided, the Company shall
immediately furnish to all Banks which are then parties hereto notice of (a) the
increased Commitment of such Bank, or (b) the names and addresses of such bank
or banks together with the amount of the Commitment of each such bank or banks.
3.14.5.
The respective amounts of the Commitments under Section 2.2. hereof
shall be adjusted from time to time to reflect any changes made pursuant to this
Section 3.14. and notice of such adjustments shall be given by the Company at
the time thereof to each Bank or bank then a party hereto. Such adjusted amounts
of Commitments shall thereupon become the basis for pro rata treatment under
Section 3.8. of this Agreement.
3.14.6.
Upon the termination in whole of the Commitment of any Bank or any bank
which has become a party hereto, and the prepayment of all Loans previously made
under such Commitment, all as provided in this Section 3.14., such Bank or bank
shall cease to be a party to this Agreement except as otherwise provided herein.
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<PAGE> 29
SECTION 3.15. CAPITAL REQUIREMENTS.
If, as a result of the adoption after the date of this Agreement, of
any applicable law, rule or regulation affecting capital adequacy or capital
maintenance, or any change after the date of this Agreement in the
interpretation or administration of any law, rule or regulation affecting
capital adequacy or capital maintenance in existence as of the date hereof by
any governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by such Bank with any
request or directive affecting capital adequacy or capital maintenance (whether
or not having the force of law) of any such authority, central bank or
comparable agency, any Bank determines that such adoption, change or compliance
has or would have the effect of reducing the rate of return on such Bank's
capital as a consequence of its Commitment or Loans or its commitment to issue,
participate in or maintain Letters of Credit to a level below that which such
Bank could have achieved but for such adoption, change or compliance (taking
into consideration such Bank's policies with respect to capital adequacy) by an
amount deemed by such Bank to be material, such Bank shall give prompt notice to
the Company and the Agent Bank, and then from time to time, within 15 days after
submission by such Bank to the Company (with a copy to the Agent Bank) of a
written request therefor, the Company shall pay to such Bank such additional
amount or amounts as will compensate such Bank for such reduction. Any request
submitted by a Bank to the Company pursuant to this Section 3.15. shall contain
such calculations of the amounts requested therein as such Bank shall deem
reasonable in view of its customary practices, and shall be submitted as soon as
practicable, but in any event the initial such request shall be submitted not
more than 90 days after such Bank becomes aware of the event by reason of which
such request is being submitted. Subsequent requests by such Bank shall be
submitted quarterly. If any Bank requests payment of any amount from the Company
pursuant to this Section 3.15., the Company may, pursuant to arrangements and
documentation satisfactory to the Company and the Agent Bank, prepay the
outstanding Loans, fees, and any other amounts due to such Bank in full and
terminate the Commitment of such Bank and the Company may at its option arrange
for all or part of the Commitment of such Bank to be taken over by one or more
of the other Banks and, to the extent such other Banks do not take over such
Commitment or part thereof, arrange for it to be taken over in whole or in part
by a bank or banks not a party hereto, each of which banks shall, except as
otherwise provided herein upon execution and delivery to the Company of a
counterpart hereof, become a full party hereto to the extent of the Commitment
taken over by it. Upon any bank or banks becoming a party to this Agreement as
herein provided, the Company shall immediately furnish to all Banks which are
then parties hereto the names and addresses of such bank or banks together with
the amount of the Commitment of each such bank or banks. The respective amounts
of the Commitments under Section 2.2. hereof shall be adjusted from time to time
to reflect any changes made pursuant to this Section 3.15. and notice of such
adjustments shall be given by the Company at the time thereof to each Bank or
bank then a party hereto. Such adjusted amounts of Commitments shall thereupon
become the basis for pro rata treatment under Section 3.8. of this Agreement.
Upon the termination in whole of the Commitment of any Bank or any bank which
has become a party hereto, and the
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prepayment of all Loans previously made under such Commitment, all as provided
in this Section 3.15., such Bank or bank shall cease to be a party to this
Agreement except as otherwise provided herein.
SECTION 3.16. MANDATORY TERMINATION OF COMMITMENTS UPON CHANGE IN CONTROL.
In the event that (i) any Person or two or more Persons acting in
concert shall have acquired beneficial ownership (within the meaning of Rule
13d-3 of the Securities and Exchange Commission under the Securities and
Exchange Act of 1934), directly or indirectly, of securities of the Company (or
other securities convertible into such securities) representing fifty percent
(50%) or more of the combined voting power of all securities of the Company
entitled to vote in the election of directors, other than securities having such
power only by reason of the happening of a contingency, or (ii) during any
period of up to twelve (12) consecutive months, commencing before or after the
date of this Agreement, individuals who at the beginning of such twelve (12)
month period were directors of the Company shall cease for any reason (other
than death, mental or physical disability, or retirement) to constitute a
majority of the board of directors of the Company, then: (a) the Commitments of
the Banks to the Company hereunder shall be immediately terminated, (b) any
amounts outstanding under the Notes or under this Agreement shall,
notwithstanding any other provisions of this Agreement or the Notes, become
immediately due and payable, and (c) the Company shall immediately deposit as
cash collateral, with the Agent Bank, an amount equal to the Stated Amount of
all outstanding Letters of Credit.
SECTION 3.17. AGENT FEES.
The Company agrees to pay to the Agent Bank a fee to compensate the
Agent Bank for the administration of the Credit Facility, including a fee for
the administration of requests and offers to make Competitive Bid Loans, and for
other services, such fee to be agreed upon by the Agent Bank and the Company.
SECTION 3.18. EXTENSION OF TERM OF CREDIT FACILITY.
The Company may request up to two successive one (1) year extensions of
the Termination Date. The Company shall deliver the initial request for
extension to the Agent Bank at least ninety days prior to the first anniversary
of the Effective Date and, in the case of the request for the second extension,
at least ninety days prior to the second anniversary of the Effective Date (each
such request for an extension, an "Extension Request"). The Agent Bank shall
immediately forward each Extension Request to the Banks. Each Bank shall have
the right, as to its Commitment, in its sole and absolute discretion, to approve
or disapprove the requested extension of the Credit Facility. Each Bank shall,
within forty-five days after the receipt by the Agent Bank of any Extension
Request, notify the Agent Bank whether such Bank shall extend its Commitment to
the requested extended Termination Date. In the event that not all of the Banks
approve the applicable Extension Request, the Credit Facility shall terminate on
the then current Termination Date and all Loans, and all accrued but unpaid
interest thereon and all other
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amounts owing by the Company to the Banks and the Agent Bank hereunder, shall be
due and payable on the then current Termination Date. However, and
notwithstanding the foregoing, in the event Banks having Commitments aggregating
$400,000,000 or more approve the applicable Extension Request (such Banks so
approving the Extension Request referred to herein as the "Approving Banks") and
one such Approving Bank is the Agent Bank, the Credit Facility and the
obligation to make Loans thereunder, solely as to the Approving Banks, shall
continue and shall remain in full force and effect on the same terms and
conditions of this Agreement. The Credit Facility as so extended as to the
Approving Banks shall become effective on the first day after the Termination
Date that would have then occurred but for an extension thereof as contemplated
by this Section 3.18. Further, any reference to "Commitments" and to "Total
Commitment of the Banks" as it relates to the Credit Facility as extended
pursuant to this Section 3.18., shall refer only to the Commitments of the
Approving Banks. In no event shall a Bank that is not an Approving Bank (a
"Terminating Bank") be obligated to participate in the Credit Facility as so
extended and the Company shall pay, on the Termination Date that would have then
occurred but for an extension thereof as contemplated by this Section 3.18., all
Loans made by a Terminating Bank, and all accrued interest thereon, and all
other amounts owing to such Terminating Bank hereunder.
ARTICLE 4. LETTER OF CREDIT FACILITY
SECTION 4.1. LETTERS OF CREDIT.
(a) Subject to the terms and conditions of this Agreement, the Letter
of Credit Banks, on behalf of the Banks, agree to issue and amend (including
without limitation, to extend or renew) for the account of the Company one or
more standby letters of credit (which may be direct pay letters of credit)
(individually, a "Letter of Credit" and collectively, the "Letters of Credit"),
in such form as may be requested from time to time by the Company and agreed to
by the applicable Letter of Credit Bank, from and including the Effective Date
to the Termination Date, up to a maximum aggregate Stated Amount at any one time
outstanding equal to the L/C Commitment Amount; provided, however, that the
Stated Amount of any Letter of Credit issued pursuant to this Section 4.1. shall
not exceed the Available Commitment at the time of such issuance; and further,
provided, that the expiration date of any Letter of Credit shall not extend
beyond the Termination Date. A request for a Letter of Credit shall be pursuant
to a letter of credit application form in form and substance satisfactory to the
applicable Letter of Credit Bank.
(b) Each Bank severally agrees that it shall be absolutely,
unconditionally and irrevocably liable, without regard to the occurrence of any
Default or Event of Default or any condition precedent whatsoever, to the extent
of such Bank's pro rata share of the Total Commitments of the Banks, to
reimburse each Letter of Credit Bank for the amount of each Drawing paid by such
Letter of Credit Bank under each Letter of Credit issued by such Letter of
Credit Bank to the extent such amount is not reimbursed by the Company pursuant
to Section 4.4. hereof. Each Bank's obligation to reimburse the applicable
Letter of Credit Bank pursuant to this Section 4.1.(b) shall not be affected by
any circumstance,
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including, without limitation, (i) any set-off, counterclaim, recoupment,
defense or other right which such Bank may have against a Letter of Credit Bank,
the Company, any direct or indirect beneficiary of any Letter of Credit, the
Agent Bank or any other Person whatsoever; (ii) the occurrence or continuance of
a Default or an Event of Default; (iii) any adverse change in the condition
(financial or otherwise) of the Company; (iv) any breach of this Agreement by
the Company, the Agent Bank or any other Bank; or (v) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing;
provided, however, that the Banks shall not be obligated to reimburse a Letter
of Credit Bank pursuant to this Section 4.1.(b) with respect to a Letter of
Credit if (i) such Letter of Credit Bank has made payment pursuant to a Drawing
with respect to such Letter of Credit and the making of such payment constituted
gross negligence or willful misconduct on the part of such Letter of Credit Bank
or (ii) a Letter of Credit Bank issues such Letter of Credit after an Event of
Default has been declared by any Bank or the Majority Banks pursuant to Article
9. hereof and written notice thereof has been received by such Letter of Credit
Bank or after an Event of Default specified in Section 9.1.(c) hereof has
occurred. Each Bank's obligation to reimburse a Letter of Credit Bank shall
continue to be effective, or be reinstated, as the case may be, if at any time
payment, or any part thereof, of any Reimbursement Obligation of the Company is
rescinded or must otherwise be restored or returned by such Letter of Credit
Bank upon the insolvency, bankruptcy, dissolution, liquidation or reorganization
of the Company or upon or as a result of the appointment of a receiver,
intervenor or conservator of, or trustee or similar officer for, the Company or
any substantial part of its property, or otherwise, all as though such payment
had not been made. Upon receipt of a notice of its obligation to reimburse a
Letter of Credit Bank prior to 11:00 a.m. on a Business Day, a Bank shall make
such reimbursement on such Business Day; if such notice is received after 11:00
a.m., reimbursement shall be due on the next Business Day. The failure of any
Bank to honor its obligations hereunder shall not relieve any other Bank of its
duty to honor its obligations hereunder. Upon the written request of a Bank, a
Letter of Credit Bank shall deliver to such Bank a copy of any Letter of Credit
and copies of all material documents delivered to such Letter of Credit Bank in
connection with any Drawing with respect to such Letter of Credit.
(c) Each payment made by a Bank to a Letter of Credit Bank pursuant to
paragraph (b) above shall be treated as the purchase by such Bank of a
participating interest in the Company's Reimbursement Obligation under Section
4.4. hereof in an amount equal to such payment. Each Bank, so long as it has
made the payment required to be made by it pursuant to Section 4.1.(b) hereof,
shall share in accordance with its pro rata share of the Total Commitments of
the Banks in any interest which accrues pursuant to Section 4.4.(b) hereof. All
amounts recovered by the Agent Bank hereunder or under the Notes and which are
applied by the Agent Bank to the Reimbursement Obligations of the Company under
Section 4.4. hereof shall be distributed by the Agent Bank to the Banks who have
made the payments required to be made by them pursuant to Section 4.1.(b) hereof
pro rata in accordance with their respective share of the Total Commitments of
the Banks.
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(d) If and to the extent that any Bank shall fail to make available to
a Letter of Credit Bank the amount required to be paid by such Bank pursuant to
Section 4.1.(b) hereof, such Letter of Credit Bank shall be subrogated to the
rights of such Bank under this Agreement to the extent of such failure and shall
thereafter (until such Bank shall make such amount available to such Letter of
Credit Bank) be entitled to receive all amounts owing by such Bank hereunder and
to the percentage of voting rights of such Bank under this Agreement equal to
the percentage the amount such Bank failed to pay bears to the aggregate Stated
Amount of all outstanding Letters of Credit issued by such Letter of Credit Bank
and the aggregate unpaid principal of all outstanding Syndicated Loans at such
time. If any Bank fails to reimburse a Letter of Credit Bank as provided in
Section 4.1.(b) hereof, such unreimbursed amount shall bear interest from the
date due until paid at the applicable overnight federal funds rate.
SECTION 4.2. METHOD OF ISSUANCE OF LETTERS OF CREDIT.
(a) Notice of Issuance. The Company shall give the Agent Bank written
notice or telephonic notice confirmed in writing at least three Business Days
prior to the requested date of issuance of a Letter of Credit, and the Agent
Bank shall give immediate notice thereof to the applicable Letter of Credit
Bank.
(b) Issuance. Provided the Company has given the notice prescribed by
Section 4.2.(a) and subject to the other terms and conditions of this Agreement,
the applicable Letter of Credit Bank shall issue the requested Letter of Credit
on the date of issuance on behalf of the Banks for the benefit of the stipulated
beneficiary and shall deliver the original of such Letter of Credit to the
beneficiary at the address specified in the Company's notice. At the request of
the Company, the applicable Letter of Credit Bank shall deliver a copy of each
Letter of Credit to the Company within a reasonable time after the date of
issuance thereof. Upon the written request of the Company, the applicable Letter
of Credit Bank shall deliver to the Company a copy of any Letter of Credit
proposed to be issued hereunder prior to the issuance thereof.
(c) Reporting to Banks. The Agent Bank shall report to the Banks on a
quarterly basis the aggregate Stated Amount of all Letters of Credit then
outstanding and such other information concerning the Letters of Credit as a
Bank shall reasonably request. The Agent Bank shall promptly deliver to each
Bank copies of any Letter of Credit issued hereunder or any amendment thereto.
Other than as set forth in this paragraph (c), the Agent Bank shall have no duty
to notify the Banks regarding the issuance or other matters regarding Letters of
Credit issued hereunder. The failure of the Agent Bank to perform its
requirements under this paragraph (c) shall not relieve the Banks' reimbursement
obligations under Section 4.1.(b) hereof.
SECTION 4.3. LETTER OF CREDIT FEES.
(a) The Company hereby agrees to pay to the Agent Bank, for the account
of the Banks, to be distributed to the Banks pro rata in accordance with their
respective Commitments, a letter of credit fee on the Stated Amount of each
outstanding Letter of
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Credit at a per annum rate equal to the Applicable Margin for Eurodollar Rate
Loans in effect from time to time (as calculated in accordance with the
definition thereof), such fee to be calculated on the Stated Amount from the
date of issuance to the earlier of the date of expiration or of the final
Drawing with respect to such Letter of Credit, based on a year of 360 days and
an actual day month, and payable quarterly in arrears on the last day of each
March, June, September and December during the term of this Agreement and on the
Termination Date.
(b) In addition to the fees set forth in (a) above, the Company shall
pay to (x) the Agent Bank for the account of each Letter of Credit Bank (i) a
fronting fee on the Stated Amount of each Letter of Credit issued by such Letter
of Credit Bank at a per annum rate of 0.125%, such fee to be calculated on the
Stated Amount from the date of issuance to the earlier of (x) the date of
expiration or termination of such Letter of Credit or (y) the date of the final
Drawing with respect to such Letter of Credit, based on a year of 360 days and
an actual day month, and payable quarterly in arrears on the last day of each
March, June, September and December during the term of this Agreement and on the
expiration date or date of final Drawing of each such Letter of Credit, and (ii)
all out-of-pocket fees and disbursements incurred by such Letter of Credit Bank
in connection with the issuance or amendment of a Letter of Credit and any
administrative fee normally charged by the International Department of such
Letter of Credit Bank in connection with the issuance or amendment by such
department of letters of credit, and (y) each Letter of Credit Bank such other
fees as may be agreed to by the Company and such Letter of Credit Bank from time
to time.
SECTION 4.4. LETTER OF CREDIT REIMBURSEMENT.
(a) Notice of Drawing. The applicable Letter of Credit Bank shall
promptly notify the Company, the Agent Bank and each Bank by telephone,
telecopy, telex or other telecommunication of any Drawing under a Letter of
Credit it has issued and of the anticipated payment date. On the payment date,
the Letter of Credit Bank shall confirm to the Company, the Agent Bank and each
Bank by telephone or telecopy that payment of the Drawing is to be made by the
Letter of Credit Bank on such date.
(b) Payments. The Company hereby agrees absolutely and unconditionally
to pay to the Agent Bank on behalf of the applicable Letter of Credit Bank, in
the manner provided in Section 4.4.(c):
(i) On each date a Drawing is paid, an amount equal to
the amount paid by such Letter of Credit Bank under any Letter of
Credit plus associated fees and charges; and
(ii) If any Drawing shall be reimbursed to the Agent Bank
after 2:00 p.m. (Atlanta time) on the payment date, interest on any and
all amounts required to be paid pursuant to clause (i) of this Section
4.4.(b) from and after the due date
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thereof until payment in full, payable on demand, at an annual rate of
interest equal to the Base Rate.
(c) Method of Reimbursement. The Company shall reimburse the Agent Bank
(which shall immediately forward such funds, in the form received, to the
applicable Letter of Credit Bank) for each Drawing under any Letter of Credit in
the following manner:
(i) the Company shall immediately reimburse the Agent
Bank in accordance with Section 3.6. hereof; or
(ii) (A) if the Company has not reimbursed the Agent Bank
pursuant to subparagraph (i) above and (B) the conditions set forth in
Section 5.2. hereof have been fulfilled and (C) sufficient funds are
available within the limits of the amount of Loans that may be borrowed
as provided in Article 2. hereof, with the proceeds of a Loan; or
(iii) the Agent Bank may debit any deposit account of the
Company maintained with the Agent Bank and appropriate and apply an
amount of funds in such account equal to the Reimbursement Obligations
outstanding at such time in satisfaction of the Company's obligations
set forth in subparagraph (i) above.
(d) Syndicated Loans to Fund Drawings. Upon any Drawing, the Agent Bank
shall notify the Banks if the Company has elected to reimburse the applicable
Letter of Credit Bank using the proceeds of Syndicated Loans. Upon receipt of
such notice and if the conditions set forth in subparagraph (c)(ii) above have
been satisfied, each Bank agrees to deliver to the Agent Bank its pro rata share
of the amount of Syndicated Loans necessary to reimburse such Letter of Credit
Bank for any payment made by such Letter of Credit Bank pursuant to such Drawing
not later than one Business Day after receipt of such notice. Any funds
delivered to the Agent Bank under this paragraph (d) shall be delivered in the
manner set forth in the fourth sentence of Section 3.2. hereof. The parties
agree that the notice provisions for making Syndicated Loans as provided in
Section 3.2. hereof shall apply to the making of Syndicated Loans as
contemplated by this paragraph (d).
(e) Obligations Absolute. The obligations of the Company under this
Article 4. (and, if applicable in the event of the failure of the Company to so
reimburse a Letter of Credit Bank, the obligations of the Banks under this
Article 4.) shall be absolute, unconditional and irrevocable, and shall be
performed strictly in accordance with the terms of this Agreement, under all
circumstances whatsoever, including, without limitation, the following
circumstances:
(i) any lack of validity or enforceability of all or any
of this Agreement, the Notes, the letter of credit applications and
other related documents and any other agreements relating to the
Letters of Credit (the "Related Documents");
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(ii) any amendment or waiver of or any consent to or
departure from the terms of the Related Documents;
(iii) the existence of any claim, set-off, defense or other
rights which the Company may have at any time against any direct or
indirect beneficiary of any Letter of Credit, any Bank, the Agent Bank
or any other Person, whether in connection with the Related Documents
or any unrelated transaction;
(iv) any statement or any other document presented under
any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect whatsoever;
(v) payment by the applicable Letter of Credit Bank under
any Letter of Credit against presentation of a sight draft or
certificate which does not comply with the terms of such Letter of
Credit, provided that such payment shall not have constituted gross
negligence or willful misconduct of such Letter of Credit Bank; and
(vi) any other circumstance or happening whatsoever,
whether or not similar to any of the foregoing, provided that such
other circumstance or happening shall not have been the result of gross
negligence or willful misconduct of the applicable Letter of Credit
Bank.
SECTION 4.5. LETTER OF CREDIT BANKS.
(a) Liability of Letter of Credit Banks to Other Banks. No Letter of
Credit Bank shall be liable to any Bank or to any other participant in the
Letters of Credit for any error in judgment or for any action taken or omitted
to be taken by such Letter of Credit Bank except for actions of such Letter of
Credit Bank constituting gross negligence or willful misconduct.
(b) Liability of the Letter of Credit Banks to Company/Banks. The
Company assumes all risks of the acts or omissions of any beneficiary of any
Letter of Credit with respect to its use of such Letter of Credit. Neither any
Letter of Credit Bank nor any of its officers or directors shall be liable or
responsible to the Company or the Banks for:
(i) the use which may be made of any Letter of Credit or
for any acts or omissions of any beneficiary in connection therewith;
(ii) the validity, sufficiency or genuineness of documents
presented under any Letter of Credit even if such documents should in
fact prove to be in any or all respects invalid, insufficient,
fraudulent or forged;
(iii) payment by the applicable Letter of Credit Bank
against presentation of documents which do not comply with the terms of
the Letter of
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Credit, including failure of any documents to bear any reference or
adequate reference to the Letter of Credit; or
(iv) any other circumstances whatsoever in making or
failing to make payment under any Letter of Credit;
except only that the Company (and, if applicable, the Banks) shall have a claim
against the applicable Letter of Credit Bank to the extent, but only to the
extent, of any direct, as opposed to consequential, damages suffered by the
Company which were caused by (i) the applicable Letter of Credit Bank's willful
misconduct or gross negligence in determining whether documents presented under
any Letter of Credit comply with the terms of such Letter of Credit or (ii) the
applicable Letter of Credit Bank's willful misconduct or gross negligence in
failing to pay under any Letter of Credit after the presentation to it by the
beneficiary of such Letter of Credit of a sight draft and certificate strictly
complying with the terms and conditions of such Letter of Credit.
ARTICLE 5. CONDITIONS TO EFFECTIVENESS OF AGREEMENT, FOR
BORROWINGS AND ISSUANCE OF LETTERS OF CREDIT
SECTION 5.1. EFFECTIVENESS, INITIAL BORROWING AND ISSUANCE OF LETTERS OF CREDIT.
This Agreement shall not become effective, the Banks shall not be
obligated to make the initial Loans and the applicable Letter of Credit Bank
shall not be obligated to issue the initial Letter of Credit hereunder until the
Company shall have furnished to the Agent Bank the following, each dated (unless
otherwise indicated) the date of this Agreement, in form and substance
satisfactory to the Agent Bank:
(a) The Notes, payable to the order of each of the Banks in the amounts
of their respective Commitments, duly executed and delivered by the Company; and
(b) An Officer's Certificate stating that: (i) the representations and
warranties contained in Article 6. hereof are true on and as of such date,
except to the extent of changes caused by the transactions herein contemplated;
and (ii) the Company has received a certificate of independent certified public
accountants of national standing selected by the Company, stating that such
accountants have reviewed the federal income tax returns of the Company for the
fiscal years ended June 30, 1988 to 1996, inclusive, and the provisions for
payment of federal income taxes for such fiscal years, as reflected in the
financial statements of the Company certified by an independent certified public
accountant for those years, and that in the opinion of such certifying
accountants either such returns properly reflect the Company's federal income
taxes for the periods covered thereby or the Company has paid, or made adequate
provision for the payment of, all federal income taxes for such fiscal years;
and
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(c) An incumbency certificate for the Chairman of the Board, the
President, the principal financial officers, and other persons who will sign the
Notes pursuant to this Agreement on behalf of the Company; and
(d) A copy of the Company's Board of Directors' resolutions authorizing
the borrowings under this Agreement, certified by the Secretary or an Assistant
Secretary of the Company as being in full force and effect as of the date of the
Effective Date; and
(e) a favorable opinion from counsel for the Company stating that:
(i) The Company is a corporation duly organized, existing
and in good standing under the laws of the State of Delaware, and the
execution, delivery and performance of this Agreement and the Notes are
within the Company's corporate powers;
(ii) The Company has the necessary corporate power to
carry on its business as then being conducted;
(iii) The Company is duly qualified as a foreign
corporation to transact business and is in good standing in each
jurisdiction in which the nature of the business conducted by it makes
such qualification necessary;
(iv) The Company is a duly certificated air carrier and
there are in force all permanent or temporary certificates or other
appropriate legal authority issued by appropriate governmental
authorities to authorize the Company to engage in intrastate,
interstate, overseas and foreign air transportation of persons,
property and mail over the routes then operated by the Company;
(v) The Company has title to all of the flight equipment
which it owns free and clear of all liens and encumbrances except as
permitted by this Agreement;
(vi) All leases of flight equipment to which the Company
is a party are valid and binding upon the lessors;
(vii) No consent of stockholders of the Company to the
chattel mortgage or mortgages referred to in Section 7.6. hereof is
required by law or by the Certificate of Incorporation or Bylaws of the
Company or otherwise;
(viii) All corporate steps necessary to authorize the
execution and delivery of this Agreement and the Notes and the
Company's performance thereunder have been taken and no consent,
approval, authorization, permit or license from any federal, state or
other regulatory authority is required in connection therewith;
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(ix) The borrowings hereunder, or the giving of the Notes,
will not violate any provision of the Delaware Corporation Law or the
Company's Certificate of Incorporation or Bylaws or any agreement,
indenture, note or other instrument evidencing any material
indebtedness for money borrowed to which the Company is a party or by
which the Company or its assets is bound; and
(x) This Agreement and the Notes being issued to evidence
such borrowings are legal, valid and binding obligations of the Company
enforceable in accordance with their respective terms, subject,
however, to limitations imposed by law in connection with bankruptcy
and similar proceedings.
(f) A letter in the form of Exhibit G attached hereto duly executed by
the Company.
SECTION 5.2. ALL BORROWINGS.
The Banks shall not be obligated to make any advance under the Notes,
including the initial advance, and any Letter of Credit Bank shall not be
obligated to issue any Letter of Credit, including the initial Letter of Credit,
unless at the time thereof the Company shall have furnished to the Agent Bank an
Officer's Certificate bearing that date, and stating that:
(a) There exists on that date no Default or Event of Default;
(b) There exists on that date no Event of Default or default under any
instrument evidencing or any agreement given in connection with Funded Debt of
the Company;
(c) Such borrowing or issuance of such Letter of Credit will not
contravene any agreement, indenture or instrument to which the Company is a
party or by which it may be bound and which is material to the financial
condition of the Company; and
(d) The representations and warranties contained in Sections 6.1.,
6.3., 6.4., 6.7.(a), 6.7.(c), 6.8., 6.9., 6.10., 6.11., 6.13., and 6.14. hereof
are true on and as of such date, except to the extent of changes caused by the
transactions herein contemplated.
(e) The extension(s) of credit being made on such date are legal, valid
and binding obligations of the Company, the resolutions of the Board of
Directors of the Company referred to in Section 5.1.(d) hereof remain in full
force and effect, and the officers of the Company requesting such advances are
duly authorized and empowered to do so.
Further, any conversion of a Syndicated Loan from one type to another
as contemplated by Section 3.9. hereof shall be deemed to be a representation by
the
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Company that the matters referred to in paragraphs (a) through (e) above
continue to be true and correct.
ARTICLE 6. REPRESENTATIONS AND WARRANTIES
The Company hereby represents, covenants and warrants to the Agent
Bank, the Letter of Credit Banks and each of the Banks as follows:
SECTION 6.1. ORGANIZATION; STANDING, ETC.
The Company is a corporation duly organized and existing under the laws
of the State of Delaware, has the corporate power to own its property and carry
on its business as being conducted, and is duly qualified to do business as a
foreign corporation and is in good standing in every jurisdiction in which the
nature of the business conducted by it makes such qualification necessary.
SECTION 6.2. FINANCIAL STATEMENTS.
The Company has furnished the Banks with the following financial
statements, identified by the certificate of a principal financial officer of
the Company: balance sheets of the Company as at June 30, 1995 and June 30,
1996, and income and reinvested earnings statements of the Company for the years
ended on such dates, respectively, all certified by Arthur Andersen LLP. Such
financial statements are true and correct and have been prepared in accordance
with generally accepted accounting principles consistently followed throughout
the periods involved. The balance sheets and their accompanying notes present
fairly the condition of the Company as of the dates thereof, and the income and
reinvested earnings statements present fairly the results of the operations of
the Company for the periods indicated. There has been no material adverse change
in the condition or operation of the Company since December 31, 1996.
SECTION 6.3. LITIGATION.
There is no action or proceeding pending or threatened against the
Company before any court or administrative agency which, in the reasonable
opinion of the Company, is likely to be determined in a manner which would
result in any material adverse change in the condition or operation of the
Company and the Company is not in default with respect to any order, writ,
injunction or decree of any court or administrative agency, which would have a
material adverse effect on the Company.
SECTION 6.4. BUSINESS; STATUS AS AIR CARRIER.
(a) The Company is a duly certificated air carrier and there are in
force any certificates or other appropriate authority issued by appropriate
governmental authorities necessary to authorize the Company to engage in
intrastate, interstate, overseas and
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foreign air transportation of persons, property and mail over the routes
operated by the Company; and
(b) no proceedings are pending or threatened, by or before any public
body, agency or authority, domestic or foreign, including but not limited to
proceedings to alter, amend, modify, suspend or revoke such certificates in
whole or in part, which might seriously affect adversely the income from, title
to, or possession of, any of the properties of the Company, to an extent which
would constitute a material adverse change in the business or condition of the
Company.
SECTION 6.5. FUNDED DEBT.
The Company does not have outstanding any Funded Debt except as set
forth on Schedule I to this Agreement; and there exists no default under the
provisions of any instrument evidencing such indebtedness or agreement relating
thereto.
SECTION 6.6. TITLE TO PROPERTIES, ETC.
The Company and its Subsidiaries have good and marketable title to
their properties and assets, including the properties and assets reflected in
the balance sheets described in Section 6.2. hereof, subject to no mortgage,
pledge, encumbrance, lien or charge of any kind except mortgages, pledges,
encumbrances, liens or charges permitted by Section 8.1. hereof.
SECTION 6.7. TAX RETURNS AND PAYMENTS.
(a) The Company has filed all federal income tax returns which are
required to be filed, and has paid all taxes as shown on said returns and on all
assessments received by it to the extent that such taxes (other than those which
the Company is contesting in good faith by appropriate proceedings being
diligently conducted) have become due;
(b) The federal income tax liability of the Company has been finally
determined by the Internal Revenue Service and satisfied for all fiscal years
prior to and including the fiscal year ended June 30, 1992, except for a pending
refund claim filed by the Company with the Internal Revenue Service with respect
to the fiscal year ended June 30, 1984;
(c) All other tax returns and reports of the Company which are required
to be filed have been duly filed, and all taxes and government charges (other
than those for which payment may be withheld without penalty or those which the
Company is contesting in good faith by appropriate proceedings being diligently
conducted) upon the Company, its assets, income or franchises which are due and
payable have been paid.
SECTION 6.8. COMPLIANCE WITH OTHER INSTRUMENTS.
The Company is not a party to any contract or agreement or subject to
any charter or other corporate restriction which materially and adversely
affects its business, property
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or assets, or financial condition; neither the execution nor delivery of this
Agreement nor the Notes herein described, nor fulfillment of nor compliance with
the terms and provisions hereof and of the Notes will conflict with, or result
in a breach of the terms, conditions or provisions of, or constitute a default
under, the Certificate of Incorporation or Bylaws of the Company or of any
agreement or instrument to which the Company is now a party, which breach would
have a material adverse effect on the condition or operation of the Company.
SECTION 6.9. OFFERING OF NOTES.
Neither the Company nor any agent acting on its behalf has offered the
Notes to be issued hereunder for sale to, or solicited any offers to buy the
said Notes from, any Person other than the Banks signatory to this Agreement,
and neither the Company nor any agent acting on its behalf will take any action
which would subject the issuance or sale of the said Notes to the provisions of
Section 5 of the Securities Act of 1933, as amended.
SECTION 6.10. USE OF PROCEEDS.
The Company is not engaged, principally or as one of the Company's
important activities, in the business of purchasing or carrying any "margin
stock" as such term is defined in Regulation U of the Board of Governors of the
Federal Reserve System and no part of the proceeds of any advance hereunder will
be used to purchase or to carry any such stock or to extend credit to others for
the purpose of purchasing or carrying any such stock.
SECTION 6.11. GOVERNMENTAL REGULATION.
No consent, approval, authorization, permit or license from any
federal, state or other regulatory authority is required in connection with the
making, delivery or performance of this Agreement or the Notes by the Company.
SECTION 6.12. SUBSIDIARIES.
Schedule II is a complete and correct list of all present Subsidiaries,
all of which are corporations duly incorporated, in good standing and with
corporate power to transact the business presently conducted by them. Except as
disclosed in Schedule II, the Company owns, directly or indirectly through one
or more Subsidiaries, all the shares of each of the Subsidiaries (except
directors' qualifying shares, if any), and all such shares are validly issued,
fully paid and non-assessable and are free and clear of all liens and rights of
others whatsoever.
SECTION 6.13. ERISA.
The Company and each Subsidiary have met their minimum funding
requirements under the Employee Retirement Income Security Act of 1974, as
amended from time to time, with respect to all their employee benefit plans
covered by the minimum funding
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requirements of said Act, and have not incurred any material liability to the
Pension Benefit Guaranty Corporation (or any entity succeeding to any or all of
said Corporation's functions under said Act) under said Act in connection with
any such plan.
SECTION 6.14. ENVIRONMENTAL MATTERS.
The Company and its Subsidiaries are in substantial compliance with all
applicable federal, state and local environmental laws, regulations and
ordinances governing their respective business, properties or assets with
respect to discharges into the ground and surface water, emissions into the
ambient air and generation, storage, transportation and disposal of waste
materials or process by-products, except such noncompliances as are not likely
to have a material adverse effect on the property, assets, business, operations
or condition (financial or otherwise) of the Company and its Subsidiaries taken
as a whole. All licenses, permits or registrations required for the business of
the Company and its Subsidiaries under any federal, state or local environmental
laws, regulations or ordinances have been secured, and the Company and each
Subsidiary are in substantial compliance therewith, except such licenses,
permits or registrations the failure to secure or to comply therewith are not
likely to have a material adverse effect on the property, assets, business,
operations or condition (financial or otherwise) of the Company and its
Subsidiaries taken as a whole.
ARTICLE 7. AFFIRMATIVE COVENANTS
The Company covenants and agrees that until all of its obligations
hereunder have been discharged and the obligations of the Banks to make advances
terminated, it will:
SECTION 7.1. INSURANCE.
Keep adequately insured, by financially sound and reputable insurers,
all property of the character usually insured by corporations engaged in the
same or similar businesses similarly situated, against loss or damage of the
kind customarily insured against by such corporations, and carry adequate
liability insurance and other insurance of a kind generally carried by
corporations engaged in the same or similar businesses similarly situated;
provided, however, that nothing herein contained shall be construed to mean that
a deductibility clause in any such insurance, which, in effect, results in
self-insurance of a level or portion of losses considered reasonable by the
Company's management, shall render such insurance inadequate; and provided
further, that in the case of a lease to the United States Government or an
agency thereof of any aircraft or other property, indemnity therefrom by the
United States Government will be considered adequate insurance against the risks
that are the subject of any such indemnity.
SECTION 7.2. PAYMENT OF TAXES.
Duly file all federal income tax returns and all other tax returns and
reports which, to the knowledge of the officers of the Company are required to
be filed and pay when due
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all taxes and governmental charges assessed against it, its assets, income or
franchises, except to the extent and so long as contested in good faith.
SECTION 7.3. FINANCIAL STATEMENTS.
Deliver to each Bank, so long as such Bank shall hold any Note issued
hereunder or is committed to lend hereunder:
(a) As soon as practicable and in any event within two (2) months after
the end of each quarterly period (other than the last quarterly period in each
fiscal year) an income statement of the Company for the period from the
beginning of the current fiscal year to the end of such quarterly period, and a
balance sheet of the Company as at the end of such quarterly period, setting
forth in each case in comparative form figures for the corresponding period in
the preceding fiscal year, all in reasonable detail and certified by a principal
financial officer of the Company, subject to changes resulting from year-end
adjustments; and a statement as of the end of such quarterly period of the
calculations made by the Company establishing its compliance with the provisions
of Sections 8.1., 8.2. and 8.4. hereof, in sufficient detail to permit the Banks
to determine how the conclusions on such statement were arrived at, certified by
a principal financial officer of the Company as accurate in all material
respects;
(b) As soon as practicable and in any event within three (3) months
after the end of each fiscal year, an income statement and a statement of
reinvested earnings of the Company for such year, and a balance sheet of the
Company as at the end of such year, setting forth in each case in comparative
form corresponding figures from the preceding annual audit, all in reasonable
detail and satisfactory in scope to the Banks and certified by independent
certified public accountants of national standing selected by the Company; and a
statement as of the end of such fiscal year of the calculations made by the
Company establishing its compliance with the provisions of Sections 8.1., 8.2.
and 8.4. hereof, in sufficient detail to permit the Banks to determine how the
conclusions on such statement were arrived at, certified by a principal
financial officer of the Company as accurate in all material respects;
(c) Copies of all financial statements, reports and returns which it
shall send to its stockholders;
(d) Promptly after the sending or filing thereof, copies of all
periodic reports, if any, which the Company shall have filed with the Securities
and Exchange Commission (or any governmental agency or agencies substituted
therefor) under ss.13 or ss.15(d) of the Securities Exchange Act of 1934, as
amended, or with any national securities exchange; and
(e) With reasonable promptness such other financial data as any Bank
may reasonably request through the Agent Bank.
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SECTION 7.4. MAINTENANCE OF EQUIPMENT.
Maintain substantially all of its equipment (except surplus or obsolete
equipment) in good operating order.
SECTION 7.5. INSPECTION.
Permit any Person designated by any Bank in writing, to visit and
inspect any of the properties, corporate books and financial records of the
Company and its Subsidiaries at the Bank's expense, and to discuss the affairs,
finances, and accounts of any such corporation with the principal officers of
the Company, all at such reasonable times and as often as such Bank may
reasonably request. This covenant shall be subject to applicable governmental
and industrial security regulations.
SECTION 7.6. SECURITY FOR NOTES.
In the event the Company secures by mortgage, pledge, encumbrance, lien
or other charge any debt other than as permitted by Section 8.1. hereof, the
Company shall secure equally and ratably the indebtedness incurred hereunder.
SECTION 7.7. NOTICE OF ANY DEFAULT OR EVENT OF DEFAULT.
As soon as practicable (but in any event not more than five (5) days
after the Chairman of the Board, the President, or a principal financial officer
of the Company obtains knowledge of a Default or an Event of Default as
specified in Article 9. hereof), the Company will deliver to each Bank an
Officer's Certificate specifying the nature thereof, the period of existence
thereof and what action the Company has taken or proposes to take with respect
thereto.
SECTION 7.8. ERISA REPORTING REQUIREMENTS.
With respect to any employee benefit plan subject to Title IV of ERISA,
the Company shall, if requested by the Agent Bank, provide the Agent Bank with
copies of the most recent annual reports or returns (IRS Form 5500), audited or
unaudited financial statements and actuarial valuations with respect to such
plans. In addition, the Company shall provide the Agent Bank copies of any
notice filed with the Pension Benefit Guaranty Corporation with respect to any
"Reportable Event" as defined in Section 4043 of ERISA, and the Agent Bank shall
forward copies of any such notice to the Banks.
ARTICLE 8. NEGATIVE COVENANTS
Until all of its obligations hereunder have been discharged and the
obligations of the Banks to make advances terminated, the Company covenants that
it will not and will not permit any Subsidiary to:
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SECTION 8.1. LIENS.
Create, assume or suffer to exist any mortgage, pledge, encumbrance,
lien or charge of any kind upon any of its property or assets, whether now owned
or hereafter acquired, except: (i) mortgages, pledges, encumbrances, liens or
charges where the aggregate indebtedness secured by such mortgages, pledges,
encumbrances, liens or charges at any time does not exceed the sum of (a) the
greater of $1,000,000,000 or fifteen percent (15%) of Equity plus (b) the amount
outstanding under the obligations described on Schedule I hereof as "Secured";
(ii) liens for taxes not yet due or which are being contested in good faith;
(iii) other liens, charges and encumbrances incidental to the conduct of its
business or the ownership of its property and assets which were not incurred to
secure the repayment of borrowed money or other advances or credit, and which do
not in the aggregate materially detract from the value of its property or assets
or materially impair the use thereof in the operation of its business; (iv)
liens imposed by law, such as carriers', warehousemen's, mechanics',
materialmen's and vendors' liens, for sums not yet due or already due but the
validity of which is being contested in good faith; (v) mortgages, pledges,
encumbrances, liens or other charges on property or assets of a Subsidiary to
secure obligations of such Subsidiary to the Company or another Subsidiary; and
(vi) any mortgage, pledge, encumbrance, lien or other charge required by Section
7.6. hereof.
SECTION 8.2. DEBT.
Create, incur, assume or suffer to exist, for the Company and the
Subsidiaries taken together, (a) Current Debt in an aggregate principal amount
at any one time outstanding in excess of 100% of all accounts receivable of the
Company and its Subsidiaries outstanding as of the last day of the second
calendar month next preceding the month in which such calculation of Current
Debt is made, all computed in accordance with generally accepted accounting
principles as in effect from time to time; or (b) Convertible Subordinated Debt
in excess of 33.3% of Equity; or (c) Funded Debt, Current Debt (other than
Convertible Subordinated Debt) and all Guaranty Liabilities (as defined below)
in an amount at any one time which exceeds 150% of Equity at such time. For
purposes of this Section 8.2., "Guaranty Liabilities" shall mean all liabilities
of the Company and any Subsidiary of the Company as guarantor, surety,
accommodation endorser or other accommodation party on behalf of any Person
where the underlying obligation of such Person covered by, or the subject of,
such guaranty or contingent undertaking would constitute Current Debt or Funded
Debt, as defined herein, if such Person were the Company; provided, however,
that (x) guarantees or other contingent undertakings by the Company on behalf of
any Subsidiary, by any Subsidiary on behalf of any other Subsidiary, or by any
Subsidiary on behalf of the Company and (y) the contingent undertakings as set
forth on Schedule III hereto, shall not constitute Guaranty Liabilities.
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SECTION 8.3. MERGERS; DISPOSITION OF ASSETS.
Merge or consolidate with any corporation or sell, lease or transfer or
otherwise dispose of all or a substantial part of its assets in any transaction
or series of related transactions, except that (i) any Subsidiary may merge or
consolidate with the Company or any one or more other Subsidiaries; (ii) any
Subsidiary may sell, lease, transfer or otherwise dispose of any of its assets
to the Company or another Subsidiary; (iii) any Subsidiary may sell or otherwise
dispose of all or substantially all of its assets, provided that (a) such sale
or other disposition is for a consideration which represents fair value (as
determined in good faith by the Company) at the time of such sale or
disposition, and (b) the assets so disposed of do not constitute a substantial
part of the aggregate assets of the Company and the Subsidiaries; (iv) the
Company may dispose of aircraft in the ordinary course of its business, provided
that such sale or other disposition is for a consideration which represents fair
value (as determined in good faith by the Company) at the time of such sale or
disposition; and (v) the Company may merge or consolidate with another
corporation, provided that (a) the Company shall be the continuing or surviving
corporation, (b) a majority of the board of directors of the Company for a
period of six (6) months after the effective date of such merger consists of
individuals who were directors of the Company twelve (12) months prior to such
effective date, and (c) immediately after such merger or consolidation there
shall exist no Event of Default as defined in Article 9. hereof.
SECTION 8.4. LEASES.
Enter into or permit to remain in effect any flight equipment lease
agreements which, as of the close of any fiscal year, cause the Company's
consolidated flight equipment rental expense for such fiscal year to exceed
eight percent (8%) of the Company's consolidated operating revenues for such
fiscal year, provided that any such lease agreements as may be necessary in
connection with interchange agreements between the Company and other airline
related businesses shall not be included in such calculation.
ARTICLE 9. DEFAULTS
SECTION 9.1. EVENTS OF DEFAULT.
Upon the occurrence of any one of the following Events of Default:
(a) Default in any interest payment or principal payment or mandatory
prepayment on any Note or any Reimbursement Obligation when due and the
continuance thereof for five (5) days; or
(b) Default in the payment of any Commitment Fee or any fee or charge
to be paid pursuant to Article 4. hereof, when the same is due hereunder and the
continuance thereof for ten (10) days; or
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(c) The Company shall institute a voluntary case seeking liquidation or
reorganization under Chapter 7 or Chapter 11, respectively, of the United States
Bankruptcy Code, or shall consent to the institution of an involuntary case
thereunder against it; or the Company shall otherwise institute any similar
proceeding under any other applicable federal or state law, or shall consent
thereto; or the Company shall apply for, or by consent or acquiescence there
shall be an appointment of, a custodian, receiver, liquidator, sequestrator,
trustee or other officer with similar powers, for the Company, or for all or a
material part of its properties; or the Company shall make an assignment for the
benefit of creditors; or the Company shall have ceased to pay its debts
generally as they become due; or if an involuntary case shall be commenced
seeking the liquidation or reorganization of the Company under Chapter 7 or
Chapter 11, respectively, of the United States Bankruptcy Code or any similar
proceeding shall be commenced against the Company under any other applicable
federal or state law and (i) the petition commencing the involuntary case is not
timely controverted, (ii) the petition commencing the involuntary case is not
dismissed within forty-five (45) days of its filing, (iii) an interim trustee is
appointed to take possession of all or a portion of the property and/or to
operate all or any part of the business of the Company, or (iv) an order for
relief (other than the petition itself) shall have been issued or entered
therein; or a decree or order of a court having jurisdiction in the premises for
the appointment of a custodian, receiver, liquidator, sequestrator, trustee or
other officer having similar powers for the Company or for all or a part of its
properties, shall have been entered; or any other similar relief shall be
granted against the Company under any applicable federal or state law; or
(d) Default in the observance or performance of any of the affirmative
or negative covenants of the Company hereunder and, where there has been a
default in an affirmative covenant of the Company, such default shall not have
been remedied within thirty (30) days after written notice thereof shall have
been given the Company by any Bank; or
(e) Any representation or warranty made by the Company herein or in any
certificate furnished to the Banks hereunder proves to have been false or
breached in any material respect on the date as of which made or on the date of
any extension of credit hereunder, or any statement or certificate furnished by
the Company pursuant hereto shall prove to have been false in any material
respect at any date as of which the facts therein set forth were stated or
certified; or
(f) Seizure under any legal process of a substantial share of the
assets of the Company if release is not obtained within thirty (30) days of such
seizure; or
(g) Default in any payment of principal or interest on any other
obligation for borrowed money or the deferred purchase price of property beyond
any period of grace provided with respect thereto, or in the payment of any
capital leases, or in the performance or observance of any other agreement, term
or condition contained in any agreement under which any such obligation is
created, if the effect of such default is to cause, or permit the holder or
holders of such obligation (or a trustee acting on behalf of
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such holder or holders) to cause, such obligation to become due prior to its
stated maturity, provided such obligations or agreements have aggregate
outstanding amounts of $25,000,000 or more; or
(h) The Company shall have failed to meet its minimum funding
requirements under the Employee Retirement Income Security Act of 1974, as
amended from time to time (including any rules or regulations promulgated
thereunder) with respect to any of its employee benefit plans which are covered
by Title IV of said Act (or to which ss.412 of the Internal Revenue Code of
1986, as amended, applies), which failure has resulted in a material liability
for excise tax under ss.4971 of said Code; or any of its plans aforesaid shall
be the subject of voluntary or involuntary termination proceedings which may
result in an uninsured payment or repayment liability of the respective
corporation to the Pension Benefit Guaranty Corporation (or any entity
succeeding to any or all of its functions under said Act) in an amount which is
material in relation to the net worth of the Company;
then, in the event that an Event of Default under (a) or (b) above should occur,
any Bank may, at its option, by a written notice to the Company with copies to
each other Bank, if such Event of Default be continuing at the time such notice
is received by the Company, either: (i) declare the obligation of such Bank to
extend credit to the Company hereunder to be immediately terminated, whereupon
such obligation shall terminate; or (ii) declare any Note held by it to be
forthwith due and payable whereupon such Note(s), with accrued interest thereon,
shall become forthwith due and payable without presentment, demand, protest or
any other notice of any kind, all of which are hereby expressly waived by the
Company; or (iii) demand that the Company immediately deposit as cash collateral
with the Agent Bank, for such Bank's account, an amount equal to such Bank's pro
rata share of the Stated Amount of all outstanding Letters of Credit; or (iv)
all of the foregoing. In the event that an Event of Default under (a), (b), or
(d) through (h) above should occur, if such Event of Default be continuing, the
Majority Banks may, at their option, by written notice to the Company, exercise
the remedies listed in (i), (ii), (iii) and (iv) above on behalf of all the
Banks. In the event that an Event of Default under (c) above should occur, the
Total Commitments of the Banks shall automatically terminate and the principal
of and accrued interest on any Notes then outstanding, all unpaid Reimbursement
Obligations and any accrued fees, together with an amount equal to the Stated
Amount of all outstanding Letters of Credit (without regard to whether a draft
has been presented under any of such Letters of Credit), to be held as cash
collateral by the Agent Bank for the Reimbursement Obligations of the Company
with respect to such outstanding Letters of Credit, shall automatically become
due and payable, without protest, presentment, notice or demand, all of which
are expressly waived by the Company.
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ARTICLE 10. YIELD PROTECTION
SECTION 10.1. INCREASED COST OF EURODOLLAR RATE LOANS.
(a) If, as a result of any change after the date of this Agreement in
(including the introduction of any new) applicable United States, state or
foreign laws or regulations or the adoption or making of any interpretations,
directives or requests thereof or thereunder by any court or governmental
authority charged with the interpretation or administration thereof, one or more
of the following events occur (herein called "Increased Cost Changes"):
(i) the basis of taxation of payments to any Bank of the
principal of or interest on any Eurodollar Rate Loan or any other
amounts payable under this Agreement in respect thereof (other than
taxes imposed on the aggregate net income of such Bank or of its
Eurodollar Lending Office by the jurisdiction in which the Bank has its
principal office or such Eurodollar Lending Office) is changed; or
(ii) any reserve, special deposit or similar requirements
against the assets of, deposits with or for the account of, or credit
extended by, any Bank are imposed, modified or deemed applicable; or
(iii) any other condition affecting this Agreement or any
Eurodollar Rate Loan is imposed on any Bank or (in the case of
Eurodollar Rate Loans) the London interbank market;
and a Bank determines that, by reason thereof, the cost to such Bank of making
or maintaining any of the Eurodollar Rate Loans is increased by an amount
reasonably determined by such Bank, or any amount receivable by such Bank
hereunder in respect of any of the Eurodollar Rate Loans is reduced by an amount
reasonably determined by such Bank (such increases in cost and reductions in
amounts receivable being herein called "Increased Costs"), then the Company
shall pay to such Bank on the next interest payment date for the affected
Eurodollar Rate Loans such additional amount or amounts (which shall be set
forth in a notice from such Bank to the Company stating the cause and amount of
such Increased Costs) as will compensate such Bank for such Increased Costs.
Each Bank will immediately notify the Company of any event of which such Bank
has knowledge that will entitle such Bank to compensation pursuant to this
Section 10.1.(a) and will exercise reasonable diligence to designate a different
Eurodollar Lending Office, and/or take other measures which will avoid the need
for such compensation for Increased Costs and will not result in material cost
to such Bank, or be otherwise disadvantageous (in such Bank's sole
determination) to such Bank.
(b) Without limiting the effect of the foregoing, the Company shall pay
(without duplication as to amounts paid under Section 10.1.(a) hereof) to any
Bank on each interest payment date as to Eurodollar Rate Loans so long as such
Bank may be
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required to maintain reserves against "Eurocurrency liabilities" under
Regulation D of the Board of Governors of the Federal Reserve System an
additional amount (determined by such Bank and notified to the Company through
Agent Bank) equal to the sum of the products of the following for each
Eurodollar Rate Loan for each day on which such Bank is required to maintain
such reserves during the Interest Period for such Loan for which interest is
being paid:
(i) the principal amount of such Eurodollar Rate Loan
outstanding on such day; times
(ii) the remainder of (x) a fraction the numerator of
which is LIBOR (expressed as a decimal) used to determine the
Eurodollar Rate for such Eurodollar Rate Loan for such Interest Period
as provided in this Agreement and the denominator of which is one minus
the effective rate (expressed as a decimal) at which such reserve
requirements are imposed on such Bank on such day minus (y) such
numerator; times
(iii) 1/360.
(c) Determinations by any Bank for purposes of this Section 10.1. of
the effect of any Increased Cost Change on such Bank's costs of making or
maintaining Eurodollar Rate Loans or on amounts receivable by it in respect of
Eurodollar Rate Loans, and of the additional amounts required to compensate such
Bank in respect thereof, shall be conclusive, provided that such determinations
are made reasonably and in good faith.
(d) If the Company is required to pay additional amounts to any Bank
under paragraph (a) or (b) of this Section 10.1., the Company may (in addition
to paying such additional amounts to such Bank) at the Company's option at any
time, subject to the provisions of Section 10.3. hereof, convert all of the
Eurodollar Rate Loans of such Bank which are affected by such Increased Costs to
Base Rate Loans in accordance with this Agreement.
SECTION 10.2. CHANGE OF LAW.
Notwithstanding any other provision herein, in the event that any
change in applicable law, rule or regulation or in the interpretation or
administration thereof (including the issuance of any new law, rule, regulation
or interpretation, or any new administration thereof), of or in any jurisdiction
whatsoever, shall make it unlawful for any Bank to make or maintain a Eurodollar
Rate Loan (or to convert Base Rate Loans into Eurodollar Rate Loans), or shall
materially restrict the authority of any Bank to purchase or sell, or to take
deposits of Eurodollars, then the obligation of such Bank to make Eurodollar
Rate Loans (and the right of the Company to convert Base Rate Loans into
Eurodollar Rate Loans) shall be suspended for the duration of such illegality or
restriction and the Company shall forthwith convert all Eurodollar Rate Loans of
such Bank then outstanding to Base Rate Loans in accordance with the terms of
this Agreement.
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SECTION 10.3. FUNDING LOSSES.
The Company shall indemnify a Bank against, and reimburse such Bank on
demand for, any loss or expense incurred or sustained by such Bank, as
reasonably determined by such Bank, as a result of any payment or prepayment
(whether by reason of a voluntary prepayment by the Company or by reason of a
mandatory prepayment of the Loans by reason of an Event of Default, pursuant to
Section 3.16. hereof or other mandatory prepayment provision relating to all
outstanding Loans set forth herein) or conversion of a Eurodollar Rate Loan or
Competitive Bid Loan made by such Bank on a day other than the last day of an
Interest Period for such Loan.
SECTION 10.4. INCREASED COST OF MAINTAINING LETTERS OF CREDIT.
(a) If, as a result of any change after the date of this Agreement in
(including the introduction of any new) applicable United States, state or
foreign laws or regulations or the adoption or making of any interpretations,
directives or requests thereof or thereunder by any court or governmental
authority charged with the interpretation or administration thereof, one or more
of the following events occur (herein called "Increased Letter of Credit Cost
Changes"):
(i) any reserve, special deposit or similar requirements
against the Letters of Credit are imposed, modified or deemed
applicable; or
(ii) any other condition regarding the issuance,
maintenance of, or participation in the Letters of Credit are imposed
upon any Letter of Credit Bank or any other Bank, and the result of any
such event shall be to increase the cost to such Letter of Credit Bank
or such other Bank of issuing, maintaining, or participating in the
Letters of Credit;
and such Letter of Credit Bank or such other Bank determines that, by reason
thereof, the cost to such Letter of Credit Bank or such Bank of issuing,
maintaining, or participating in any of the Letters of Credit is increased by an
amount reasonably determined by such Letter of Credit Bank or such Bank, then,
within fifteen (15) days of such Letter of Credit Bank or such Bank obtaining
knowledge of such change in law, regulation or interpretation thereof, such
Letter of Credit Bank or such Bank shall so notify the Company, and upon receipt
of such notice from such Letter of Credit Bank or such Bank, the Company shall
promptly pay to such Letter of Credit Bank or such Bank, from time to time as
specified by such Letter of Credit Bank or such Bank, additional amounts which
shall be sufficient to compensate such Letter of Credit Bank or such Bank for
such increased cost.
(b) Determinations by a Letter of Credit Bank or any Bank for purposes
of this Section 10.4. of the effect of any Increased Letter of Credit Cost
Change, and of the additional amounts required to compensate such Letter of
Credit Bank or such Bank in
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respect thereof, shall be conclusive, provided that such determinations are made
reasonably and in good faith.
SECTION 10.5. MANDATORY REPAYMENT OR CONVERSION ON CERTAIN EVENTS.
On the last day of an Interest Period during which any Orderly
Replacement Event occurs (which relates to all Banks) and no later than four
Eurodollar Business Days after any Immediate Replacement Event relating to one
or more Banks, all outstanding Eurodollar Rate Loans of such Banks shall, at the
option of the Company, be either: (a) prepaid in full by the Company, together
with any accrued and unpaid interest thereon, or (b) converted to Base Rate
Loans. Each Bank shall promptly notify the Company and Agent Bank of any
Immediate Replacement Event and any Orderly Replacement Event known to such
Bank.
SECTION 10.6. SURVIVAL.
The obligations of the Company under Sections 10.1. through 10.4. of
this Agreement shall survive the repayment of the Loans and all Reimbursement
Obligations and the cancellation of the Notes.
ARTICLE 11. THE AGENT BANK
SECTION 11.1. AUTHORIZATION AND ACTION.
Each Bank hereby appoints and authorizes the Agent Bank to take such
action as agent on its behalf and to exercise such powers under this Agreement
and the Notes as are delegated to it as Agent Bank by the terms hereof and
thereof, together with such powers as are reasonably incidental thereto, and the
Agent Bank hereby accepts such authorization and appointment. As to any matters
not expressly provided for by this Agreement and the Notes or provided for with
specific reference to this Section 11.1. (including, without limitation,
enforcement or collection of the Notes), the Agent Bank shall not be required to
exercise any discretion or take any action, but shall be required to act or to
refrain from acting (and shall be fully protected in so acting or refraining
from action) upon the instructions of the Majority Banks and such instructions
shall be binding upon all Banks and all holders of the Notes; provided, however,
that the Agent Bank shall not be required to take any action which exposes the
Agent Bank to liability or which is contrary to this Agreement or the Notes or
applicable law. As to any provisions of this Agreement under which action may be
taken or approval given by the Majority Banks, and except for the provisions
contained herein relating to the increase in the Commitments as such increase
relates to a given Bank, the action taken or approval given by the Majority
Banks shall be binding upon all Banks to the same extent and with the same
effect as if each Bank had joined therein. The Agent Bank shall be entitled to
rely upon any note, notice, consent, certificate, affidavit, letter, telegram,
teletype message, facsimile transmission, statement, order or other document
believed by it to be genuine and correct and to have been signed or sent by the
proper person or persons and, in respect of legal
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matters, upon the opinion of counsel selected by the Agent Bank. The Agent Bank
may deem and treat the payee of any Note as the owner thereof for all purposes
hereof unless and until a written notice of the assignment or transfer thereof
shall have been filed with the Agent Bank. 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 Note shall be conclusive and binding on any
subsequent holder, transferee or assignee of such Note or of any note or notes
issued in exchange therefor.
SECTION 11.2. AGENT BANK'S RELIANCE, ETC.
Neither the Agent Bank nor any of its directors, officers, agents or
employees shall be liable to any Bank for any action taken or omitted to be
taken by it or by such directors, officers, agents or employees under or in
connection with this Agreement or the Notes, except for its or their own gross
negligence or willful misconduct. Without limitation of the generality of the
foregoing, the Agent Bank: (i) may consult with legal counsel, independent
public accountants and other experts selected by it and shall not be liable to
any Bank for any action taken or omitted to be taken in good faith by it in
accordance with the advice of such experts; (ii) makes no warranty or
representation to any Bank and shall not be responsible to any Bank for any
statements, warranties or representations made in or in connection with this
Agreement or the Notes; (iii) shall not have any duty to ascertain or to inquire
as to the performance or observance of any of the terms, covenants or conditions
of this Agreement or the Notes on the part of the Company or to inspect the
property (including the books and records) of the Company; (iv) shall not be
responsible to any Bank for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Agreement or the
Notes, or any other instrument or document furnished pursuant thereto; and (v)
shall incur no liability under or in respect to this Agreement or the Notes by
acting upon any notice, consent, certificate or other instrument or writing
(which may be by telegram, facsimile transmission, cable or telex) believed by
it to be genuine and signed or sent by the proper party or parties.
SECTION 11.3. AGENT BANK AND AFFILIATES.
With respect to its Commitment, the Loans made by it and the Notes
issued to it, the Agent Bank shall have the same rights and powers under this
Agreement as any other Bank and may exercise the same rights and powers under
this Agreement as any other Bank and may exercise the same as though it were not
the Agent Bank; and the term "Bank" or "Banks" shall, unless otherwise expressly
indicated, include the Agent Bank in its individual capacity. Unrelated to its
role as Agent Bank as set forth herein, the Agent Bank and its affiliates may
accept deposits from, lend money to, and generally engage in any kind of
business with, the Company, and any Person who may do business with or own
securities of the Company, all as if it were not the Agent Bank and without any
duty to account therefor to the Banks.
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SECTION 11.4. REPRESENTATIONS OF THE BANKS.
Each Bank acknowledges that it has, independently and without reliance
upon the Agent Bank, or any affiliate or subsidiary of the Agent Bank, or any
other Bank and based on the financial statements referred to in Section 6.2.
hereof and such other documents and information as it has deemed appropriate,
made its own credit analysis and decision to enter into this Agreement; and that
each Bank has actively engaged in the negotiation of all of the terms of this
Agreement. Each Bank also acknowledges that it will, independently and without
reliance upon the Agent Bank or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement or the
Notes. The Agent Bank has no duty or responsibility, either initially or on a
continuing basis, to provide any Bank with any credit or other information with
respect to the Company whether coming into its possession as of the date of this
Agreement or at any time thereafter, or to notify any Bank of any Event of
Default except as provided in Section 11.5. hereof. This Agreement and all
instruments or documents delivered in connection with this Agreement have been
reviewed and approved by each Bank and the Banks have not relied on the Agent
Bank as to any legal or factual matter in connection therewith or in connection
with the transactions contemplated thereunder.
SECTION 11.5. EVENTS OF DEFAULT.
In the event of the occurrence of any Default or Event of Default, any
Bank knowing of such event may (but shall have no duty to), or the Company
pursuant to Section 7.7. hereof shall, give the Agent Bank written notice
specifying such Event of Default or other event and expressly stating that such
notice is a "notice of default". The Agent Bank shall not be deemed to have
knowledge of such events unless the Agent Bank has received such notice, or
unless the Agent Bank has actual notice of such Default or Event of Default or
other event in its capacity as one of the Banks or unless the Event of Default
consists of a failure of payment of principal or interest on any of the Notes.
In the event that the Agent Bank receives such a notice of the occurrence of an
Event of Default, or has actual knowledge thereof, the Agent Bank shall give
written notice thereof to the Banks. The Agent Bank shall take such action with
respect to such Default or Event of Default as shall be reasonably directed in
writing by the Majority Banks; provided, however, that, unless and until the
Agent Bank shall have received such directions, the Agent Bank may take such
action, or refrain from taking such action, with respect to such Event of
Default as it shall deem advisable and in the best interest of the Banks.
SECTION 11.6. RIGHT TO INDEMNITY.
Except for action expressly required of the Agent Bank hereunder, the
Agent Bank shall be fully justified in failing or refusing to take any action
hereunder unless it shall first be indemnified to its satisfaction by the Banks
against any and all liability and expense which may be incurred by it by reason
of taking or continuing to take any such action.
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SECTION 11.7. INDEMNIFICATION.
The Banks hereby agree to indemnify the Agent Bank and the Letter of
Credit Banks (to the extent not reimbursed by the Company), ratably according to
their respective Commitments, as set forth in Section 2.2. hereof, from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any kind or
nature whatsoever which may be imposed on, incurred by or asserted against the
Agent Bank and/or such Letter of Credit Bank in any way relating to or arising
out of this Agreement, the Notes and/or the Letters of Credit issued by such
Letter of Credit Bank or any action taken or omitted by the Agent Bank and/or
such Letter of Credit Bank under this Agreement, the Notes and/or such Letters
of Credit; provided, however, 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 the Agent Bank's or such
Letter of Credit Bank's gross negligence or willful misconduct. Without
limitation of the foregoing, each Bank agrees to reimburse the Agent Bank and/or
the applicable Letter of Credit Bank promptly upon demand for its ratable share
of any out-of-pocket expenses (including counsel fees) incurred by the Agent
Bank and/or such Letter of Credit Banks in connection with the administration,
or enforcement of, or the preservation of any rights under, this Agreement, the
Notes and/or the Letters of Credit, to the extent that the Agent Bank or such
Letter of Credit Bank is not reimbursed for such expenses by the Company.
SECTION 11.8. SUCCESSOR AGENT BANK.
The Agent Bank may resign at any time by giving written notice thereof
to the Banks and the Company and may be removed at any time with or without
cause by the Majority Banks. Upon any such resignation or removal, the Company
shall have the right to appoint a successor Agent Bank, subject to confirmation
by the Majority Banks. If no successor Agent Bank shall have accepted such
appointment within 30 days after the retiring Agent Bank's giving of notice of
resignation or the Majority Banks' removal of the Agent Bank the Agent Bank may,
on behalf of the Banks, appoint a successor Agent Bank who shall be willing to
accept such appointment. In any event such successor Agent Bank shall be a
commercial bank organized under the laws of the United States of America or of
any State thereof and shall have a combined capital and surplus of at least
$1,000,000,000. Upon the acceptance of any appointment as Agent Bank hereunder
by a successor Agent Bank, such successor Agent Bank shall thereupon succeed to
and become vested with all the rights, powers, privileges and duties of the
retiring or removed Agent Bank, and the retiring or removed Agent Bank shall be
discharged from its duties and obligations as agent under this Agreement. After
any Agent Bank's resignation or removal hereunder as Agent Bank, the provisions
of this Article 11. shall inure to its benefit as to any actions taken or
omitted to be taken by it while it was Agent Bank under this Agreement.
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ARTICLE 12. MISCELLANEOUS
SECTION 12.1. RIGHTS AND REMEDIES.
No delay or failure of the Banks, the Letter of Credit Banks or the
Agent Bank or any one of them or of the Company in exercising any rights, powers
or privileges hereunder shall affect such right, power or privilege, nor shall
any single or partial exercise thereof preclude any further exercise thereof, or
the exercise of any other right, power or privilege. The rights and remedies of
the Banks, the Letter of Credit Banks and the Agent Bank or any one of them and
of the Company under this Agreement are cumulative and not exclusive of any
rights or remedies which they would otherwise have. Failure on the part of any
Bank, the Letter of Credit Banks, the Agent Bank or the Company to exercise any
right, power or privilege given it hereunder shall not be the breach of any
obligation of the Bank or the Company to any other party to this Agreement or to
any other Person.
SECTION 12.2. NOTICES.
Except as otherwise expressly provided for herein, notices, which may
be given or are required to be given hereunder, shall be in writing and may be
mailed, postage prepaid, addressed as follows or sent by telex or facsimile:
(a) If to the Company, both to:
"Delta Air Lines, Inc.
Attention: Thomas J. Roeck, Jr.,
Senior Vice President-Finance and
Chief Financial Officer
Hartsfield Atlanta International Airport
Atlanta, Georgia 30320"
Facsimile: (404) 715-5042
And to:
"Delta Air Lines, Inc.
Attention: James G. Mathews
Treasurer
Administrative Center
Hartsfield Atlanta International Airport
Atlanta, Georgia 30320."
Facsimile: (404) 715-5042
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(b) If to Agent Bank:
"NationsBank, N.A. (South)
Attention: Douglas J. Wallace
Vice President
P. O. Box 4899
Atlanta, Georgia 30302-4899"
Facsimile: (404) 607-6467
(c) If to any Bank or Letter of Credit Bank other than Agent Bank
at that address, telex number or facsimile number designated in writing to the
Company and the Agent Bank from time to time.
A party may specify a different address or facsimile number by furnishing such
change in writing to all other parties hereto. Additionally, notice may, in lieu
of being given by mail or facsimile, be delivered personally to any officer of
any party to whose attention it could have been addressed.
SECTION 12.3. EXPENSES, INDEMNIFICATION, ETC.
(a) The Company shall pay all reasonable costs, expenses, taxes and
fees (i) incurred by the Agent Bank in connection with the preparation,
execution and delivery of this Agreement, the Notes and all other documents
incident hereto or thereto (collectively, the "Loan Documents") including,
without limitation, the costs and professional fees of Alston & Bird, Atlanta,
Georgia, whether or not any transaction contemplated hereby shall be
consummated, and any and all stamp, intangible or other taxes that may be
payable or determined in the future to be payable in connection therewith, (ii)
incurred by the Agent Bank in connection with the administration of the Loans
and the Loan Documents in accordance with the provisions thereof and the
preparation, execution and delivery of any waiver, amendment or consent by the
Banks, the Letter of Credit Banks or the Agent Bank relating to the Loan
Documents including, without limitation, costs and professional fees of counsel
for the Agent Bank; and (iii) actually incurred by the Agent Bank, the Letter of
Credit Banks or any of the Banks in enforcing the Loan Documents including,
without limitation, reasonable attorneys' fees of counsel for the Agent Bank,
the Letter of Credit Banks or the Banks.
(b) The Company shall indemnify the Agent Bank, the Letter of Credit
Banks and each Bank and hold the Agent Bank, the Letter of Credit Banks and each
Bank (and all directors, officers, employees and agents of any of the foregoing
(the Agent Bank, the Letter of Credit Banks, the Banks and such directors,
officers, employees and agents each referred to as an "Indemnified Party"))
harmless against, any and all costs, losses, liabilities, claims, damages or
expenses incurred by an Indemnified Party, whether jointly or severally, and
whether or not such Indemnified Party is designated a party thereto, arising out
of or by reason of, or relating directly or indirectly to, (i) any
investigation,
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litigation or other proceeding, pending or threatened, regarding any actions or
failure to act by the Company involving this Agreement or any transaction
contemplated hereby, (ii) any actual or proposed use by the Company or any of
its Subsidiaries of the proceeds from any borrowing hereunder or any Letter of
Credit, or (iii) the Agent Bank's, any Bank's, any Letter of Credit Bank's or
the Company's entering into and complying with this Agreement or in issuing or
delivering the Notes or any Letters of Credit and including, without limitation,
the reasonable fees and disbursements of such Indemnified Party's separate
counsel incurred in connection with any such investigation, litigation or other
proceeding (which shall be advanced by the Company on request notwithstanding
any claim or assertion that the Indemnified Party is not entitled to
indemnification hereunder upon receipt of an undertaking to reimburse the
Company if it is actually and finally determined by a court of competent
jurisdiction that the party is not so entitled). However, the indemnity of the
Company set forth herein shall not cover the costs, losses, liabilities, claims,
damages or expenses (x) incurred by an Indemnified Party arising out of the bad
faith or willful misconduct of such Indemnified Party (as actually and finally
determined by a court of competent jurisdiction) or (y) incurred by the Agent
Bank in connection with a suit, claim or cause of action brought against the
Agent Bank by a Bank pursuant to which such Bank alleges that the Agent Bank has
failed to perform the ministerial duties of the Agent Bank as expressly set
forth herein (such as administering the funding and collection of Loans,
determining interest rates and the like).
(c) The Agent Bank, each Letter of Credit Bank and each Bank agree that
in the event that any investigation, litigation, suit, action or proceeding is
asserted or threatened in writing or instituted against it or any other
Indemnified Party for which the Agent Bank, any Letter of Credit Bank or any
Bank may desire indemnity or defense hereunder, the Agent Bank, such Letter of
Credit Bank or such Bank shall promptly notify the Company thereof in writing
and agree, to the extent appropriate, to consult with the Company with a view to
minimizing the cost to the Company of its obligations under this Section 12.3.
(d) No action taken by legal counsel chosen by an Indemnified Party in
defending against any such investigation, litigation, suit, action or proceeding
or requested remedial, removal or response action shall vitiate or in any way
impair the obligations and duties of the Company hereunder to indemnify and hold
harmless each Indemnified Party; provided, however, that if the Company is
required to indemnify any Indemnified Party pursuant hereto, such Indemnified
Party shall not settle or compromise any such investigation, litigation, suit,
action or proceeding without the prior written consent of the Company (which
consent shall not be unreasonably withheld or delayed) so long as the Company
has provided evidence reasonably satisfactory to such Indemnified Party that the
Equity of the Company and its Subsidiaries on a consolidated basis is not less
than zero.
(e) The obligations of the Company under this Section 12.3. shall
survive transfer, payment or satisfaction of any Note and any amendment,
supplementation, modification or termination of this Agreement.
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SECTION 12.4. AMENDMENTS TO THIS AGREEMENT AND THE NOTES.
Any provisions of this Agreement and the Notes may be amended,
terminated, waived or otherwise modified in writing by the Company and the
Majority Banks, and any such amendment, termination, waiver or other
modification shall be binding upon all of the Banks to the same extent and with
the same effect as if each Bank had joined therein; provided, however, that,
notwithstanding the foregoing: (a) any provisions of this Agreement and the
Notes with respect to any change in (i) the expressed maturity date of the whole
or any principal or interest payable under any Note, (ii) the rate of interest
payable under any Note or on the Reimbursement Obligations (other than any
change in the rate of interest pursuant to the next to last paragraph of the
definition of Applicable Margin), (iii) the amount of any Commitment (except as
permitted in Sections 2.3, 3.14 and 12.6), (iv) the amount or due date of any
fees payable hereunder (other than any change in the amount of Commitment Fee
pursuant to the next to last paragraph of Section 3.11 hereof), or (v) the due
date of any principal of, or interest on, any Loan, or the date on which any
Reimbursement Obligation is due and payable, or (vi) Section 3.18. or this
Section 12.4., may be amended or otherwise modified only in a writing signed by
the Company and all of the Banks; (b) any Event of Default described in Sections
9.1.(a), 9.1.(b) or 9.1.(c) may be waived only in a writing signed by all of the
Banks; (c) no provisions of Article 11. shall be amended, modified, or waived
without the consent of the Agent Bank; and (d) no provisions of Article 4. shall
be amended, modified or waived without the consent of each Letter of Credit
Bank; provided, however, that the consent of any Letter of Credit Bank that has
no outstanding or unreimbursed Letters of Credit and no obligation to issue
Letters of Credit shall not be required. The definition of "Majority Banks" as
set forth herein shall not be changed without the unanimous written consent of
the Banks.
SECTION 12.5. AGREEMENT AS TO RIGHT OF SET-OFF, SHARING OF LOSSES.
So long as any Syndicated Note is outstanding, each Bank agrees that,
if it has payment made to it on any Syndicated Note, whether by set-off or
otherwise, including, but not limited to, any payment received by such Bank
under any applicable bankruptcy, insolvency or similar laws, in a greater
proportion than payments made on Syndicated Notes held by any other Bank, the
Bank so receiving such greater proportionate payment agrees to purchase a
portion of the Syndicated Notes held by the other Banks, so that after such
purchase each Bank will hold an unpaid balance on its Syndicated Note bearing
the same proportion to the then outstanding aggregate principal amount of the
Syndicated Notes as such Bank's Commitment bears to the Banks' aggregate
Commitments; provided that if any amount so received by any Bank in payment of
the Syndicated Note held by it shall be, as a result of the reversal of the
exercise of any such right (whether by court order or voluntary action on the
part of such Bank), returned to the Company or the Subsidiary or paid as
directed by such court order by such Bank, then each other Bank which shall have
theretofore received its share of any such payment pursuant to this Section
12.5. shall, upon demand, promptly repay, without interest, the amount of such
share to such Bank, or, if the Bank exercising such right shall not have made
the purchases provided for in this Section 12.5. prior to such reversal, the
other Banks shall have no
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further rights under this Section 12.5. in respect to such amount. Except as
provided in this Section and in Sections 11.6. and 11.7., no Bank shall be
responsible to any other Bank for losses or claims which such Bank may incur in
connection with the transactions contemplated by this Agreement. The Company
agrees that any Bank so purchasing a participation from another Bank pursuant to
this Section 12.5. may exercise all its rights of payment (including the right
of set-off) with respect to such participation as fully as if such Bank were the
direct creditor of the Company in the amount of such participation.
SECTION 12.6. SUCCESSORS AND ASSIGNS.
This Agreement shall be binding upon the Company and the Banks and
their respective successors and assigns, and shall inure to the benefit of the
Company and the Banks and their respective successors and assigns. The Company
may not assign its rights or obligations hereunder, except as permitted by
Section 8.3. hereof. Other than by virtue of operation of law, no Bank shall
assign any portion of its Commitment hereunder unless (a) the portion of the
Bank's Commitment to be assigned is equal to or greater than $25,000,000 (or
such lesser amount as the Company may approve in its sole discretion), and the
assigning Bank retains a Commitment in an amount equal to at least 50% of its
Commitment at the Effective Date; (b) the assigning Bank has received the prior
written approval of the Company and the Agent Bank to the proposed assignment;
(c) the Agent Bank has been paid an assignment fee of $2,500 by the assigning
Bank; and (d) the bank which has received the assignment of the Commitment, the
assigning Bank, the Company and the Agent Bank shall have executed the Form of
Assignment as set forth on Exhibit D hereto. Upon compliance with the provisions
set forth above, such financial institution shall thereupon and thereafter be
deemed to be a Bank for all purposes hereunder, and the Agent Bank shall give
notice to all of the Banks of the assignment. There shall be no sale by any Bank
of any participation in its Commitment; provided, however, any Bank may (x)
pledge its Loans and/or Notes hereunder to a Federal Reserve Bank in support of
borrowings made by such Bank from such Federal Reserve Bank or (y) participate
all or a portion of its Commitment and related outstandings hereunder to its
parent company and/or any affiliate of such Bank which is at least fifty percent
owned by such Bank or its parent company.
SECTION 12.7. HOLIDAYS.
When any payment hereunder falls due on a day that is not a Business
Day, such payment shall be made as herein provided on the next succeeding
Business Day. Interest shall continue to accrue on the principal to be paid
until it is paid.
SECTION 12.8. LAW GOVERNING.
This Agreement shall be construed and performance thereof shall be
determined according to the laws of the State of Georgia.
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SECTION 12.9. DISCLOSURE TO OTHER PERSONS.
The Company acknowledges that any Bank may deliver copies of any
financial statements and other documents delivered to such Bank, and disclose
any other information disclosed to such Bank, by or on behalf of the Company or
any Subsidiary in connection with or pursuant to this Agreement to (i) such of
the Bank's directors, officers, employees, agents and professional consultants
as may require such information in the performance of their respective duties,
(ii) any Person to which such Bank offers to assign any Note or any part thereof
if (a) such disclosure has been previously approved by the Company, or (b) such
disclosure is not of information previously designated by the Company as
"privileged" or "confidential", (iii) any federal or state regulatory authority
having jurisdiction over such Bank, or (iv) any other Person to which such
delivery or disclosure may be necessary or appropriate (a) in compliance with
any law, rule, regulation or order applicable to such Bank, (b) in response to
any subpoena or other legal process or (c) in connection with any litigation to
which such Bank is a party; provided, however, that such Bank, to the extent
legally permitted to do so, will use its best efforts to notify the Company
prior to any disclosure of information contemplated by this subparagraph (iv)
and will use its best efforts to give the Company the opportunity to object to
any such disclosure; provided, further, that the foregoing proviso shall not
require such Bank to withhold such information where such withholding would
subject such Bank to civil or criminal liabilities or penalties, as determined
by such Bank in its discretion.
SECTION 12.10. EXECUTION AND EFFECTIVE DATE.
This Agreement may be executed in any number of counterparts, and any
party hereto may execute the said Agreement by signing any such counterpart. The
Company shall deliver one such executed counterpart to Agent Bank and each Bank
shall deliver one such executed counterpart to the Agent Bank for further
delivery to the Company. This Agreement shall be effective as of the Effective
Date.
SECTION 12.11. REPRESENTATION OF BANKS.
Each Bank represents for itself only that it is acquiring the Notes to
be acquired by it hereunder for its own account in the ordinary course of
extending credit as a banking institution and not with a view to the
distribution or resale thereof, subject, nevertheless, to any requirement of law
that the disposition of the property of a Bank shall at all times be within its
control.
SECTION 12.12. SEVERABILITY.
Any provision of this Agreement or of the Notes which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or thereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
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SECTION 12.13. ENTIRE AGREEMENT.
This Agreement and the Notes express the entire understanding of the
parties with respect to the transactions contemplated hereby. Neither this
Agreement, the Notes nor any term hereof or thereof may be changed, waived,
discharged or terminated orally or in writing, except as provided in Section
12.4. hereof.
[SIGNATURES ON FOLLOWING PAGES]
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[SIGNATURE PAGE TO DELTA CREDIT AGREEMENT
DATED AS OF MAY 2, 1997]
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Agreement to be duly executed.
THE COMPANY:
DELTA AIR LINES, INC.
By:
-----------------------------------------
Title:
--------------------------------------
Attest:
By:
-----------------------------------------
Title:
--------------------------------------
THE AGENT BANK:
NATIONSBANK, N.A. (SOUTH),
as Agent Bank and individually as a Bank
By:
-----------------------------------------
Title:
--------------------------------------
THE BANKS:
MANAGING AGENTS
BANK OF AMERICA, NATIONAL
TRUST AND SAVINGS ASSOCIATION
By:
-----------------------------------------
Title:
--------------------------------------
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[SIGNATURE PAGE TO DELTA CREDIT AGREEMENT
DATED AS OF MAY 2, 1997]
THE CHASE MANHATTAN BANK
By:
-----------------------------------------
Title:
--------------------------------------
CITICORP. USA, INC.
By:
-----------------------------------------
Title:
--------------------------------------
ROYAL BANK OF CANADA
By:
-----------------------------------------
Title:
--------------------------------------
CO-MANAGING AGENTS
THE MITSUBISHI TRUST AND
BANKING CORPORATION
By:
-----------------------------------------
Title:
--------------------------------------
SUNTRUST BANK, ATLANTA
By:
-----------------------------------------
Title:
--------------------------------------
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[SIGNATURE PAGE TO DELTA CREDIT AGREEMENT
DATED AS OF MAY 2, 1997]
WACHOVIA BANK OF GEORGIA, N.A.
By:
-----------------------------------------
Title:
--------------------------------------
CO-AGENTS
THE BANK OF TOKYO-MITSUBISHI,
LTD., NEW YORK BRANCH
By:
-----------------------------------------
Title:
--------------------------------------
CIBC INC.
By:
-----------------------------------------
Title:
--------------------------------------
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, ATLANTA AGENCY
By:
-----------------------------------------
Title:
--------------------------------------
THE NORTHERN TRUST COMPANY
By:
-----------------------------------------
Title:
--------------------------------------
-61-
<PAGE> 67
[SIGNATURE PAGE TO DELTA CREDIT AGREEMENT
DATED AS OF MAY 2, 1997]
PARTICIPANTS
BANK OF MONTREAL
By:
-----------------------------------------
Title:
--------------------------------------
THE BANK OF NEW YORK
By:
-----------------------------------------
Title:
--------------------------------------
BAYERISCHE VEREINSBANK AG
NEW YORK BRANCH
By:
-----------------------------------------
Title:
--------------------------------------
By:
-----------------------------------------
Title:
--------------------------------------
THE DAI-ICHI KANGYO BANK,
LIMITED, ATLANTA AGENCY
By:
-----------------------------------------
Title:
--------------------------------------
THE FIRST NATIONAL BANK OF CHICAGO
By:
-----------------------------------------
Title:
--------------------------------------
-62-
<PAGE> 68
[SIGNATURE PAGE TO DELTA CREDIT AGREEMENT
DATED AS OF MAY 2, 1997]
KREDIETBANK N.V., GRAND CAYMAN BRANCH
By:
-----------------------------------------
Title:
--------------------------------------
PNC BANK, NATIONAL ASSOCIATION
By:
-----------------------------------------
Title:
--------------------------------------
THE SANWA BANK, LIMITED,
ATLANTA AGENCY
By:
-----------------------------------------
Title:
--------------------------------------
THE TOYO TRUST & BANKING CO., LTD.
By:
-----------------------------------------
Title:
--------------------------------------
MORGAN GUARANTY TRUST
COMPANY OF NEW YORK
By:
-----------------------------------------
Title:
--------------------------------------
-63-
<PAGE> 69
[SIGNATURE PAGE TO DELTA CREDIT AGREEMENT
DATED AS OF MAY 2, 1997]
THE FUJI BANK, LIMITED
By:
-----------------------------------------
Title:
--------------------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By:
-----------------------------------------
Title:
--------------------------------------
STAR BANK, N.A.
By:
-----------------------------------------
Title:
--------------------------------------
THE SUMITOMO BANK, LIMITED
By:
-----------------------------------------
Title:
--------------------------------------
-64-
<PAGE> 70
EXHIBIT A-1
FORM OF SYNDICATED NOTE
$________________
________________, ____
FOR VALUE RECEIVED, DELTA AIR LINES, INC., a Delaware corporation (the
"Maker"), promises to pay to the order of (together with any successor and
assign thereof or any subsequent holder hereof referred to herein as the
"Holder") the lesser of (a) ________ Dollars in lawful money of the United
States or (b) the aggregate unpaid principal amount of all Syndicated Loans
which are still outstanding and which were made to the Maker by the Holder
pursuant to that certain Credit Agreement dated as of May 2, 1997 (as the same
may be amended, modified or supplemented from time to time, the "Credit
Agreement"; terms used herein and not defined herein have their respective
defined meanings as set forth in the Credit Agreement) by and among the Maker,
the Banks set forth therein and NationsBank, N.A. (South), as Agent Bank, at
the Main Office of the Agent Bank, or at such other place as is otherwise
specified in the Credit Agreement. The Company shall repay the principal amount
of this Note on the Termination Date. The outstanding principal amount hereof
shall bear interest at the rates and shall be payable at the times set forth in
the Credit Agreement.
Any payment of principal or interest which is not paid when due, as
herein provided, shall bear interest (to the extent permitted by law) at that
rate which is one-quarter of one percent (1/4%) above the Base Rate in effect on
each respective day thereafter until paid in full and such interest shall be
payable on demand.
This Note is one of the Syndicated Notes issued pursuant to, and is
entitled to the benefits of, the Credit Agreement. To the extent provided in the
Credit Agreement, this Note is subject to voluntary prepayment, in whole or in
part, without premium or penalty.
Upon the occurrence of an Event of Default, the aggregate unpaid
principal amount of all Syndicated Loans evidenced hereby which are still
outstanding and accrued interest thereon may become due and payable in the
manner and with the effect provided in the Credit Agreement.
Time is of the essence of this Note, and in case this Note is not paid
when due, and is subsequently collected by law or through an attorney at law, or
under advice therefrom, the Maker agrees to pay all costs of collection incurred
by the Holder including, without limitation, the reasonable fees and
disbursements of counsel to the Holder.
A-1-1
<PAGE> 71
The undersigned and all endorsers or other parties to this Note hereby
waive presentment, demand for payment, protest and notice of nonpayment.
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Note as of the date first written above.
DELTA AIR LINES, INC.
(CORPORATE SEAL)
By:
-----------------------------------------
Title:
-----------------------------------
[Reverse of Note]
Advance Payment
------- -------
Date Loan Amount Principal Interest
- ---- ----------- --------- --------
A-1-2
<PAGE> 72
EXHIBIT A-2
FORM OF COMPETITIVE BID NOTE
____________, ____
FOR VALUE RECEIVED, DELTA AIR LINES, INC., a Delaware corporation (the
"Maker"), promises to pay to the order of _______________ (together with any
successor and assign thereof or any subsequent holder hereof referred to herein
as the "Holder") the aggregate unpaid principal amount of all Competitive Bid
Loans which are still outstanding and which were made to the Maker by the
Holder pursuant to that certain Credit Agreement dated as of May 2, 1997 (as
the same may be amended, modified or supplemented from time to time, the
"Credit Agreement"; terms used herein and not defined herein have their
respective defined meanings as set forth in the Credit Agreement) by and among
the Maker, the Banks set forth therein and NationsBank, N.A. (South), as Agent
Bank, at the Main Office of the Agent Bank, or at such other place as is
otherwise specified in the Credit Agreement on the Termination Date or such
earlier date as may be required pursuant to the terms of the Credit Agreement.
The Company agrees to pay interest on the unpaid principal amount hereof on the
dates and at the rates as agreed to by the Maker and the Holder pursuant to the
terms of the Credit Agreement.
Any payment of principal or interest which is not paid when due, as
herein provided, shall bear interest (to the extent permitted by law) at that
rate which is one-quarter of one percent (1/4%) above the Base Rate in effect on
each respective day thereafter until paid in full and such interest shall be
payable on demand.
This Note is one of the Competitive Bid Notes issued pursuant to, and
is entitled to the benefits of, the Credit Agreement.
Upon the occurrence of an Event of Default, the aggregate unpaid
principal amount of all Competitive Bid Loans evidenced hereby which are still
outstanding and accrued interest thereon may become due and payable in the
manner and with the effect provided in the Credit Agreement.
Time is of the essence of this Note, and in case this Note is not paid
when due, and is subsequently collected by law or through an attorney at law, or
under advice therefrom, the Maker agrees to pay all costs of collection incurred
by the Holder including, without limitation, the reasonable fees and
disbursements of counsel to the Holder.
The undersigned and all endorsers or other parties to this Note hereby
waive presentment, demand for payment, protest and notice of nonpayment.
A-2-1
<PAGE> 73
IN WITNESS WHEREOF, the undersigned has duly executed and delivered
this Note as of the date first written above.
DELTA AIR LINES, INC.
(CORPORATE SEAL)
By:
-----------------------------------------
Title:
-----------------------------------
[Reverse of Note]
Advance Payment
------- -------
Date Loan Amount Principal Interest
- ---- ----------- --------- --------
A-2-2
<PAGE> 74
EXHIBIT B
FORM OF NOTICE OF INCREASED COMMITMENT
[Date]
NationsBank, N.A. (South), as Agent Bank
600 Peachtree Street, 21st Floor
Atlanta, Georgia 30303
Attention: Douglas J. Wallace
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of May 2,
1997 (the "Credit Agreement") by and among Delta Air Lines, Inc. (the
"Company"), the Banks party thereto and NationsBank, N.A. (South), as Agent
Bank. Terms used herein and not defined herein have their respective defined
meanings as set forth in the Credit Agreement.
1. Pursuant to Section 2.3.(b)(i) of the Credit Agreement, the Company
and the undersigned Bank hereby notify the Agent Bank that the Company and such
Bank propose to increase such Bank's Commitment under the Credit Agreement from
$_____________ to $___________. Such proposed increase shall be effective on the
later of (a) the date the Agent Bank and, if applicable, the Majority Banks,
consent to such increase and (b) ______________, ____.
2. [If proposed increase results in an increase of the Total
Commitments of the Banks from that which exists on the Effective Date of
$250,000,000 or less - Pursuant to Section 2.3(a) of the Credit Agreement, the
consent of the Agent Bank is necessary for the proposed increase in such Bank's
Commitment. If the Agent Bank so consents, kindly indicate such consent by
signing at the space provided below.]
[If proposed increase results in an increase of the Total Commitments of the
Banks from that which exists on the Effective Date of between $250,000,000 and
$500,000,000 - Pursuant to Section 2.3(a) of the Credit Agreement, the
consent of the Agent Bank and Majority Banks is necessary for the proposed
increase in such Bank's Commitment. The Company and the undersigned Bank
request that: (a) the Agent Bank consent to such
B-1
<PAGE> 75
proposed increase and (b) the Agent Bank promptly poll the other Banks to
determine whether the Majority Banks consent to such increase.]
Very truly yours,
DELTA AIR LINES, INC.
By:
-----------------------------------------
Title:
-----------------------------------
[RELEVANT BANK]
By:
-----------------------------------------
Title:
----------------------------------
The Agent Bank hereby consents to the above-described increase in the
Commitment of [Insert Bank] under the Credit Agreement [and confirms that the
Majority Banks also consent thereto].
NATIONSBANK, N.A. (SOUTH), as Agent Bank
By:
-----------------------------------------
Title:
-----------------------------------
B-2
<PAGE> 76
EXHIBIT C-1
FORM OF NOTICE AND AGREEMENT REGARDING ADDITION OF BANK
[Date]
NationsBank, N.A. (South), as Agent Bank
600 Peachtree Street, 21st Floor
Atlanta, Georgia 30303
Attention: Douglas J. Wallace
Delta Air Lines, Inc.
Administrative Center
Hartsfield Atlanta International Airport
Atlanta, Georgia 30320
Attention: James G. Mathews, Treasurer
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of May 2,
1997 (the "Credit Agreement") by and among Delta Air Lines, Inc. (the
"Company"), the Banks party thereto and NationsBank, N.A. (South), as Agent
Bank. Terms used herein and not defined herein have their respective defined
meanings as set forth in the Credit Agreement.
1. Pursuant to Section [2.3.(c)] [3.14.3] of the Credit Agreement, the
undersigned hereby requests that it become a Bank under the Credit Agreement.
The proposed Commitment of the undersigned as a Bank under the Credit Agreement
would equal $ __________. [For 2.3.(c) additions only - The undersigned
proposes that the undersigned shall become a Bank under the Credit Agreement on
the later of (a) the date the Agent Bank and the Company and, if applicable,
the Majority Banks consent to such increase and (b) ____________, ____ (the
"Effective Date").] [For 3.14.3 additions only - later of consent by the
Company and the Agent Bank and (the "Effective Date").]
2. Upon the Effective Date, the undersigned hereby assumes all of the
obligations of a Bank having a Commitment of $______________ under the Credit
Agreement as if the undersigned were an original Bank and signatory under the
Credit Agreement including, but not limited to, the obligation of a Bank to make
advances to the Company thereunder and to reimburse the Agent Bank, for the
account of the Letter of Credit Banks, for Drawings under Letters of Credit to
the extent of its Commitment, and to indemnify the Agent Bank as provided
therein. In this connection, the undersigned hereby represents that it has
received and reviewed a copy of the Credit Agreement and hereby ratifies and
approves all of the terms and conditions of the Credit Agreement and the other
documents executed and delivered in connection therewith.
C-1-1
<PAGE> 77
3. For purposes of delivering any notice to the undersigned as a Bank
under the Credit Agreement, the following sets forth the address of the
undersigned for such purpose:
__________________________________
__________________________________
__________________________________
Telecopy No. _____________________
Attention:________________________
4. The undersigned acknowledges that it has, independently and without
reliance upon the Agent Bank, or on any affiliate or subsidiary thereof, or any
other Bank and based on the financial statements supplied by the Company and
such other documents and information as it has deemed appropriate, made its own
credit analysis and decision to become a Bank under the Credit Agreement. The
undersigned also acknowledges that it will, independently and without reliance
upon the Agent Bank or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under the Credit Agreement or
its respective Note. The Agent Bank shall have no duty or responsibility, either
initially or on a continuing basis, to provide the undersigned with any credit
or other information with respect to the Company or to notify the undersigned of
any Event of Default except as provided in Section 11.5. of the Credit
Agreement. The undersigned has not relied on the Agent Bank as to any legal or
factual matter in connection therewith or in connection with the transactions
contemplated thereunder.
5. This letter agreement shall not be binding against the undersigned
unless and until the Company and the Agent Bank have executed their consent to
the foregoing at the space provided below.
6. THIS LETTER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA.
7. This letter agreement may be executed in any number of counterparts
each of which, when taken together, shall constitute one and the same agreement.
8. [For 2.3(c) additions only - If proposed addition of Bank results in
an increase of the Total Commitments of the Banks from that which exists on the
Effective Date of $250,000,000 or less - Pursuant to Section 2.3(a) and (c) of
the Credit Agreement, the consent of the Agent Bank and the Company is necessary
for the undersigned to become a Bank under the Credit Agreement. If the Agent
Bank and the Company so consent, kindly indicate such consent by signing at the
spaces provided below.]
[If proposed addition of Bank results in an increase of the Total Commitments of
the Banks from that which exists on the Effective Date of between $250,000,000
and $500,000,000 - Pursuant to Section 2.3(a) and (c) of the Credit Agreement,
the consent of the Agent Bank, the Company and Majority Banks is necessary for
the undersigned to become a Bank under the Credit Agreement. The undersigned
requests that: (a) the Agent Bank and the Company consent to the undersigned
becoming a Bank under the Credit Agreement and (b) the Agent Bank promptly poll
the other Banks
C-1-2
<PAGE> 78
to determine whether the Majority Banks consent to the undersigned becoming a
Bank under the Credit Agreement. If the Company and the Agent Bank so consent,
kindly indicate such consent by signing at the spaces provided below.]
Very truly yours,
[FINANCIAL INSTITUTION]
By:
-----------------------------------------
Title:
-----------------------------------
The Company hereby agrees that, on the Effective Date, _____________
("_______________") shall be a Bank under the Credit Agreement having a
Commitment equal to $________________ pursuant to the terms and conditions set
forth above. The Company agrees that _____________________ shall have all of the
rights and remedies of a Bank under the Credit Agreement as if
___________________ were an original Bank and signatory under the Credit
Agreement including, but not limited to, the right of a Bank to receive payments
of principal and interest with respect to the Loans made by the Banks and to
receive the commitment and other fees payable to the Banks as provided in the
Credit Agreement. Further, ____________________ shall be entitled to the
indemnification provisions from the Company in favor of the Banks as provided in
the Credit Agreement. The Company further agrees, on the Effective Date, to
execute in favor of _________________________ a promissory note in substantially
the form of Exhibit A-1 to the Credit Agreement in the face amount of
___________________'s Commitment.
DELTA AIR LINES, INC.
By:
-----------------------------------------
Title:
-----------------------------------
The Agent Bank hereby consents to __________________ becoming a Bank
under the Credit Agreement pursuant to the foregoing terms and conditions [and
confirms that the Majority Banks also consent thereto.]
NATIONSBANK, N.A. (SOUTH), as Agent Bank
By:
-----------------------------------------
Title:
-----------------------------------
C-1-3
<PAGE> 79
EXHIBIT C-2
FORM OF AGREEMENT OF EXISTING BANK
TO REPLACE REPLACED BANK
NationsBank, N.A. (South), as Agent Bank
600 Peachtree Street, 21st Floor
Atlanta, Georgia 30303
Attention: Douglas J. Wallace
Ladies and Gentlemen:
Reference is made to that certain Credit Agreement dated as of May 2,
1997 (the "Credit Agreement") by and among Delta Air Lines, Inc. (the
"Company"), the Banks party thereto and NationsBank, N.A. (South), as Agent
Bank. Terms used herein and not defined herein have their respective defined
meanings as set forth in the Credit Agreement.
Pursuant to Section 3.14.3 of the Credit Agreement, the undersigned
Bank (the "Existing Bank") hereby agrees to assume [$____________] of the
obligations and Commitment of ____________________________ (the "Replaced Bank")
under the Credit Agreement. Accordingly, the Commitment of the Existing Bank
shall be increased from $_______________ to $________________. Except for the
increase in the Commitment contemplated hereby, the Existing Bank shall continue
to have all of the rights, remedies, duties and obligations of a Bank under the
Credit Agreement.
Very truly yours,
[EXISTING BANK]
By:
-----------------------------------------
Title:
--------------------------------------
The Agent Bank hereby consents to the above-described increase in the
Commitment of [Insert Bank] under the Credit Agreement.
NATIONSBANK, N.A. (SOUTH), as Agent Bank
By:
-----------------------------------------
Title:
-----------------------------------
C-2-1
<PAGE> 80
EXHIBIT D
FORM OF ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT dated as of __________, ____
by and among __________________ (the "Assignor"), ____________ (the "Assignee"),
DELTA AIR LINES, INC. (the "Company") and NATIONSBANK, N.A. (SOUTH), as Agent
Bank.
WHEREAS, the Assignor is a Bank under that certain Credit Agreement
dated as of May 2, 1997 (the "Credit Agreement"; terms used herein and not
defined herein have their respective defined meanings as set forth in the Credit
Agreement) by and among the Company, the Banks named therein and the Agent Bank;
WHEREAS, the Assignor desires to assign to the Assignee (a) [all] [a
portion] of the Loans made by the Assignor to the Company under the Credit
Agreement, (b) [all] [a portion] of the Assignor's obligation to reimburse the
Agent Bank, for the account of the Letter of Credit Banks, for drawings under
Letters of Credit, and (c) [all] [a portion] of the Assignor's Commitment under
the Credit Agreement, all on the terms and conditions set forth herein;
WHEREAS, the Company and the Agent Bank consent to such assignment on
the terms and conditions set forth herein.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged by the parties hereto, the parties
hereto hereby agree as follows:
1. Subject to the terms and conditions of this Agreement, the Assignor
hereby irrevocably transfers and assigns to the Assignee, without recourse,
[all of the Assignor's right title and interest in and to] [an undivided
_______ percent interest in] all Loans made by the Assignor to the Company
under the Credit Agreement] [a principal amount of Syndicated Loans made by
the Assignor to the Company under the Credit Agreement equal to $______________
[and a principal amount of Competitive Bid Loans made by the Assignor to the
Company under the Credit Agreement equal to $____________]] (such Loans herein
referred to as the "Assigned Loans") together with all rights of the Assignor
to receive all payments of principal and interest from the Company with respect
to such Assigned Loans and all rights of collection and enforcement the
Assignor may have against the Company with respect to such Assigned Loans.
Further, but subject to the terms and conditions set forth herein, the Assignor
hereby irrevocably transfers and assigns to the Assignee [all of the
Assignor's] [$_____ of the Assignor's] Commitment under the Credit Agreement
(the "Assigned Commitment") including all voting rights of the Assignor
associated with such amount of Assigned Commitment, all rights to receive all
commitment and other fees with respect to such Assigned Commitment and other
rights of the Assignor under the Credit Agreement with respect to such amount
of Assigned Commitment, all as if the Assignee were an original Bank and
signatory under the Credit Agreement having a Commitment equal to the Assigned
Commitment. The Assignee, subject to the terms and conditions hereof, hereby
assumes all obligations of the Assignor with respect to
D-1
<PAGE> 81
the Assigned Commitment as if the Assignee were an original Bank and signatory
under the Credit Agreement having a Commitment equal to the Assigned Commitment
including, but not limited to, the obligation of the Assignor to make advances
to the Company with respect to the Assigned Commitment, to reimburse the Agent
Bank, for the account of the Letter of Credit Banks, for drawings under any
Letter of Credit and to indemnify the Agent Bank as provided therein. The
Assignor shall have no further duties or obligations with respect to, and shall
have no further interest in, the Assigned Loans or the Assigned Commitment.
2. The Assignor hereby represents and warrants to the Assignee that:
(a) the Assignor is a Bank under the Credit Agreement having a Commitment under
the Credit Agreement immediately prior to the effectiveness of this Agreement
equal to $________ and that the Assignor is not in default of its obligations
under the Credit Agreement; (b) immediately prior to the effectiveness of this
Agreement, the Assignor held $ __________ in principal amount of Syndicated
Loans and $_______________ in principal amount of Competitive Bid Loans
outstanding and owing by the Company to the Assignor; and (c) immediately prior
to the effectiveness of this Agreement, there was $___________ aggregate face
amount of Letters of Credit outstanding under the Credit Agreement.
3. The Assigned Loans and Reimbursement Obligations shall be without
recourse to the Assignor. The Assignee acknowledges and agrees that, except as
provided in paragraph 2 above, the Assignor is making no representations or
warranties with respect to, and the Assignee hereby releases and discharges the
Assignor for any responsibility or liability for: (i) the present or future
solvency or financial condition of the Company, (ii) any representations,
warranties, statements or information made or furnished by the Company in
connection with the Credit Agreement or otherwise, (iii) the validity, efficacy,
sufficiency, or enforceability of the Credit Agreement or any document or
instrument executed in connection therewith, or the collectibility of the
Assigned Loans and Reimbursement Obligations, (iv) the perfection, priority or
validity of any lien, security interest or pledge with respect to any collateral
at any time securing the obligations of the Company under the Credit Agreement
or the Assigned Loans under the Notes or the Credit Agreement and (v) the
performance or failure to perform by the Company of any obligation under the
Credit Agreement or any document or instrument executed in connection therewith.
Further, the Assignee acknowledges that it has, independently and
without reliance upon the Agent Bank, or on any affiliate or subsidiary thereof,
the Assignor or any other Bank and based on the financial statements supplied by
the Company and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to become a Bank under
the Credit Agreement. The undersigned also acknowledges that it will,
independently and without reliance upon the Agent Bank, the Assignor or any
other Bank and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit decisions in taking or
not taking action under the Credit Agreement or its respective Note(s). The
Agent Bank shall have no duty or responsibility, either initially or on a
continuing basis, to provide the Assignee with any credit or other information
with respect to the Company or to notify the Assignee of any Event of Default
except as provided in Section 11.5. of the Credit Agreement. The Assignee has
not relied on the Agent Bank, the Assignor or any
D-2
<PAGE> 82
other Bank as to any legal or factual matter in connection therewith or in
connection with the transactions contemplated thereunder.
4. Upon the execution and delivery of this Agreement, the Assignee
shall deliver to the Assignor by wire transfer of immediately available funds
$_____________. [Insert amounts owing with respect to assigned Loans, etc.]
[Other consideration/adjustments].
5. The Company hereby agrees that the Assignee shall be a Bank under
the Credit Agreement having a Commitment equal to the Assigned Commitment. The
Company agrees that the Assignee shall have all of the rights and remedies of a
Bank under the Credit Agreement as if the Assignee were an original Bank and
signatory under the Credit Agreement including, but not limited to, the right of
a Bank to receive payments of principal and interest with respect to the
Assigned Loans, if any, and to the Syndicated Loans made by the Banks after the
date hereof and to receive the commitment and other fees payable to the Banks as
provided in the Credit Agreement. Further, the Assignee shall be entitled to the
indemnification provisions from the Company in favor of the Banks as provided in
the Credit Agreement. The Company further agrees, upon the execution and
delivery of this Agreement, to execute in favor of the Assignee a promissory
note in substantially the form of Exhibit A-1 to the Credit Agreement in the
face amount of the Assigned Commitment and a promissory note in substantially
the form of Exhibit A-2 to the Credit Agreement to evidence any Competitive Bid
Loans. Further, the Company agrees that, upon the execution and delivery of this
Agreement, the Company shall owe the Assigned Loans to the Assignee as if the
Assignee were the Bank originally making such Loans.
6. For purposes of delivering any notice to the Assignee as a Bank
under the Credit Agreement, the following sets forth the address of the Assignee
for such purpose:
___________________________________
___________________________________
___________________________________
Telecopy No. ______________________
Attention:_________________________
7. The Agent Bank hereby consents to the assignment and assumption
contemplated herein and agrees to notify the Banks of such assignment.
8. The Assignor agrees to pay the Agent Bank a servicing fee equal to
$2,500 immediately upon the execution and delivery of this Agreement.
9. This Agreement, and the assignment and assumption contemplated
herein, shall not be effective until (a) this Agreement is signed by each of the
Assignor, the Assignee, the Company and the Agent Bank; (b) the payment to the
Assignor of the amounts owing by the Assignee pursuant to paragraph 4 hereof;
and (c) the payment to the Agent Bank of the fee owing to the Agent Bank
pursuant to paragraph 8 hereof.
D-3
<PAGE> 83
10. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF GEORGIA.
11. This Agreement may be executed in any number of counterparts each
of which, when taken together, shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Assignment and Assumption Agreement as of the date and year first written above.
THE ASSIGNOR:
--------------------------------------------
By:
-----------------------------------------
Title:
-----------------------------------
THE ASSIGNEE:
--------------------------------------------
By:
-----------------------------------------
Title:
-----------------------------------
THE COMPANY:
DELTA AIR LINES, INC.
By:
-----------------------------------------
Title:
-----------------------------------
THE AGENT BANK:
NATIONSBANK, N.A. (SOUTH), as Agent Bank
By:
-----------------------------------------
Title:
-----------------------------------
D-4
<PAGE> 84
EXHIBIT E
FORM OF COMPETITIVE BID QUOTE CONFIRMATION
TO: Delta Air Lines, Inc.
ATTENTION: ________________________
RE: Competitive Bid Quote to Delta Air Lines, Inc. (the "Company")
This Competitive Bid Quote is given in accordance with Section 3.3.(c)
of that certain Credit Agreement dated as of May 2, 1997 (as modified and
supplemented and in effect from time to time, the "Credit Agreement") by and
among the Company, the Banks named therein and NationsBank, N.A. (South), as
Agent Bank. Terms used herein and not defined herein have their respective
defined meanings as set forth in the Credit Agreement.
In response to the Company's request for offers to make Competitive Bid
Loans dated _____________, ____, we hereby make the following Competitive Bid
Quote(s) on the following terms:
1. Quoting Bank:_________________________________________________
2. Person to contact at Quoting Bank:____________________________
3. We hereby offer to make Competitive Bid Loans(s) in the
following principal amount(s), for the following Interest Period(s) and at the
following rate(s):
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
E-1
<PAGE> 85
<TABLE>
<CAPTION>
================================================================
BORROWING QUOTATION AMOUNT(2) INTEREST RATE
DATE DATE(1) PERIOD(3)
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------
- ----------------------------------------------------------------
================================================================
</TABLE>
We understand and agree that the offer(s) set forth above, subject to
the satisfaction of the applicable conditions set forth in the Credit Agreement,
irrevocably obligate(s) us to make the Competitive Bid Loan(s) for which any
offer(s) (is/are) accepted, in whole or in part.
Very truly yours,
[NAME OF BANK]
By:
-----------------------------------------
Dated: _____________, ____
- ------------------------------
(1) As specified in the related Competitive Bid Quote Request.
(2) The principal amount bid for each Interest Period may not exceed the
principal amount requested. Bids must be made for at least $10,000,000
or a larger multiple of $1,000,000.
(3) A period of up to 180 days after the making of such Competitive Bid
Loan, as specified in the related Competitive Bid Quote Request.
E-2
<PAGE> 86
EXHIBIT F
FORM OF ACCEPTANCE OF COMPETITIVE BID QUOTES
DELTA AIR LINES, INC.
NAME OF BANK RATE QUOTE AMOUNT ALLOCATED
DELTA AIR LINES, INC.
By:
-----------------------------------------
Title:
-----------------------------------
F-1
<PAGE> 87
EXHIBIT G
FORM OF LETTER ACKNOWLEDGING TERMINATION
OF EXISTING CREDIT AGREEMENT
May 2, 1997
NationsBank, N.A. (South), as Agent Bank
600 Peachtree Street, 21st Floor
Atlanta, Georgia 30308
Ladies and Gentlemen:
Reference is hereby made to that certain Second Amended and Restated
Credit Agreement dated as of September 27, 1995 (as amended, the "Existing
Credit Agreement") by and among Delta Air Lines, Inc. (the "Company"), each of
the financial institutions a signatory thereto, together with their permitted
assignees pursuant to Section 12.6 thereof and NationsBank, N.A. (South),
formerly known as NationsBank of Georgia, National Association, as Agent Bank.
The Company hereby acknowledges and agrees that, as of the date hereof,
the Existing Credit Agreement is terminated and of no force and effect.
Very truly yours,
DELTA AIR LINES, INC.
By:
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Title:
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III-1
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SCHEDULE I
FUNDED DEBT*
1. 7.55-9.15% Notes with maturities ranging from 1997 to 2007
2. 9.875% Notes due January 1, 1998
3. 9.875% Notes due May 15, 2000
4. 8.50% Notes due March 15, 2002
5. 8.10% Guaranteed Serial ESOP Notes, payable in installments between 2002 and
2009
6. 10.125% Debentures due May 15, 2010
7. 10.375% Debentures due February 1, 2011
8. 9.00% Debentures due May 15, 2016
9. 9.75% Debentures due May 15, 2021
10. 9.25% Debentures due March 15, 2022
11. 10.375% Debentures due December 15, 2022
12. Development Authority of Fulton County Loan Agreement dated September 1,
1992
13. Development Authority of Clayton County Loan Agreement dated January 1, 1988
14. Capital Leases:
(a) Forty-One B737-200 Aircraft Leases
(b) Nine Western Aircraft Leases (4 B737-200; 3 B737-300 and 2
B727-200)
*ALL OF WHICH IS UNSECURED EXCEPT ITEM 14(b).
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SECURED OBLIGATIONS
1. $96,500,000 The Port Authority of NY and NJ Special Projects Bonds, Series I
(Delta Air Lines, Inc. Project)
2. Nine Western Air Lines Capital Leases (4 B737-200; 3 B737-300 and
2 B727-200)
3. SATO Guaranty (pledge of Company's government receivables to provide
collateral for SATO credit agreement)
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SCHEDULE II
SUBSIDIARIES OF DELTA AIR LINES, INC.
Aero Assurance Ltd.
Crown Rooms, Inc.
Crown Rooms of Texas, Inc.
DAL Foreign Sales, Inc.
DAL Moscow, Inc.
Delta Air Lines and Pan American World Airways
Unterstutzungkasse GmbH
Delta Air Lines Funding Corporation
Delta Air Lines Holdings, Inc.
DeltaTel, Inc.
Delta Staffing Services, Inc.
Delta Ventures III, Inc.
Delta U.K. Investments Limited
Epsilon Trading, Inc.
Lesteris Limited
TransQuest, Inc.
TransQuest Holding Limited
TransQuest (UK) Limited
Jaison Vermogensuerwaltnngs GmbH
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SCHEDULE III
GUARANTY LIABILITIES
$88,000,000 Regional Airports Improvement Corporation 6.35% Facilities Sublease
Revenue Bonds, Issue of 1996 Delta Air Lines, Inc. (Los Angeles International
Airport)
SATO Guaranty (Company's allocable share of $25 million SATO revolving credit
facility; used by SATO to advance payments to participating airlines on
government receivables)
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EXHIBIT 10.8
AGREEMENT
AGREEMENT made as of the 31st day of July, 1997, between
DELTA AIR LINES, INC., a Delaware corporation (hereinafter referred to as the
"Corporation"), with its general offices located at Hartsfield Atlanta
International Airport, Atlanta, Georgia 30320, and RONALD W. ALLEN, residing at
60 Finch Forest Trail, NW, Atlanta, Georgia 30327 (hereinafter referred to as
"Executive").
W I T N E S S E T H:
WHEREAS, Executive is employed by the Corporation pursuant to
an Employment Agreement dated July 29, 1987, as amended by Amendments to
Employment Agreements dated: September 1, 1988, September 1, 1989, February 1,
1992, August 15, 1992, October 28, 1993 and August 16, 1996 (hereinafter
referred to collectively as the "Employment Agreement"); and
WHEREAS, Executive will retire as Chairman of the Board,
President and Chief Executive Officer of the Corporation, and on May 9, 1997
resigned as a Director of the Corporation and from all other official positions
with the Corporation and its subsidiaries, effective July 31, 1997; and
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WHEREAS, the parties desire to supersede and replace the
Employment Agreement in connection with Executive's retirement from employment
by the Corporation, upon the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual promises and
covenants hereinafter contained, the parties hereto hereby agree as follows:
1. Replacement of Employment Agreement.
Upon execution and delivery hereof by the parties, unless and
until revoked as permitted by Section 14 hereof, this Agreement shall supersede
and replace the Employment Agreement and the agreement in principle relating to
Executive's retirement, dated as of May 9, 1997, between Executive and the
Corporation (the "Agreement in Principle").
2. Retirement; Effective Date of Retirement.
Executive's retirement as Chairman of the Board, President and Chief Executive
Officer of the Corporation, and resignation as a Director of the Corporation
and from all other positions with the Corporation and its subsidiaries, will
become effective at the close of business on July 31, 1997. Since submitting
his resignation and until his retirement from employment with the Corporation
is effective in accordance herewith, Executive has been receiving, and
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shall continue to be entitled to receive, salary payments at the same salary
rate and on the same basis, and employment benefits and reimbursement of
business expenses incurred through July 31, 1997 on the same basis, as in
effect on May 9, 1997, including continued entitlement to the life insurance,
survivor, medical and dental benefit coverage or benefits to which he was
entitled on May 9, 1997 under the Corporation's employee benefit plans and
programs.
3. Payments and Benefits to Be Provided Executive.
Upon his retirement in accordance with Section 2 hereof
Executive shall be entitled to the following payments and benefits on the terms
and conditions herein provided:
(a) The Corporation shall on the Payment Date (as hereinafter
defined) make to Executive a lump-sum cash payment of $4,501,000 which amount
represents (i) $701,000 in lieu of an award for fiscal year 1997 under the
Corporation's Incentive Compensation Plan and (ii) a severance payment of
$3,800,000. It is understood and agreed that Executive shall not be entitled to
any other severance pay under any plan, policy or program of the Corporation or
any of its subsidiaries in respect of Executive's retirement from the
Corporation, or in respect of the Employment Agreement, or otherwise relating
to the termination of his employment with the Corporation, and
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shall not be entitled to any award under any executive incentive program of the
Corporation in respect of fiscal 1997 or fiscal 1998.
(b) Executive's existing stock options covering a total of
298,000 shares of common stock of the Corporation, and his restricted stock
award, each under the Corporation's 1989 Stock Incentive Plan (as amended
through January 26, 1995) (the "Stock Incentive Plan") and the award agreements
issued to Executive thereunder, as specified on Schedule 3B attached hereto,
shall continue in accordance with their terms as applicable to Executive's
retirement; provided, however, that for all purposes of the Stock Incentive
Plan and the award agreements thereunder Executive's retirement in accordance
with this Agreement shall be deemed retirement at Executive's normal retirement
date (as defined under the Stock Incentive Plan and the award agreements), with
the result that as of July 31, 1997 (i) the restrictions on Executive's
restricted stock award shall lapse and his ownership of such stock will become
nonforfeitable and (ii) Executive's rights in respect of his existing stock
options will become nonforfeitable and shall expire on August 1, 2000, and the
non-competition provisions applicable to option holders and holders of
restricted stock under the Stock Incentive Plan and Executive's award
agreements
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thereunder in the case of early retirement will be
inapplicable.
(c) On the terms and conditions herein provided, the
Corporation shall pay Executive monthly supplemental retirement payments
("supplemental payments"), effective with the monthly period commencing as of
August 1, 1997, in the amount of $25,754.04, which amount, when combined with
the retirement payments that he is otherwise entitled to receive under the
Corporation's existing qualified and non-qualified retirement plans (which
plans are identified further on Schedule 3C hereof), will produce for Executive
a total annual retirement payment at a rate of $765,600 per year, subject to
the payments to third parties, offsets or other adjustments described in the
next sentence and Section 8(b) hereof and subject to the forfeiture provisions
hereinafter in this paragraph 3(c) provided. Executive's total annual
retirement payment (after giving effect to the supplemental payments) of
$765,600 is subject to reduction on account of (i) payments required to be made
under any Qualified Domestic Relations Order, (ii) any social security benefits
to which Executive is entitled and (iii) any applicable pre-retirement survivor
election and similar adjustment that may be made in determining retirement
payments under the Corporation's existing qualified and
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non-qualified retirement plans. The supplemental payments from the Corporation
hereunder shall not be increased to counteract (or otherwise on account of)
such payments, offsets or adjustments, which are intended to be given effect in
determining Executive's total annual retirement payments, including the
supplemental payments. Executive's right to the supplemental payments shall be
in the nature of a single life annuity, payable for the remainder of
Executive's life. Alternatively, Executive may elect in writing no later than
the Payment Date to receive the supplemental payments in the form of a joint
and 50% survivor benefit under which a reduced monthly benefit will be paid to
the Executive for his lifetime and, upon his death, a monthly survivor benefit
will be paid to his spouse for such spouse's lifetime equal to 50% of the
monthly amount that would have been payable to the Executive, but for his
death. The identity of the Executive's spouse for purposes of this joint and
survivor annuity shall be fixed as of the date the supplemental payments begin
and thereafter shall not be changed for any reason whatsoever. The actuarial
factors used to determine the amount of Executive's joint and 50% survivor
annuity shall be the same factors as are provided in the Corporation's
qualified retirement plan for purposes of determining the amount of
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the joint and 50% survivor annuity provided to a terminated vested employee.
Except as otherwise provided by this paragraph 3(c), all of the terms of the
Corporation's qualified retirement plan relating to the time and manner of
payment of retirement benefits shall apply to the supplemental payments.
Notwithstanding the foregoing provisions of this paragraph 3(c), the
Corporation hereby waives any forfeiture of benefit provision that may be
applicable to Executive under the terms of the Corporation's non-qualified
retirement plans, but, in lieu thereof, the Corporation's payment of retirement
benefits under the Corporation's 1991 Excess Benefit Plan and Supplemental
Excess Benefit Plan and of the supplemental payments shall be subject to
Executive's compliance with the obligations on Executive's part contained in
Section 7 hereof until August 1, 1999, such that Executive shall not be
entitled to any such payment, commencing with the month subsequent to the month
in which Executive first breaches such restriction and continuing for so long
as Executive does not comply with such restriction (but not after August 1,
1999), and there shall be no obligation of Executive to return any such payment
received before he ceased to comply with such obligations. It is understood and
agreed that the monthly retirement payment subject to forfeiture under the
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immediately preceding sentence shall be $58,597.36, subject to adjustments to
account for any changes after the date hereof in required payments to third
parties, the offset for social security benefits and any similar adjustments.
(d) The Corporation shall, in a manner determined by it,
provide Executive and eligible members of his family, commencing as of August
1, 1997, with life insurance, survivor, medical and dental benefit coverage or
benefits on terms substantially equivalent to those to which he and the
eligible members of his family, respectively, would have been entitled under
the Corporation's existing benefits plans and programs had he been age 65 or
older upon retiring. These benefit plans and programs are identified on
Schedule 3D attached hereto. With respect to the provision of such medical and
dental benefit coverage, the Corporation shall make a lump-sum cash payment to
Executive on the Payment Date of $85,515, representing the present value of the
monthly premiums chargeable to Executive for such coverage with respect to the
period prior to Executive attaining age 65 and Executive shall be responsible
to pay all applicable premiums under the Corporation's Family-Care Medical Plan
(as the same may be amended or replaced) to keep such coverage in effect. If
Executive fails to pay such premiums, the Corporation shall have no further
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obligation with respect to providing such coverage. Notwithstanding the
foregoing provisions of this paragraph 3(d), for purposes of determining the
survivor benefits applicable to eligible survivors under the Corporation's
Family-Care Disability and Survivorship Plan, Executive's monthly final average
earnings as calculated for purposes of such plan shall be deemed to be
$106,333.33.
(e) As soon as practicable after the Payment Date, the
Corporation shall deliver to Executive ownership of the car owned by the
Corporation which Executive currently uses.
(f) Unless and until Executive provides any management or
executive services (whether as a consultant, advisor, officer or director) to
any company that is at the time he commences providing such services in direct
and substantial competition with the Corporation, Executive (i) upon his
retirement will be elected and continue on a life-time basis as an Advisory
Director of the Corporation (which will entitle him to a $25,000 a year fee and
such other benefits as are from time to time generally provided to Advisory
Directors, including, to the extent so generally provided, "positive space"
flight benefits), (ii) will be provided such additional "positive space" flight
benefits (if any and without duplication to those which he receives
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as an Advisory Director as provided above), for the benefit of Executive and
members of his family, as are generally provided by the Corporation from time
to time to its former chief executive officer and/or former executive vice
presidents and members of their families, respectively, upon the normal
retirement thereof, and (iii) until the tenth anniversary of this Agreement
will be provided, (A) at the Corporation's arrangement and expense, the office
space provided for by the lease attached hereto as Schedule 3F or, in the event
such lease is terminated prior to the end of such ten-year period (other than
by reason of actions of Executive), comparable office space reasonably
acceptable to Executive and the Corporation for the balance of such ten-year
period, and associated office equipment and furnishings, (B) full-time
secretarial support, through Delta Staffing Services, Inc. or another staffing
agency, reasonably acceptable to Executive, (C) payment by the Corporation of
the dues regularly payable by Executive as a member of the Commerce Club of
Atlanta, and (D) use of the East Lake Golf Club pursuant to the Corporation's
membership as long as the Corporation maintains that membership during such
ten-year period (provided, however, that Executive will not continue as one of
the Corporation's representative
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members after his retirement pursuant hereto and shall pay the fees and charges
resulting from his use).
(g) Except as provided by the foregoing paragraphs (a)
through (f) of this Section 3, it is agreed that upon his retirement in
accordance with Section 2 hereof Executive shall be entitled to no other
payment, benefits or perquisites from the Corporation or any of its
subsidiaries on account of his former employment by, or his retirement from,
the Corporation and its subsidiaries, other than those benefits described in
Schedule 3G hereof (but Executive shall be entitled to the consulting payments
provided by Section 6 hereof in accordance with the terms thereof) and except
that Executive shall be entitled to indemnification from the Corporation in
respect of his service as an officer and director of the Corporation or its
subsidiaries as provided in the Corporation's certificate of incorporation and
by-laws.
(h) For purposes of this Agreement, "Payment Date" shall mean
the business day next following the seventh day after the date on which this
Agreement has been executed and delivered by both parties hereto, provided that
Executive has not revoked this Agreement within such seven day period as
permitted by Section 14 hereof.
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(i) For purposes of this Agreement, payment from a trust
(qualified or nonqualified) established by the Corporation shall be considered
as payment from the Corporation.
4. Publicity.
(a) Neither Executive nor the Corporation (including, without
limitation, any member of the Board) shall comment on the circumstances
surrounding Executive's resignation from the Corporation beyond the substance
of the comments contained in the public press release annexed hereto issued on
May 12, 1997, except as otherwise required by applicable law.
(b) The Corporation (including, without limitation, any
member of the Board) shall not knowingly make any statement, written or oral,
or take any other action relating to the circumstances surrounding Executive's
retirement or relating to his performance as a senior executive of the
Corporation that would tend to disparage either his personal or business
reputation. Executive shall not knowingly make any statement, written or oral,
or take any other action relating to the Corporation or its directors or
officers that would tend to disparage the Corporation's business or the
personal or business reputation of such individuals.
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(c) Paragraphs 4(a) and 4(b) hereof are essential elements of
the parties' agreement as expressed herein, and the agreement of the
Corporation (including, without limitation, any member of the Board), on the
one hand, or of Executive, on the other hand, under paragraphs 4(a) and 4(b)
hereof is a material inducement for the other party to enter into this
agreement and the breach thereof would be a material breach of this Agreement.
5. Cooperation. Executive agrees that notwithstanding his
retirement in accordance with Section 2 hereof he shall, from and after the
date hereof, without any additional cost to the Corporation except for
reimbursement of his direct out-of-pocket expenses reasonably incurred: (i)
cooperate and consult with the Corporation and its subsidiaries, and advise the
Corporation and its subsidiaries, with respect to any pending or threatened
litigation or investigation to which the Corporation or a subsidiary of the
Corporation may become party or subject arising out of activities in which he
was involved (or of which he has any knowledge) during his employment with the
Corporation, (ii) appear, if requested upon reasonable notice, in court
proceedings relating thereto to assist the Corporation and its subsidiaries,
and (iii) in his activities in connection with any such dispute or litiga-
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tion, use his good faith efforts to protect the Corporation's interest.
6. Consultancy.
(a) Commencing August 1, 1997, Executive shall, upon
reasonable request of the Corporation, at any time during the following seven
years (through July 31, 2004), provide his services to the Corporation as a
consultant, and receive payments at an annual rate of $500,000 for such
consulting services rendered and his availability to provide such services,
payable quarterly in advance commencing as of the Payment Date. Executive may
be asked to provide his consulting services to the Corporation with respect to
any matter within the general area of Executive's expertise as developed during
his employment with the Corporation that may from time to time arise during the
consulting period but Executive shall be required to act only in an advisory
capacity to the officers of the Corporation; it being understood that such
services shall include initially consultation on transitional matters. It is,
however, understood and agreed that Executive shall not be called upon to
devote a major portion of his business time to the performance of services as a
consultant to the Corporation and that Executive shall only be required to
perform his consulting services at such times, and at such places and
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for such periods, as will result in the least inconvenience to Executive in
relation to such other commitments as he may have from time to time (including,
without limitation, any full-time employment). It is further understood and
agreed that Executive may provide his consulting services in person at the
office to be provided to him by the Corporation as required by Section 3(f)
hereof or at other locations reasonably requested by the Corporation or by
correspondence or telecommunications from his residence or elsewhere as
Executive may determine. Regardless of how performed, all of Executive's
consulting services shall be provided to the best of his ability. Executive's
obligation to render consulting services to the Corporation pursuant hereto
shall be suspended (but not his right to receive the consulting payments
provided hereby) for such periods during which Executive may be physically or
mentally incapacitated. In the event of Executive's death before the end of the
period during which he is to provide consulting services to the Corporation
pursuant hereto (assuming none of the contingencies referred to in the
penultimate sentence of this paragraph 6(a) has occurred), the consulting
payments to which Executive is entitled pursuant to this Section 6 shall be
payable to such beneficiary or beneficiaries as may be designated by Executive
in a written designation received
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by the Corporation or, if no such designation is received by the Corporation or
any previous designation is revoked in writing and such revocation is received
by the Corporation prior to Executive's death, to Executive's estate, in either
such case on such periodic basis as may be convenient to the Corporation (but
not less often than monthly). Executive shall be reimbursed by the Corporation
for his reasonable out-of-pocket business expenses incurred in connection with
the performance of his consultancy services for the Corporation, upon receipt
by the Corporation of reasonable evidence thereof, provided that such expenses
were incurred with the prior, written authorization of the Corporation.
Notwithstanding the foregoing provisions of this paragraph 6(a), the
Corporation's obligation to make consulting payments to Executive is contingent
upon (i) Executive not having breached his duty to provide consulting services
as provided by this paragraph 6(a) or his confidentiality, non-competition and
non-solicitation obligations as provided by Section 7 hereof and (ii) Executive
not having provided management or executive services (whether as a consultant,
adviser, officer, or director) to any company (whether or not referred to in
paragraph 7(b)(ii) hereof) which is in direct and substantial competition with
the air transportation business of the Corporation
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and its subsidiaries as that business is conducted on July 31, 1997, without
the prior, express, written consent of the Corporation; provided, however, that
the provisions of clause (ii) of this sentence shall not prevent Executive from
owning any debt securities of, or less than 5% of any class of equity security
of, any company if such security is registered under Section 12 of the
Securities Exchange Act of 1934, as amended. In view of the worldwide air
transportation business of the Corporation and the detailed involvement of
Executive in all aspects of that worldwide business, it is understood and
agreed that the restrictions agreed to in clause (ii) of the immediately
preceding sentence are intended to extend to management or executive services
which are directly related to the provision of air transportation services
into, within or from the United States, as no smaller geographical restriction
will adequately protect the legitimate business interests of the Corporation.
(b) The period during which Executive shall provide
consulting services to the Corporation as provided by paragraph 6(a) hereof
shall be automatically extended, beginning August 1, 2004, for an additional
year (until July 31, 2005), even in the event of Executive's incapacity or
death prior thereto, and Executive (or his beneficiaries
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or estate, as the case may be) accordingly shall be entitled to receive on the
terms and subject to the conditions therein provided additional consulting
payments in respect of such year at an annual rate of $500,000, in quarterly
installments, payable in advance, unless Executive at any time during the
previous seven-year period has provided management or executive services (as an
employee, consultant, advisor, officer or director or in any other capacity)
for compensation either (i) to a non-governmental third party (whether or not a
competitor of the Corporation) or (ii) to a governmental entity (other than on
a part-time, consulting basis), unless Executive has provided such services
with the prior, express, written consent of the Corporation; provided, however,
that, notwithstanding the foregoing provisions of this sentence, Executive may
provide his services (i) as a non-officer director of any company that does not
directly or indirectly conduct business which is in direct and substantial
competition with the air transportation business of the Corporation as that
business is conducted on July 31, 1997 or (ii) to a business owned by Executive
and/or his family which is not in direct and substantial competition with the
air transportation business of the Corporation as that business is conducted on
July 31, 1997.
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7. Confidentiality; Non-Competition; Non-Solicitation.
(a) Acknowledgements. Executive acknowledges that the
Corporation has separately bargained for and paid additional consideration for
the restrictive covenants provided for herein, and that the Corporation will
provide certain benefits to Executive hereunder in reliance upon such
covenants, in view of the unique and essential nature of the services Executive
has performed on behalf of the Corporation, the unique and strategically
critical knowledge and information Executive has accumulated during his service
to the Corporation, and the irreparable injury that would befall the
Corporation should Executive breach such covenants. Executive's services have
been of a special, unique and extraordinary character, and his position with
the Corporation has placed him in a position of confidence and trust with
employees of the Corporation and its subsidiaries and with the Corporation's
other constituencies and has allowed him access to confidential and proprietary
information concerning the Corporation and its subsidiaries. Moreover, the
business of the Corporation under the leadership of Executive has expanded into
and now includes air transportation services to and from major markets
throughout the world. All such markets are either now
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actively served by the Corporation or are under active and ongoing study with
respect to possible expansion, an ongoing process of expansion in which
Executive was thoroughly and intimately involved. Accordingly, the types,
periods and geographic scope of the restrictions imposed by the covenants in
this Section 7 are fair and reasonable in light of Executive's positions as
recited above and the character of Executive's services, and such restrictions
will not prevent Executive from earning a livelihood, especially in view of the
substantial compensation to be paid hereunder for these covenants.
(b) Covenants. Having acknowledged the foregoing, Executive
covenants and agrees with the Corporation as follows:
(i) Commencing upon Executive's retirement
pursuant to Section 2 hereof and continuing until August 1, 2004 or, if the
term of Executive's consulting services to the Corporation pursuant to Section
6 hereof is extended as provided in paragraph 6(b) hereof, until August 1,
2005, Executive, without the express written consent of the Corporation, will
not divulge, furnish or make accessible to anyone any Confidential Information
(as hereinafter provided) with respect to any aspect of the business of the
Corporation or any of its subsidiary or
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affiliated companies (including, without limitation, information concerning
employees, suppliers or competitors of the Corporation obtained by Executive in
the course of providing his duties to the Corporation), or any other
information obtained by Executive in the course of his employment under a duty
of confidentiality (applicable either to Executive or the Corporation or both).
For purposes of this Agreement, the term "Confidential Information" means any
and all data and information relating to the air transportation business of the
Corporation that has been disclosed to Executive (or that will be disclosed
hereafter pursuant to the consulting provisions hereof) or of which Executive
became or becomes aware as a consequence of or through his relationship with
the Corporation, and that has economic value to the Corporation and is not
generally known by its competitors, including, without limitation, information
relating to the Corporation's financial affairs, products, services, customers,
employees or employees' compensation, research, purchasing, accounting,
marketing, fleet plan, strategic plans, operation or global and other
alliances. Confidential Information shall also include information that
constitutes a trade secret. Notwithstanding the foregoing, no information will
be deemed to be Confidential Information
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unless such information is treated by the Corporation as confidential and shall
not include any data or information that has been voluntarily disclosed to the
public by the Corporation (except where such public disclosure has been made
without authorization by the Corporation), or that has been independently
developed and disclosed by others, or that otherwise enters the public domain
through lawful means. The restrictions on disclosure imposed by this provision
shall not apply with respect to any statement or testimony required to be made
by Executive pursuant to subpoena or other legal requirement, but Executive
shall advise the Corporation of any legal process reasonably likely to require
the disclosure of any such information so as to permit the Corporation to seek
an appropriate protective order or other protection of the confidentiality
thereof and shall cooperate with the Corporation in respect to any such legal
proceedings as provided by Section 5 hereof.
(ii) Commencing upon Executive's retirement pursuant to
Section 2 hereof and continuing until August 1, 2000, Executive shall not,
directly or indirectly, provide management or executive services (whether as a
consultant, adviser, officer or director) to any of the following companies or
their majority-owned subsidiaries or affiliates
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(or any successor to the air transportation business thereof): AMR Corporation,
Continental Airlines, Inc., Northwest Airlines Corporation, Southwest Airlines
Co., Trans World Airlines, Inc., UAL Corporation and US Airways Group, Inc.; it
being understood that each of the foregoing companies or their majority-owned
subsidiaries or affiliates participates in the air transportation business in
direct and substantial competition with the Corporation; provided, however,
that the provisions of this paragraph 7(b)(ii) shall not prevent Executive from
owning any debt securities of, or less than 5% of any class of equity security
of, any such company if such security is registered under Section 12 of the
Securities Exchange Act of 1934, as amended.
(iii) Commencing with Executive's retirement pursuant to
Section 2 hereof and continuing until August 1, 2004 or, if the term of
Executive's consulting services to the Corporation pursuant to Section 6 hereof
is extended as provided in paragraph 6(b) hereof, until August 1, 2005,
Executive shall not solicit or advise any person who is at the time an employee
of the Corporation or any of its subsidiaries at the management or executive
level to accept employment with or to provide his services to any other company
or enterprise (including, without limitation, any non-profit or governmental
enterprise or body).
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(c) In addition to any other remedies that may be available
to the Corporation under applicable law, in the event of a breach by Executive
of any of his obligations under paragraphs 7(b)(i), 7(b)(ii) or 7(b)(iii)
hereof, the Corporation shall be entitled to injunctive and other equitable
relief to restrain any future breach of such obligations and to remedy the
consequences of a breach. The right of the Corporation, as stated in the last
sentence of paragraph 3(c) and the penultimate sentence of paragraph 6(a)
hereof, to cease making payments to Executive under such paragraphs in the
event of a breach of Executive's obligations under paragraphs 7(b)(i), 7(b)(ii)
or 7(b)(iii) hereof shall not be exclusive of any other right or remedy to
which the Corporation shall be entitled under applicable law in respect of any
breach by Executive of any of his obligations under this Agreement.
8. Withholding Taxes; Third-Party Payees.
(a) Notwithstanding any other provision of this Agreement,
the Corporation may withhold from any and all payments required to be made to
Executive pursuant to this Agreement, all federal, state, local and/or other
taxes which the Corporation determines in good faith are required to be
withheld in accordance with the applicable statutes and/or regulations from
time to time in effect. Upon his
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retirement, Executive's relationship with the Corporation shall be as an
independent contractor and Executive shall be responsible for any taxes
applicable to payments and benefits provided to him hereunder, except for
withholding required by law.
(b) Notwithstanding any other provision of this Agreement,
the payments to be made by the Corporation pursuant hereto may be made to such
other person as shall be entitled to receive such payments pursuant to any
applicable law or court order (including, without limitation, any Qualified
Domestic Relations Order) and such third party payment shall for purposes
hereof be deemed a payment to Executive.
9. Transitional Matters; Relationship After Retirement.
Prior to July 31, 1997, Executive will carry out his duties
in good faith and cooperate with the Corporation and its Board in all
transitional matters. After July 31, 1997, Executive shall no longer occupy any
official position with the Corporation or any of its subsidiaries (other than
as an Advisory Director of the Corporation as provided in Section 3 hereof) and
he shall represent the Corporation only as specifically provided in this
Agreement or as specifically requested in writing by the Board. Except as
specifically provided herein, the
25
<PAGE> 26
Corporation shall have no responsibility for expenses, fees or obligations
incurred by the Executive for any activities occurring after July 31, 1997.
10. Mutual Releases.
The parties hereto hereby release and forever discharge each
other (and in the case of the Corporation the subsidiaries thereof and the past
and present directors, officers, employees and agents of the Corporation and
its subsidiaries) from any and all claims, liabilities, obligations or causes
of action, existing as of the date hereof, known or unknown and whether or not
accrued or matured, arising out of or relating to Executive's retirement from
the Corporation, or his employment by the Corporation or his services as a
director or officer of the Corporation or its subsidiaries, or otherwise
relating to the termination of such employment or services as provided herein,
including but not limited to any claim against the Corporation based on,
relating to or arising under wrongful discharge, breach of contract, tort,
fraud, Title VII of the Civil Rights Act of 1964, as amended, any other civil
or human rights law, the Age Discrimination in Employment Act, Americans with
Disabilities Act, Employee Retirement Income Security Act of 1974, as amended,
or any other federal, state or local law relating to employment or
discrimination
26
<PAGE> 27
in employment, or otherwise, but such general release will not limit either (i)
the rights or obligations under this Agreement of the Corporation (including,
without limitation, the members of the Board) or Executive or (ii) Executive's
rights to indemnification from the Corporation in respect of his services as an
officer or director of the Corporation or any of its subsidiaries as provided
by law or the certificates of incorporation or bylaws (or like constitutive
documents) of the Corporation or any subsidiary thereof.
11. Entire Agreement.
This Agreement sets forth the entire understanding or
agreement of the parties hereto and no statement, representation, warranty or
covenant has been made by either party except as expressly set forth herein.
This Agreement shall not be changed or terminated orally. The obligation of
Executive hereunder to provide his services to the Corporation is personal to
Executive and may not be assigned. All of the provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective heirs and personal representatives of Executive and the successors
and assigns of the Corporation.
27
<PAGE> 28
12. Notices.
All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given to a
party hereto if personally delivered to or (except in the case of the notice
referred to in Section 14 hereof) five days after having been mailed, postage
prepaid, by certified or registered mail, return receipt requested, to the
party at its or his address as set forth at the beginning hereof (in the case
of the Corporation, marked to the attention of the Secretary) or to such other
address as the party may designate by notice given in conformity with the
foregoing.
13. Governing Law.
This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of the State of Delaware, without giving
effect to the principles, policies or provisions thereof concerning conflict or
choice of laws.
14. Executive's Acknowledgments; Review and Revocation Rights.
Executive acknowledges that before entering into this
Agreement he has had the opportunity to consult with any attorney or other
advisor of his choice, and has done so, and has not relied in connection
herewith on legal counsel for the Corporation. Executive acknowledges that he
has entered into this Agreement of his own free will, that
28
<PAGE> 29
no promises or representations have been made to him by any person to induce
him to enter into this Agreement other than the terms expressly set forth
herein, that he has been provided up to 21 days to consider, sign and return
this Agreement and that, after signing and returning it, he may nevertheless
revoke this Agreement by delivering a signed revocation notice to the
Corporation (addressed as provided in Section 12 hereof) within seven days
after he executes and delivers to the Corporation this Agreement. Upon timely
delivery of such a revocation notice by Executive, this Agreement shall cease
to be of any force and effect as to either party as of the time of the
execution and delivery thereof.
15. Attorney's Fees.
As soon as practicable after the Payment Date, the
Corporation shall pay Executive's legal counsel, Dow, Lohnes & Albertson PLC,
its reasonable fees and expenses for its services in connection with the
preparation of the Agreement in Principle and this Agreement.
16. Authorization By The Corporation.
The Corporation represents and warrants to Executive that (i)
it has the corporate power and authority to enter into this Agreement and to
carry out its respective obligations hereunder; (ii) the execution, delivery
and
29
<PAGE> 30
performance of this Agreement by the Corporation and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of the Corporation; and (iii) this Agreement is a valid and
binding obligation of the Corporation, enforceable against it in accordance
with its terms, except as the enforceability thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, and other laws now or
hereafter in effect relating to the enforcement of creditors' rights generally.
17. Counterparts.
This Agreement may be executed in any number of counterparts,
each of which shall be an original, but all of which, together shall constitute
one and the same instrument. Any counterpart of this Agreement that has
attached to it separate signature pages which together contain the signature of
all parties hereto shall for all purposes be deemed a fully executed original.
Facsimile signatures shall constitute original signatures.
IN WITNESS WHEREOF, the Corporation has caused
this Agreement to be executed in its corporate name by a
30
<PAGE> 31
director thereof thereunto duly authorized, and Executive has hereunto set his
hand, as of the day and year first above written.
DELTA AIR LINES, INC.
By: /s/ Gerald Grinstein
---------------------------------
Gerald Grinstein,
CHAIRMAN, PERSONNEL,
COMPENSATION &
NOMINATING COMMITTEE OF
THE BOARD OF DIRECTORS
/s/ Ronald W. Allen
------------------------------------
RONALD W. ALLEN
Date Signed: August 14, 1997
----------------------
31
<PAGE> 32
-----------
SCHEDULE 3B
-----------
<TABLE>
<CAPTION>
1. OUTSTANDING NONQUALIFIED STOCK OPTIONS AS OF JULY 22, 1997
----------------------------------------------------------
- ------------------------------------------------------------------------------------------------
NO. OF SHARES OF LAST DAY TO
COMMON STOCK OPTION PRICE EXERCISE STOCK
DATE OF GRANT SUBJECT TO STOCK OPTION OPTION
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
January 27, 1994 89,000 $54.375 July 31, 2000
- ------------------------------------------------------------------------------------------------
January 26, 1995 89,000 $52.000 July 31, 2000
- ------------------------------------------------------------------------------------------------
January 25, 1996 66,000 $71.000 July 31, 2000
- ------------------------------------------------------------------------------------------------
January 23, 1997 54,000 $82.375 July 31, 2000
- ------------------------------------------------------------------------------------------------
298,000
- ------------------------------------------------------------------------------------------------
<CAPTION>
2. RESTRICTED STOCK AWARD
----------------------
- ------------------------------------------------------------------------------
Date of Grant No. of Shares Granted
- ------------------------------------------------------------------------------
<S> <C>
January 26, 1995 7,500*
- ------------------------------------------------------------------------------
</TABLE>
* plus 50.47 shares from reinvested dividends as of June 30, 1997
<PAGE> 33
SCHEDULE 3C
DELTA'S EXISTING QUALIFIED AND NONQUALIFIED RETIREMENT PLANS
(All AS AMENDED THROUGH JULY 31, 1997)
------------------------------------------------------------
1. Delta Family-Care Retirement Plan.
2. 1991 Delta Excess Benefit Plan.
3. Delta Supplemental Excess Benefit Plan.
4. Excess Benefit Agreement executed in conjunction with the 1991 Delta
Excess Benefit Plan and the Delta Supplemental Excess Benefit Plan.
<PAGE> 34
SCHEDULE 3D
LIFE INSURANCE, SURVIVOR, MEDICAL AND DENTAL BENEFITS
-----------------------------------------------------
1. Delta Family-Care Disability and Survivorship Plan.
2. Delta Family-Care Medical Plan.
3. Officers Life Insurance Program.
4. $40,000 Supplemental Lump Sum Death Benefit.
5. Delta Supplemental Excess Benefit Plan.
6. Excess Benefit Agreement executed in conjunction with the 1991 Delta
Excess Benefit Plan and the Delta Supplemental Excess Benefit Plan.
7. 1991 Delta Excess Benefit Plan.
<PAGE> 35
SCHEDULE 3F
-----------
THE MONARCH TOWER OFFICE BUILDING
3424 Peachtree Road, N.E.
Atlanta, Georgia 30326
LEASE AGREEMENT
by and between
KNICKERBOCKER MONARCH ASSOCIATES, L.P.
("Landlord")
and
DELTA AIR LINES, INC.
("Tenant")
dated
July __, 1997
for
Suite Number 1745
containing
2,090 square feet of Rentable Floor Area
Term: 120 months
<PAGE> 36
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
1. Certain Definitions....................................... 1
2. Lease of Premises......................................... 1
3. Term...................................................... 2
4. Possession................................................ 2
5. Rental Payments........................................... 2
6. Base Rental............................................... 2
7. Rental Adjustment......................................... 2
8. Additional Rental......................................... 3
9. Operating Expenses........................................ 3
10. Tenant Taxes.............................................. 5
11. Payments.................................................. 5
12. Late Charges.............................................. 5
13. Use Rules................................................. 5
14. Alterations............................................... 5
15. Repairs................................................... 6
16. Landlord's Right of Entry................................. 6
17. Insurance................................................. 6
18. Waiver of Subrogation..................................... 6
19. Default................................................... 6
20. Waiver of Breach.......................................... 7
21. Assignment and Subletting................................. 7
22. Destruction............................................... 8
23. Landlord's Lien........................................... 8
24. Services by Landlord...................................... 9
25. Attorneys' Fees and Homestead............................. 9
26. Time...................................................... 9
27. Subordination and Attornment.............................. 9
28. Estoppel Certificates..................................... 9
29. No Estate................................................. 9
30. Cumulative Rights......................................... 10
31. Holding Over.............................................. 10
32. Surrender of Premises..................................... 10
33. Notices................................................... 10
34. Damage or Theft of Personal Property...................... 10
35. Eminent Domain............................................ 10
36. Parties................................................... 11
37. Liability of Tenant....................................... 11
38. Relocation of the Premises................................ 11
39. Force Majeure............................................. 11
40. Landlord's Liability...................................... 11
41. Landlord's Covenant of Quiet Enjoyment.................... 11
42. Security Deposits......................................... 12
43. Hazardous Substances...................................... 12
44. Submission of Lease....................................... 12
45. Severability.............................................. 12
46. Entire Agreement.......................................... 12
47. Headings.................................................. 12
48. Broker.................................................... 12
49. Governing Law............................................. 13
50. Authority................................................. 13
51. Joint and Several Liability............................... 13
52. Special Stipulations...................................... 13
</TABLE>
Rules and Regulations
Exhibit "A" - Legal Description
Exhibit "B" - Floor Plan
Exhibit "C" - Supplemental Notice
Exhibit "D" - Landlord's Construction
Exhibit "E" - Building Standard Services
Exhibit "F" - Guaranty
Exhibit "G" - Special Stipulations
<PAGE> 37
LEASE AGREEMENT
---------------
THIS LEASE AGREEMENT ("Lease") is made and entered into this ___ day
of July, 1997, by and between Landlord and Tenant.
W I T N E S S E T H:
-------------------
1. CERTAIN DEFINITIONS. For purposes of this Lease, the following terms
shall have the meanings hereinafter ascribed thereto:
(a) LANDLORD: KNICKERBOCKER MONARCH ASSOCIATES, L.P.
(b) LANDLORD'S ADDRESS:
ERE Yarmouth
3424 Peachtree Road
Suite 800
Atlanta, Georgia 30326
(c) TENANT: DELTA AIR LINES, INC.
(d) TENANT'S ADDRESS:
-----------------------------------
------------------------------------
------------------------------------
------------------------------------
(e) BUILDING ADDRESS:
3424 Peachtree Road, N.E.
Atlanta, Georgia 30326
(f) SUITE NUMBER: 1745
(g) RENTABLE FLOOR AREA OF DEMISED PREMISES:
2,090 square feet. Landlord and Tenant agree that when the
tenant improvements to the Demised Premises are completed, Landlord or Tenant
may have the same remeasured by a firm reasonably acceptable to Landlord. If
the measurement proves the Demised Premises contain more or less than 2,090
rentable square feet, Landlord and Tenant agree to modify this Lease to reflect
the accurate amount of rentable square feet and correct the associated
calculations hereunder which are based on rentable square feet provided that
such remeasurement shall not affect or impact the conversion factor used to
calculate usable square feet within the Demised Premises or the Building.
(h) RENTABLE FLOOR AREA OF BUILDING:
Approximately 521,408 rentable square feet, subject to final
determination by Landlord.
(i) LEASE TERM: 120 months.
(j) BASE RENTAL RATE: $32.50 per square foot of Rentable Floor
Area of Demised Premises per year for years 1-5. $37.50 per square foot of
Rentable Floor Area of Demised Premises per year for years 6-10.
(k) RENTAL COMMENCEMENT DATE: The earlier of (x) September 1,
1997, or (y) the date upon which Tenant takes possession and occupies the
Demised Premises; provided that if the Demised Premises are not ready for
occupancy on the date set forth in (x) above due to delays not caused by Tenant
or its employees, agents or contractors, then the date set forth in (x) above
shall be postponed to the date on which the Demised Premises are ready for
occupancy.
(l) TENANT IMPROVEMENT ALLOWANCE: $62,700.00.
(m) SECURITY DEPOSITS:
(i) $5,660.42 [Article 42(a)].
(ii) $0 [Article 42(b)].
(n) BROKER(S): NONE [NONE, if no name is inserted.]
2. LEASE OF PREMISES. Landlord, in consideration of the covenants and
agreements to be performed by Tenant, and upon the terms and conditions
hereinafter stated, does hereby rent and lease unto Tenant, and Tenant does
hereby rent and lease from Landlord, certain premises (the "Demised Premises")
in the building (the "Building") located on that certain tract of land (the
"Land") more particularly described on Exhibit "A" attached hereto and by this
reference made a part hereof, which Demised Premises are outlined in red or
cross- hatched on the floor plan attached hereto as Exhibit "B" and by this
reference made a part hereof, with no easement for light, view or air included
in the Demised Premises or being granted hereunder. The
<PAGE> 38
"Project" is comprised of the Building, the Land, the Building's parking
facilities, any walkways, covered walkways, tunnels or other means of access to
the Building and the Building's parking facilities, all common areas, including
any lobbies or plazas, and any other improvements or landscaping on the Land.
3. TERM. The term of this Lease (the "Lease Term") shall commence on the
date first hereinabove set forth (the "Term Commencement Date"), and, unless
sooner terminated as provided in this Lease, shall end on the expiration of the
period designated in Article 1(i) above, which period shall commence on the
Rental Commencement Date, unless the Rental Commencement Date shall be other
than the first day of a calendar month, in which event such period shall
commence on the first day of the calendar month following the month in which
the Rental Commencement Date occurs. Promptly after the Rental Commencement
Date, Landlord or Landlord's agent shall send to Tenant a Supplemental Notice
in the form of Exhibit "C" attached hereto and by this reference made a part
hereof, specifying the Rental Commencement Date, the date of expiration of the
Lease Term in accordance with Article 1(i) above and certain other matters as
therein set forth.
4. POSSESSION. The obligations of Landlord and Tenant with respect to the
initial leasehold improvements to the Demised Premises are set forth in Exhibit
"D" attached hereto and by this reference made a part hereof. Taking of
possession by Tenant shall be deemed conclusively to establish that Landlord's
construction obligations with respect to the Demised Premises have been
completed in accordance with the plans and specifications approved by Landlord
and Tenant and that the Demised Premises, to the extent of Landlord's
construction obligations with respect thereto, are in good and satisfactory
condition.
5. RENTAL PAYMENTS.
(a) Commencing on the Rental Commencement Date, and continuing
thereafter throughout the Lease Term, Tenant hereby agrees to pay all Rent due
and payable under this Lease. As used in this Lease, the Term "Rent" shall mean
the Base Rental, Rental Adjustment, Tenant's Forecast Additional Rental,
Tenant's Additional Rental, and any other amounts that Tenant assumes or agrees
to pay under the provisions of this Lease that are owed to Landlord, including,
without limitation, any and all other sums that may become due by reason of any
default of Tenant or failure on Tenant's part to comply with the agreements,
terms, covenants and conditions of this Lease to be performed by Tenant. Base
Rental, together with Tenant's Forecast Additional Rental, shall be due and
payable in twelve (12) equal installments on the first day of each calendar
month, commencing on the Rental Commencement Date and continuing thereafter
throughout the Lease Term and any extensions or renewals thereof. Tenant hereby
agrees to pay such Rent to Landlord at Landlord's address as provided herein
(or such other address as may be designated by Landlord from time to time)
monthly in advance. Tenant shall pay all Rent and other sums of money as shall
become due from and payable by Tenant to Landlord under this Lease at the times
and in the manner provided in this Lease, without demand, set-off or
counterclaim.
(b) If the Rental Commencement Date is other than the first day of a
calendar month or if this Lease terminates on a day other than the last day of
a calendar month, then the installments of Base Rental and Tenant's Forecast
Additional Rental for such month or months shall be prorated on a daily basis
and the installment or installments so prorated shall be paid in advance. Also,
if the Rental Commencement Date occurs on a day other than the first day of a
calendar year, or if this Lease expires or is terminated on a day other than
the last day of a calendar year, Tenant's Additional Rental shall be prorated
for such commencement or termination year, as the case may be, by multiplying
such Tenant's Additional Rental by a fraction, the numerator of which shall be
the number of days of the Lease Term (from and after the Rental Commencement
Date) during the commencement or expiration or termination year, as the case
may be, and the denominator of which shall be 365, and the calculation
described in Article 8 hereof shall be made as soon as possible after the
expiration or termination of this Lease, Landlord and Tenant hereby agreeing
that the provisions relating to said calculation shall survive the expiration
or termination of this Lease.
6. BASE RENTAL. From and after the Rental Commencement Date, Tenant shall
pay to Landlord a base annual rental (herein called "Base Rental") equal to the
Base Rental Rate set forth in Article 1(j) above multiplied by the Rentable
Floor Area of the Demised Premises as set forth in Article 1(g) above.
7. RENTAL ADJUSTMENT.
(a) Tenant shall pay to Landlord as additional rental a rental
adjustment (the "Rental Adjustment") which shall be determined as of the first
anniversary of the Rental Commencement Date and as of each January 1 thereafter
during the Lease Term in the manner hereinafter provided (each such date being
hereinafter in this Article 7 called an "Adjustment Date", and each period of
time from any given Adjustment Date through the day before the next succeeding
Adjustment Date being herein called an "Adjustment Period"). Each such Rental
Adjustment shall be payable in monthly installments in advance on the first day
of every such calendar month during the Adjustment Period for which such Rental
Adjustment was determined. A prorated monthly installment, based on the number
of days in the partial month, shall be paid for any fraction of a month if the
Rental Commencement Date falls on any day other than the first day of a
calendar month, or if the Lease Term is terminated or expires on any other day
than the last day of a calendar month. Landlord shall use reasonable efforts to
notify Tenant in writing of the monthly amount of the Rental Adjustment for
each Adjustment Period at least ten (10) days prior to the date on which the
first installment of such Rental Adjustment is due and payable, or as soon
thereafter as is practicable. Failure by Landlord to notify Tenant of the
monthly amount of such Rental Adjustment shall not prejudice Landlord's right
to collect the full amount of such Rental Adjustment, nor shall Landlord be
deemed to have forfeited or surrendered its rights to collect such Rental
Adjustment which may have become due pursuant to this Article 7, and Tenant
agrees to pay upon demand all accrued but unpaid Rental Adjustment.
(b) For each Adjustment Period, each monthly installment of the
Rental Adjustment shall be an amount equal to one-twelfth (1/12th) of the
product of: (i) the annual Base Rental set forth in Article 6 hereof,
multiplied by (ii) the "percentage increase" (as hereinafter defined), if any,
in the "Index" (as hereinafter defined), as such percentage increase is
determined with respect to the Adjustment Date beginning such Adjustment
Period.
(c) For purposes of Articles 7(a) and (b) above, the "percentage
increase," if any, in the Index for each Adjustment Date shall mean and equal
the quotient (expressed as a decimal) determined by dividing (i) the difference
obtained by subtracting the Index for the calendar month in which the Rental
Commencement Date falls from the Index for the calendar month of October
immediately preceding the Adjustment Date in question [if the difference so
obtained is negative, then this factor (i) shall be deemed to be zero], by (ii)
the Index for the calendar month in which the Rental Commencement Date falls.
2
<PAGE> 39
(d) The term "Index" as used in Articles 7(b) and (c) above shall mean
the Consumer Price Index for All Urban Consumers, U.S. City Average, All Items
(1982-84=100), published by the Bureau of Labor Statistics of the United States
Department of Labor. If the Bureau of Labor Statistics should discontinue the
publication of the Index, or publish the same less frequently, or alter the
same in some manner, then Landlord shall adopt a substitute Index or substitute
procedure which reasonably reflects and monitors consumer prices.
(e) Nothing contained in this Article 7 shall be construed at any time
so to reduce the monthly installments of Base Rental payable hereunder below
the amount set forth in Article 6 of this Lease. Notwithstanding anything
contained in this Lease to the contrary, it is agreed that (i) the Rental
Adjustment for any given Adjustment Period shall not be less than the Rental
Adjustment for the immediately preceding Adjustment Period, and (ii) Tenant's
payments pursuant to this Article 7 shall not be deemed payments of rent as
that term is construed relative to governmental wage and price controls or
analogous governmental actions affecting the amount of rent which Landlord may
charge Tenant.
8. ADDITIONAL RENTAL.
(a) For purposes of this Lease, "Tenant's Forecast Additional Rental"
shall mean Landlord's reasonable estimate of Tenant's Additional Rental for
each calendar year or portion thereof during the Lease Term. If at any time it
appears to Landlord that Tenant's Additional Rental for the current calendar
year then at hand will vary from Landlord's estimate, Landlord shall have the
right to revise, by notice to Tenant, its estimate for such year, and
subsequent payments by Tenant for such year shall be based upon such revised
estimate of Tenant's Additional Rental. Failure to make a revision contemplated
by the immediately preceding sentence shall not prejudice Landlord's right to
collect the full amount of Tenant's Additional Rental. Prior to the first day
of January immediately following the expiration of the Base Year, and
thereafter prior to the beginning of each calendar year during the Lease Term,
including any extensions or renewals thereof, Landlord shall present to Tenant
a statement of Tenant's Forecast Additional Rental for such calendar year;
provided, however, that if such statement is not given prior to the beginning
of any calendar year as aforesaid, Tenant shall continue to pay during the next
ensuing calendar year on the basis of the amount of Tenant's Forecast
Additional Rental payable during the calendar year just ended until the month
after such statement is delivered to Tenant.
(b) For purposes of this Lease, "Tenant's Additional Rental" shall
mean for each calendar year (or portion thereof) during the Lease Term the
excess of (x) the Operating Expense Amount (defined below) multiplied by the
number of square feet of Rentable Floor Area of the Demised Premises, over (y)
the Base Operating Expenses (defined below) multiplied by the number of square
feet of Rentable Floor Area of the Demised Premises. As used herein, "Operating
Expense Amount" shall mean the amount of Operating Expenses (as defined below)
for such calendar year divided by the greater of (i) ninety-five percent (95%)
of the number of square feet of Rentable Floor Area of the Building, or (ii)
the total number of square feet of Rentable Floor Area occupied in the Building
for such calendar year on an average annualized basis; provided, however, if
the amount is calculated under (i) above, the Operating Expenses actually
incurred with respect to such calendar year shall be adjusted to reflect the
amount of Operating Expenses which would have been incurred if the Building
were ninety-five percent (95%) occupied throughout such calendar year. As used
herein, the term "Base Operating Expenses" shall mean the Operating Expenses
paid or incurred by Landlord in the Base Year (as hereinafter defined) as if
the Building was ninety-five percent (95%) occupied throughout the Base Year,
divided by ninety-five (95%) of the number of square feet of Rentable Floor
Area of the Building. If the Building was not ninety-five percent (95%)
occupied throughout the Base Year, then the Base Operating Expenses shall be an
amount which fairly reflects what the Operating Expenses would have been in the
Base Year had the Building been ninety-five percent (95%) occupied throughout
the Base Year, as determined by Landlord in its reasonable opinion. As used
herein, "Base Year" shall mean calendar year 1997.
(c) Within one hundred fifty (150) days after the end of the calendar
year in which the Rental Commencement Date occurs and of each calendar year
thereafter during the Lease Term, or as soon thereafter as practicable,
Landlord shall provide Tenant a statement showing the Operating Expenses for
said calendar year, as prepared by an authorized representative of Landlord,
and a statement prepared by Landlord comparing Tenant's Forecast Additional
Rental with Tenant's Additional Rental. In the event Tenant's Forecast
Additional Rental exceeds Tenant's Additional Rental for said calendar year,
Landlord shall credit such amount against the Forecast Additional Rental next
due hereunder or, if the Lease Term has expired or is about to expire, refund
such excess to Tenant if Tenant is not in default under this Lease (in the
instance of a default, such excess shall be held as additional security for
Tenant's performance, may be applied by Landlord to cure any such default, and
shall not be refunded until any such default is cured). In the event that the
Tenant's Additional Rental exceeds Tenant's Forecast Additional Rental for said
calendar year, Tenant shall pay Landlord, within thirty (30) days of receipt of
the statement, an amount equal to such difference. The provisions of this Lease
concerning the payment of Tenant's Additional Rental shall survive the
expiration or earlier termination of this Lease.
(d) Landlord's books and records pertaining to the calculation of
Operating Expenses for any calendar year within the Lease Term may be audited
by Tenant or its representatives at Landlord's office where Operating Expense
records are kept, at Tenant's expense, at any time within ninety (90) days
after the Landlord's annual statement is delivered to Tenant for such calendar
year; provided that Tenant shall give Landlord not less than thirty (30) days
prior written notice of any such audit. If Landlord's calculations of Tenant's
Additional Rental for the audited calendar year was incorrect, then Tenant
shall be entitled to a prompt refund of any overpayment or Tenant shall
promptly pay to Landlord the amount of any underpayment, as the case may be.
9. OPERATING EXPENSES.
(a) For the purposes of this Lease, "Operating Expenses" shall mean
all expenses, costs and disbursements (but not specific costs billed to
specific tenants of the Building) of every kind and nature, computed on an
accrual basis, relating to or incurred or paid in connection with the
ownership, management, operation, repair and maintenance of the Project,
including, but not limited to, the following:
(1) wages, salaries and other costs of all on-site and off-site
employees engaged either in full or part time in the operation, management,
maintenance or access control of the Project, including taxes, insurance
and benefits relating to such employees, allocated based upon the time such
employees are engaged directly in providing services;
(2) the cost of all supplies, tools, equipment and materials
used in the operation, management, maintenance and access control of the
Project;
3
<PAGE> 40
(3) the cost of all utilities for the Project, including but not
limited to the cost of electricity, gas, water, sewer services and power
for heating, lighting, air conditioning and ventilating;
(4) the cost of all maintenance and service agreements for the
Project and the equipment therein, including, but not limited to,
security service, garage operators, window cleaning, elevator maintenance,
HVAC maintenance, janitorial service, landscaping maintenance and
customary landscaping replacement;
(5) the cost of inspections, repairs and general maintenance of
the Project;
(6) amortization (together with reasonable financing charges,
whether or not actually incurred) of the costs of acquisition and/or
installation of capital investment items (including security equipment),
amortized over their respective useful lives, which are installed for the
purpose of reducing operating expenses, promoting safety, complying with
governmental requirements, or maintaining the first-class nature of the
Project;
(7) the cost of casualty, rental loss, liability and other
insurance applicable to the Project and Landlord's personal property
used in connection therewith;
(8) the cost of trash and garbage removal, vermin extermination,
and snow, ice and debris removal;
(9) the cost of legal and accounting services incurred by Landlord
in connection with the management, maintenance, operation and repair of
the Project, excluding the owner's or Landlord's general accounting, such
as partnership statements and tax returns, and excluding services
described in Article 9(b)(14) below;
(10) all taxes, assessments and governmental charges, whether or
not directly paid by Landlord, whether federal, state, county or municipal
and whether they be by taxing districts or authorities presently taxing
the Project or by others subsequently created or otherwise, and any other
taxes and assessments attributable to the Project or its operation (and
the costs of monitoring and contesting any of the same), including
business license taxes and fees (all of the foregoing are herein sometimes
collectively referred to as "Taxes"), excluding, however, taxes and
assessments imposed on the personal property of the tenants of the
Project, federal and state taxes on income, death taxes, franchise taxes,
and any taxes (other than business license taxes and fees) imposed or
measured on or by the income of Landlord from the operation of the
Project; provided, however, that if any time during the Lease Term, the
present method of taxation or assessment shall be so changed that the
whole or any part of the taxes, assessments, levies, impositions or
charges now levied, assessed or imposed on real estate and the
improvements thereon shall be discontinued and as a substitute therefor,
or in lieu of or in addition thereto, taxes, assessments, levies,
impositions or charges shall be levied, assessed and/or imposed wholly or
partially as a capital levy or otherwise on the rents received from the
Project or the rents reserved herein or any part thereof, then such
substitute or additional taxes, assessments, levies, impositions or
charges, to the extent so levied, assessed or imposed, shall be deemed to
be included within the Operating Expenses to the extent that such
substitute or additional tax would be payable if the Project were the only
property of the Landlord subject to such tax; and it is agreed that Tenant
will be responsible for ad valorem taxes on its personal property and on
the value of the leasehold improvements in the Demised Premises to the
extent that the same exceed building standard allowances, if said taxes
are based upon an assessment which includes the cost of such leasehold
improvements in excess of building standard allowances (and if the taxing
authorities do not separately assess Tenant's leasehold improvements,
Landlord may make an appropriate allocation of the ad valorem taxes
allocated to the Project to give effect to this sentence);
(11) the cost of operating the management office for the Project,
including cost of office supplies, telephone expenses and non-capital
investment equipment and amortization (together with reasonable financing
charges) of the cost of capital investment equipment; and
(12) management fees.
Tenant acknowledges that the Project is part of a development, which
will or may include other improvements and that certain of the costs of
management, operation and maintenance of the development shall, from time
to time, be allocated among and shared by two or more of the improvements
in the development (including the Project). The determination of such
costs and their allocation shall be made by Landlord in its sole but
reasonable discretion. In addition, Landlord reserves the right to
recompute and adjust the base year of any component of Operating Expenses
at any time during the Lease Term as a result of any reallocation within
the Project. Accordingly, the term "Operating Expenses" as used in this
Lease shall, from time to time, include some costs, expenses and taxes
enumerated above which were incurred with respect to other improvements in
the development but which were allocated to and share by the Project in
accordance with the foregoing. Notwithstanding the foregoing, Tenant
understands and agrees that its right to use other portions of the
development of which the Project is a part are those available to the
general public and that this Lease does not grant to Tenant additional
rights of use.
(b) For purposes of this Lease, and notwithstanding anything in any
other provision of this Lease to the contrary, "Operating Expenses" shall not
include the following:
(1) the cost of any special work or service performed for any
tenant (including Tenant) at such tenant's cost;
(2) the cost of installing, operating and maintaining any
specialty service, such as an observatory, broadcasting facility, luncheon
club, restaurant, cafeteria, retail store, sundry shop, newsstand, or
concession, but only to the extent such costs exceed those which would
normally be expected to be incurred had such space been general office
space.
(3) the cost of correcting defects in construction;
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(4) compensation paid to officers and executives of Landlord (but
it is understood that the on-site general manager and other on-site
employees below the grade of general manager may carry a title such as
vice president and the salaries and related benefits of these
officers/employees of Landlord would be allowable Operating Expenses under
Article 9[a][1] above);
(5) the cost of any items for which Landlord is reimbursed by
insurance, condemnation or otherwise, except for costs reimbursed
pursuant to the provisions similar to Articles 8 and 9 hereof;
(6) the cost of any additions, changes, replacements and other
items which are made in order to prepare for a new tenant's occupancy;
(7) the cost of repairs incurred by reason of fire or other
casualty;
(8) insurance premiums to the extent Landlord may be directly
reimbursed therefor, except for premiums reimbursed pursuant to
provisions similar to Articles 8 and 9 hereof;
(9) interest on debt or amortization payments on any mortgage or
deed to secure debt (except to the extent specifically permitted by
Article 9[a]) and rental under any ground lease or other underlying lease;
(10) any real estate brokerage commissions or other costs
incurred in procuring tenants or any fee in lieu of such commission;
(11) any advertising expenses incurred in connection with the
marketing of any rentable space;
(12) rental payments for base building equipment such as HVAC
equipment and elevators;
(13) any expenses for repairs or maintenance which are covered by
warranties and service contracts, to the extent that such maintenance
and repairs are made at no cost to the Landlord; and
(14) legal expenses arising out of the construction of the
improvements on the Land or the enforcement of the provisions of any
lease affecting the Land or Building, including without limitation this
Lease.
10. TENANT TAXES. Tenant shall pay promptly when due all taxes
directly or indirectly imposed or assessed upon Tenant's gross sales, business
operations, machinery, equipment, trade fixtures and other personal property or
assets, whether such taxes are assessed against Tenant, Landlord or the
Building. In the event that such taxes are imposed or assessed against Landlord
or the Building, Landlord shall furnish Tenant with all applicable tax bills,
public charges and other assessments or impositions and Tenant shall forthwith
pay the same either directly to the taxing authority or, at Landlord's option,
to Landlord.
11. PAYMENTS. All payments of Rent and other payments to be made to
Landlord shall be made on a timely basis and shall be payable to Landlord or as
Landlord may otherwise designate. All such payment shall be mailed or delivered
to Landlord's Address designated in Article 1(b) above or at such other place
as Landlord may designate from time to time in writing. If mailed, all payments
shall be mailed in sufficient time and with adequate postage thereon to be
received in Landlord's account by no later than the due date for such payment.
Tenant agrees to pay to Landlord Fifty Dollars ($50.00) for each check
presented to Landlord in payment of any obligation of Tenant which is not paid
by the bank on which it is drawn, together with interest from and after the due
date for such payment at the rate of eighteen percent (18%) per annum on amount
due.
12. LATE CHARGES. Any rent or other amounts payable to Landlord under
this Lease, if not paid by the fifth day of the month for which such Rent is
due, or by the due date specified on any invoices from Landlord for any other
amounts payable hereunder, shall incur a late charge of Fifty Dollars ($50.00)
for Landlord's administrative expense in processing such delinquent payment and
in addition thereto shall bear interest at the rate of eighteen percent (18%)
per annum from and after the due date for such payment. Notwithstanding
anything to the contrary contained in this Lease, in no event shall the rate of
interest payable on any amount due under this Lease exceed the legal limits for
such interest enforceable under applicable law.
13. USE RULES. The Demised Premises shall be used for executive,
general administrative and office space purposes and no other purposes and in
accordance with all applicable laws, ordinances, rules and regulations of
governmental authorities and the Rules and Regulations attached hereto and made
a part hereof. Tenant covenants and agrees that it will, at its expense, comply
with all laws, ordinances, orders, directions, requirements, rules and
regulations of all governmental authorities (including Federal, State, county
and municipal authorities), now in force or which may hereafter be in force,
which shall impose any duty upon Landlord or Tenant with respect to the use,
occupancy or alteration of the Demised Premises, and of all insurance bodies
applicable to the Demised Premises or to the Tenant's use or occupancy thereof.
Tenant covenants and agrees to abide by the Rules and Regulations in all
respects as now set forth and attached hereto or as hereafter promulgated by
Landlord. Landlord shall have the right at all times during the Lease Term to
publish and promulgate and thereafter enforce such rules and regulations or
changes in the existing Rules and Regulations as it my reasonably deem
necessary in its sole discretion to protect the tenantability, safety,
operation, and welfare of the Demised Premises and the Project.
14. ALTERATIONS. Except for any initial improvement of the Demised
pursuant to Exhibit "D", which shall be governed by the provisions of said
Exhibit "D", Tenant shall not make, suffer or permit to be made any
alterations, additions or improvements to or of the Demised Premises or any
party thereof, or any fixtures or equipment thereto, without first obtaining
Landlord's written consent. With respect to any alteration, addition or
improvement which does not affect the structure of the Building, does not
affect any of the Building's systems (e.g., mechanical, electrical or
plumbing), does not diminish the capacity of such Building systems available to
other portions of the Building, is not visible from the common areas or
exterior of the Building, and is in full compliance with all laws, orders,
ordinances, directions, requirements, rules and regulations of all governmental
authorities. Landlord's consent shall not be unreasonably withheld. Any such
alterations, additions or improvements to the Demised Premises consented to by
Landlord shall be made by Landlord or under Landlord's supervision for Tenant's
account and Tenant shall reimburse Landlord for all costs thereof (including a
reasonable charge for Landlord's overhead), as Rent, within ten (10) days after
receipt of a statement. All such alterations, additions, and improvements shall
become Landlord's property at the expiration or earlier termination of the
Lease Term and shall remain on the Demised Premises without compensation to
Tenant unless Landlord elects by notice to Tenant to have Tenant remove such
alterations, additions and improvements, in which event,
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notwithstanding any contrary provisions respecting such alterations, additions
and improvements contained in Article 32 hereof, Tenant shall promptly restore,
at its sole cost and expense, the Demised Premises to its condition prior to
the installation of such alterations, additions and improvements, normal wear
and tear excepted.
15. REPAIRS.
(a) Landlord shall maintain in good order and repair, subject to
normal wear and tear and subject to casualty and condemnation, the Building
(excluding the Demised Premises and other portions of the Building leased to
other tenants), the Building parking facilities, the public areas and the
landscaped areas. Notwithstanding the foregoing obligation, the cost of any
repairs or maintenance to the foregoing necessitated by the intentional acts or
negligence of Tenant or its agents, contractors, employees, invitees,
licensees, tenants or assigns, shall be borne solely by Tenant and shall be
deemed Rent hereunder and shall be reimbursed by Tenant to Landlord upon
demand. Landlord shall not be required to make any repairs or improvements to
the Demised Premises except structural repairs necessary for safety and
tenantability.
(b) Tenant covenants and agrees that it will take good care of the
Demised Premises and all alterations, additions and improvements thereto and
will keep and maintain the same in good condition and repair, except for normal
wear and tear. Tenant shall at once report, in writing, to Landlord any
defective or dangerous condition known to Tenant. To the fullest extent
permitted by law, Tenant hereby waives all rights to make repairs at the
expense of Landlord or in lieu thereof to vacate the Demised Premises as may be
provided by any law, statute or ordinance now or hereafter in effect. Landlord
has no obligation and has made no promise to alter, remodel, repair, decorate
or paint the Demised Premises or any part thereof, except as specifically and
expressly herein set forth.
16. LANDLORD'S RIGHT OF ENTRY. Landlord shall retain duplicate keys to
all doors of the Demised Premises and Landlord and its agents, employees and
independent contractors shall have the right to enter the Demised Premises at
reasonable hours to inspect and examine same, to make repairs, additions,
alterations and improvements, to exhibit the Demised Premises to mortgagees,
prospective mortgagees, purchasers or tenants, and to inspect the Demised
Premises to ascertain that Tenant is complying with all of its covenants and
obligations hereunder, all without being liable to Tenant in any manner
whatsoever for any damages arising therefrom; provided, however, that Landlord
shall, except in case of emergency, afford Tenant such prior notification of an
entry into the Demised Premises as shall be reasonably practicable under the
circumstances. Landlord shall be allowed to take into and through the Demised
Premises any and all materials that may be required to make such repairs,
additions, alterations or improvements. During such time as such work is being
carried on, in or about the Demised Premises, the Rent provided herein shall
not abate, and Tenant waives any claim or cause of action against Landlord for
damages by reason of interruption of Tenant's business or loss of profits
therefrom because of the prosecution of any such work or any part thereof.
17. INSURANCE. Tenant shall procure at its expense and maintain
throughout the Lease Term a policy or policies of commercial property
insurance, issued on an "all risks" basis insuring the full replacement cost of
its furniture, equipment, supplies and other property owned, leased, held or
possessed by it and contained in the Demised Premises, together with the excess
value of the improvements to the Demised Premises over the Tenant Improvement
Allowance (with a replacement cost endorsement sufficient to prevent Tenant
from becoming a co-insurer), and workmen's compensation insurance as required
by applicable law. Tenant shall also procure at its expense and maintain
throughout the Lease Term a policy or policies of commercial general liability
insurance, written on an occurrence basis and insuring Tenant, Landlord and any
other person designated by Landlord, against any and all liability for injury
to or death of a person or persons and for damage to property occasioned by or
arising out of any construction work being done on the Demised Premises, or
arising out of the condition, use or occupancy of the Demised Premises, or in
any way occasioned by or arising out of the activities of Tenant, its agents,
contractors, employees, guests or licensees in the Demised Premises, or other
portions of the Building or the Project, the limits of such policy or policies
to be in combined single limits for both damage to property and personal injury
and in amounts not less than Three Million Dollars ($3,000,000.00) for each
occurrence. Such insurance shall, in addition, extend to any liability of
Tenant arising out of the indemnities provided for in this Lease. Tenant shall
also carry such other types of insurance in form and amount which Landlord
shall reasonably deem to be prudent for Tenant to carry, should the
circumstances or conditions so merit Tenant carrying such type of insurance.
All insurance policies procured and maintained by Tenant pursuant to this
Article 17 shall name Landlord and any additional parties designated by
Landlord as additional insured, shall be carried with companies licensed to do
business in the State of Georgia reasonably satisfactory to Landlord and shall
be non-cancelable and not subject to material change except after twenty (20)
days' written notice to Landlord. Such policies or duly executed certificates
of insurance with respect thereto, accompanied by proof of payment of the
premium therefor, shall be delivered to Landlord prior to the Rental
Commencement Date, and renewals of such policies shall be delivered to Landlord
at least thirty (30) days prior to the expiration of each respective policy
term.
18. WAIVER OF SUBROGATION. Landlord and Tenant shall each have
included in all policies of commercial property insurance, commercial general
liability insurance, and business interruption and other insurance respectively
obtained by them covering the Demised Premises, the Building and contents
therein, a waiver by the insurer of all right of subrogation against the other
in connection with any loss or damage thereby insured against. Any additional
premium for such waiver shall be paid by the primary insured. To the full
extent permitted by law, Landlord and Tenant each waives all right of recovery
against the other for, and agrees to release the other from liability for, loss
or damage to the extent such loss or damage is covered by valid and collectible
insurance in effect at the time of such loss or damage or, in the event of
self-insurance or a failure to insure, would be covered by the insurance
required to be maintained under this Lease by the party seeking recovery.
19. DEFAULT.
(a) The following events shall be deemed to be events of default
by Tenant under this Lease: (i) Tenant shall fail to pay any installment of
Rent or any other charge or assessment against Tenant pursuant to the terms
hereof and such failure shall continue for five (5) days after written notice
of such failure or payment; provided, however, such notice and such grace
period shall be required to be provided by Landlord and shall be accorded
Tenant, if necessary, only two (2) times during any calendar year of the Lease
Term, and an event of default shall be deemed to have immediately occurred upon
the third (3rd) failure by Tenant to make a timely payment as aforesaid within
any calendar of the Lease Term; (ii) Tenant shall fail to comply with any term,
provision, covenant or warranty made under this Lease by Tenant, other than the
payment of the Rent or any other charge or assessment payable by Tenant, and
shall not cure such failure within thirty (30) days after notice thereof to
Tenant; (iii) Tenant or any guarantor of this Lease shall make a general
assignment for the benefit of creditors, or shall admit in writing its
inability to pay its debts as they become due, or shall file a petition in
bankruptcy, or shall be adjudicated as bankrupt or insolvent, or shall file a
petition in any proceeding seeking any reorganization, arrangement,
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composition, readjustment, liquidation, dissolution or similar relief under any
present or future statute, law or regulation, or shall file an answer admitting
or fail timely to contest the material allegations of a petition filed against
it in any such proceeding; (iv) a proceeding is commenced against Tenant or any
guarantor of this Lease seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any present or
future statute, law or regulation, and such proceeding shall not have been
dismissed within forty-five (45) days after the commencement thereof; (v) a
receiver or trustee shall be appointed for the Demised Premises or for all or
substantially all of the assets of Tenant or of any guarantor of this Lease;
(vi) Tenant shall abandon or vacate all or any portion of the Demised Premises
or fail to take possession thereof as provided in this Lease; (vii) Tenant
shall do or permit to be done anything which creates a lien upon the Demised
Premises or the Project and such lien is not removed or discharged within
fifteen (15) days after the filing thereof; (viii) Tenant shall fail to return
a properly executed instrument to Landlord in accordance with the provisions of
Article 27 hereof within the time period provided for such return following
Landlord's request for same as provided in Article 27; or (ix) Tenant shall
fail to return a properly executed estoppel certificate to Landlord in
accordance with the provisions of Article 28 hereof within the time period
provided for such return following Landlord's request for same as provided in
Article 28, provided, however, if any non-monetary default is not subject to
cure within the allotted time period and Tenant is diligently pursuing the cure
of such default, then Tenant shall have such time (not to exceed forty-five
(45) days) as is reasonably necessary to cure such default.
(b) Upon the occurrence of any of the aforesaid events of default,
Landlord shall have the option to pursue any one or more of the following
remedies without any notice or demand whatsoever: (i) terminate this Lease, in
which event Tenant shall immediately surrender the Demised Premises to Landlord
and if Tenant fails to do so, Landlord may without prejudice to any other
remedy which it may have for possession or arrearages in Rent, enter upon and
take possession of the Demised Premises and expel or remove Tenant and any
other person who may be occupying said Demised Premises or any part thereof, by
force, if necessary, without being liable for prosecution or any claim of
damages therefor; Tenant hereby agreeing to pay to Landlord on demand the
amount of all loss and damage which Landlord may suffer by reason of such
termination, whether through inability to relet the Demised Premises on
satisfactory terms or otherwise; (ii) terminate Tenant's right of possession
(but not this Lease) and enter upon and take possession of the Demised Premises
and expel or remove Tenant and any other person who may be occupying said
Demised Premises or any part thereof, by entry (including the use of force, if
necessary), dispossessory suit or otherwise, without thereby releasing Tenant
from any liability hereunder, without terminating this Lease, and without being
liable for prosecution or any claim of damages therefor and, if Landlord so
elects, make such alterations, redecorations and repairs as, in Landlord's
judgment, may be necessary to relet the Demised Premises, and Landlord may, but
shall be under no obligation to do so, relet the Demised Premises or any
portion thereof in Landlord's or Tenant's name, but for the account of Tenant,
for such term or terms (which may be for a term extending beyond the Lease
Term) and at such rental or rentals and upon such other terms as Landlord may
deem advisable, with or without advertisement, and by private negotiations, and
receive the rent therefor, Tenant hereby agreeing to pay to Landlord the
deficiency, if any, between all Rent reserved hereunder and the total rental
applicable to the Lease Term hereof obtained by Landlord re-letting, and Tenant
shall be liable for Landlord's expenses in redecorating and restoring the
Demised Premises and all costs incident to such re-letting, including broker's
commissions and lease assumptions, and in no event shall Tenant be entitled to
any rentals received by Landlord in excess of the amounts due by Tenant
hereunder; or (iii) enter upon the Demised Premises by force, if necessary,
without being liable for prosecution or any claim of damages therefor, and do
whatever Tenant is obligated to do under the terms of this Lease; and Tenant
agrees to reimburse Landlord on demand for any expenses including, without
limitation, reasonable attorneys' fees which Landlord may incur in thus
effecting compliance with Tenant's obligations under this Lease and Tenant
further agrees that Landlord shall not be liable for any damages resulting to
Tenant from such action, whether caused by negligence of Landlord or otherwise.
If this Lease is terminated by Landlord as a result of the occurrence of an
event of default, Landlord may declare due and payable immediately an amount
determined as follows: (x) the entire amount of Rent and other charges and
assessments which would have become due and payable during the remainder of the
Lease Term (including, without limitation, increases in Rent pursuant to
Article 7 hereof), discounted to present value by using a discount factor of
eight percent (8%) per annum, plus (y) all of Landlord's costs and expenses
(including, without limitation, Landlord's expenses in redecorating and
restoring the Demised Premises and all costs relating to such reletting,
including broker's commissions and lease assumptions) reasonably incurred in
connection with or related to the reletting of the Demised Premises, minus (z)
the market rental value of the Demised Premises for the remainder of the Lease
Term, based on Landlord's reasonable determination of both future rental value
and the probability of reletting the Demised Premises for all or part of the
remaining Term, discounted to present value by using a discount factor of eight
percent (8%) per annum. Such payment shall not constitute a penalty or
forfeiture but shall constitute liquidated damages for Tenant's failure to
comply with the terms and provisions of this Lease (Landlord and Tenant
agreeing that Landlord's exact damages in such event are impossible to
ascertain and that the amount set forth above is a reasonable estimate
thereof). For purposes of determining what could be collected by Landlord by
re-letting under this subsection, Landlord is not required to relet when other
comparable space in the Building is available. The term "remaining Lease Term"
as used in this subsection shall mean the period which otherwise would have
(but for the termination of this Lease) constituted the balance of the Lease
Term from the date of the termination of this Lease.
(c) Pursuit of any of the foregoing remedies shall not preclude
pursuit of any other remedy herein provided or any other remedy provided by law
or at equity, nor shall pursuit of any remedy herein provided constitute an
election of remedies thereby excluding the later election of an alternate
remedy, or a forfeiture or waiver of any Rent or other charges and assessments
payable by Tenant and due to Landlord hereunder or of any damages accruing to
Landlord by reason of violation of any of the terms, covenants, warranties and
provisions herein contained. No reentry or taking possession of the Demised
Premises by Landlord or any other action taken by or on behalf of Landlord
shall be construed to be an acceptance of a surrender of this Lease or an
election by Landlord to terminate this Lease unless written notice of such
intention is given to Tenant. Forbearance by Landlord to enforce one or more of
the remedies herein provided upon an event of default shall not be deemed or
construed to constitute a waiver of such default. In determining the amount of
loss or damage which Landlord may suffer by reason of termination of this Lease
or the deficiency arising by reason or any reletting of the Demised Premises by
Landlord as above provided, allowance shall be made for the expense of
repossession. Tenant agrees to pay to Landlord all costs and expenses incurred
by Landlord in the enforcement of this Lease, including, without limitation,
the fees of Landlord's attorneys as provided in Article 25 hereof.
20. WAIVER OF BREACH. No waiver of any breach of the covenants,
warranties, agreements, provisions, or conditions contained in this Lease shall
be construed as a waiver of said covenant, warranty, provision, agreement or
condition or of any subsequent breach thereof, and if any breach shall occur
and afterwards be compromised, settled or adjusted, this Lease shall continue
in full force and effect as if no breach had occurred.
21. ASSIGNMENT AND SUBLETTING. Tenant shall not, without the prior
written consent of Landlord, assign this Lease or any interest herein or in the
Demised Premises, or mortgage, pledge, encumber, hypothecate or otherwise
transfer or sublet the Demised Premises or any part thereof or permit the use
of the Demised Premises by any party other than Tenant. Consent to one or more
such transfers or subleases shall not destroy or waive this provision, and all
subsequent transfers and subleases shall likewise be made only upon obtaining
the prior written consent of Landlord. Without limiting
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the foregoing prohibition, in no event shall Tenant assign this Lease or any
interest herein whether directly, indirectly or by operation of law, or sublet
the Demised Premises or any part thereof or permit the use of the Demised
Premises or any part thereof by any party if such proposed assignment,
subletting or use would contravene any restrictive covenant (including any
exclusive use) granted to any other tenant of the Building or would contravene
the provisions of Article 13 of this Lease. Sublessees or transferees of the
Demised Premises for the balance of the Lease Term shall become directly liable
to Landlord for all obligations of Tenant hereunder, without relieving Tenant
(or any guarantor of Tenant's obligations hereunder) of any liability therefor,
and Tenant shall remain obligated for all liability to Landlord arising under
this Lease during the entire remaining Lease Term including any extensions
thereof, whether or not authorized herein. If Tenant is a partnership, a
withdrawal or change, whether voluntary, involuntary or by operation of law, of
partners owning a controlling interest in the Tenant shall be deemed a
voluntary assignment of this Lease and subject to the foregoing provisions. If
Tenant is a corporation, any dissolution, merger, consolidation or other
reorganization of Tenant, or the sale or transfer of a controlling interest in
the capital stock of Tenant, whether in a single transaction or in a series of
transactions, shall be deemed a voluntary assignment of this Lease and subject
to the foregoing provisions. Landlord may, as a prior condition to considering
any request for consent to an assignment or sublease, require Tenant to obtain
and submit current financial statements of any proposed subtenant or assignee
and such other financial documentation relative to the proposed subtenant or
assignee as Landlord may reasonably require. In the event Landlord consents to
an assignment or sublease, Tenant shall pay to Landlord a fee to cover
Landlord's accounting costs plus any legal fees incurred by Landlord as a
result of the assignment or sublease. The consent of Landlord to any proposed
assignment or sublease may be withheld by Landlord in its sole and absolute
discretion. Landlord may require an additional security deposit from the
assignee or subtenant as a condition of its consent. Any consideration, in
excess of the Rent and other charges and sums due and payable by Tenant under
this Lease, paid to Tenant by any assignee of this Lease for its assignment, or
by any sublessee under or in connection with its sublease, or otherwise paid to
Tenant by another party for use and occupancy of the Demised Premises or any
portion thereof, shall be promptly remitted by Tenant to Landlord as additional
rent hereunder and Tenant shall have no right or claim thereto as against
Landlord. No assignment of this Lease consented to by Landlord shall be
effective unless and until Landlord shall receive an original assignment and
assumption agreement, in form and substance satisfactory to Landlord, signed by
Tenant and Tenant's proposed assignee, whereby the assignee assumes due
performance of this Lease to be done and performed for the balance of the then
remaining Lease Term of this Lease. No subletting of the Demised Premises, or
any part thereof, shall be effective unless and until there shall have been
delivered to Landlord an agreement, in form and substance satisfactory to
Landlord, signed by Tenant and the proposed sublessee, whereby the sublessee
acknowledges the right of Landlord to continue or terminate any sublease, in
Landlord's sole discretion, upon termination of this Lease, and such sublessee
agrees to recognize and attorn to Landlord in the event that Landlord elects
under such circumstances to continue such sublease. Upon Landlord's receipt of
a request by Tenant to assign this Lease or any interest herein or in the
Demised Premises or to transfer or sublet the Demised Premises or any part
thereof or permit the use of the Demised Premises by any party other than
Tenant, Landlord shall have the right, at Landlord's option, to exercise in
writing any of the following options: (a) To terminate this Lease as to the
portion of the Demised Premises proposed to be assigned or sublet; (b) to
consent to the proposed assignment or sublease, subject to the other terms and
conditions set forth in this Article 21; or (c) to refuse to consent to the
proposed assignment or sublease, which refusal shall be deemed to have been
exercised unless Landlord gives Tenant written notice providing otherwise.
22. DESTRUCTION.
(a) If the Demises Premises are damaged by fire or other casualty,
the same shall be repaired or rebuilt as speedily as practical under the
circumstances at the expense of Landlord, unless this Lease is terminated as
provided in this Article 22, and during the period required for restoration a
just and proportionate part of Base Rental shall be abated until the Demised
Premises are repaired or rebuilt.
(b) If the Demised Premises are (i) damaged to such an extent that
repairs cannot, in Landlord's judgment, be completed within one hundred eighty
(180) days after the date of the commencement of repair of the casualty, or
(ii) damaged or destroyed as a result of a risk which is not insured under the
insurance policies required hereunder, or (iii) damaged or destroyed during the
last eighteen (18) months of the Lease Term, or (iv) if the Building is damaged
in whole or in part (whether or not the Demised Premises are damaged) to such
an extent that the Building cannot, in Landlord's judgment, be operated
economically as an integral unit, then and in any such event Landlord may at
its option terminate this Lease by notice in writing to Tenant within sixty
(60) days after the day of such occurrence. If the Demised Premises are damaged
to such an extent that repairs cannot, in Landlord's judgment, be completed
within one hundred eighty (180) days after the date of the commencement of
repair of the casualty or if the Demised Premises are substantially damaged
during the last eighteen (18) months of the Lease Term, then in either such
event Tenant may elect to terminate this Lease by notice in writing to Landlord
within fifteen (15) days after the date of such occurrence. Unless Landlord or
Tenant elects to terminate this Lease as hereinabove provided, this Lease will
remain in full force and effect and Landlord shall repair such damage at its
expense to the extent required under subparagraph (c) below as expeditiously as
possible under the circumstances.
(c) If Landlord should elect or be obligated pursuant to
subparagraph (a) above to repair or rebuild because of any damage or
destruction, Landlord's obligation shall be limited to the original Building
and any other work or improvements which were originally performed or installed
at Landlord's expense as described in Exhibit "D" hereto or with the proceed of
the Tenant Improvement Allowance. If the cost of performing such repairs
exceeds the accrual proceeds of insurance paid or payable to Landlord on
account of such casualty, or it Landlord's mortgagee or the lessor under a
ground or underlying lease shall require that any insurance proceeds from a
casualty loss be paid to it, Landlord may terminate this Lease unless Tenant,
within fifteen (15) days after demand therefor, deposits with Landlord a sum of
money sufficient to pay the difference between the cost of repair and the
proceeds of the insurance available to Landlord for such purpose.
(d) In no event shall Landlord be liable for any loss or damage
sustained by Tenant by reason of casualties mentioned hereinabove or any other
accidental casualty.
23. LANDLORD'S LIEN. Landlord shall at all times have a valid first
lien upon all of the personal property of Tenant situated in the Demised
Premises to secure payment of Rent and other sums and charges due hereunder
from Tenant to Landlord and to secure the performance by Tenant of each and all
of the covenants, warranties, agreements and conditions hereof. Said personal
property shall not be removed from the Demised Premises without the consent of
Landlord until all arrearage in Rent and other charges as well as any and all
other sums of money due hereunder shall first have been paid and discharged and
until this Lease and all of the covenants, conditions, agreements and
provisions hereof have been fully performed by Tenant. Tenant shall from time
to time execute any financing statements and other instruments necessary to
perfect the security interest granted herein. The lien herein granted may be
foreclosed in the manner and form provided by law for the foreclosure of
security instruments or chattel mortgages, or in any other manner
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provided by law. This Lease is intended as and constitutes a security agreement
within the meaning of the Uniform Commercial Code of the State of Georgia.
24. SERVICES BY LANDLORD. Landlord shall provide the Building Standard
Services described on Exhibit "E" attached hereto and by this reference made a
part hereof.
25. ATTORNEYS' FEES AND HOMESTEAD. If any Rent or other debt owing by
Tenant to Landlord hereunder is collected by or through an attorney-at-law,
Tenant agrees to pay an additional amount equal to fifteen percent (15%) of
such sum as attorneys' fees. If Landlord uses the services of any attorney in
order to secure compliance with any other provisions of this Lease to recover
damages for any breach or default of any other provisions of this Lease, or to
terminate this Lease or evict Tenant, Tenant shall reimburse Landlord upon
demand for any and all attorneys' fees and expenses so incurred by Landlord.
Tenant waives all homestead rights and exemptions which it may have under any
law as against any obligation owing under this Lease, and assigns to Landlord
its homestead and exemptions to the extent necessary to secure payment and
performance of its covenants and agreements hereunder.
26. TIME. Time is of the essence of this Lease and whenever a certain
day is stated for payment or performance of any obligation of Tenant or
Landlord, the same enters into and becomes a part of the consideration hereof.
27. SUBORDINATION AND ATTORNMENT.
(a) Tenant agrees that this Lease and all rights of Tenant
hereunder are and shall be subject and subordinate to any ground or underlying
lease which may now or hereafter be in effect regarding the Project or any
component thereof, to any mortgage now or hereafter encumbering the Demised
Premises or the Project or any component thereof, to all advances made or
hereafter to be made upon the security of such mortgage, to all amendments,
modifications, renewals, consolidations, extensions and restatements of such
mortgage, and to any replacements and substitutions for such mortgage. The
terms of this provision shall be self-operative and no further instrument of
subordination shall be required. Tenant, however, upon request of any party in
interest, shall execute promptly such instrument or certificates as may be
reasonably required to carry out the intent hereof, whether said requirement is
that of Landlord or any other party in interest, including, without limitation,
any mortgagee. Landlord is hereby irrevocably vested with full power and
authority as attorney-in-fact for Tenant and in Tenant's name, place and stead,
to subordinate Tenant's interest under this Lease to the lien or security title
of any mortgage and to any future instrument amending, modifying, renewing,
consolidating, extending, restating, replacing or substituting any such
mortgage.
(b) If any mortgagee or lessee under a ground or underlying lease
elects to have this Lease superior to its mortgage or lease and signifies its
election in the instrument creating its lien or lease or by separate recorded
instrument, then this Lease shall be superior to such mortgage or lease, as the
case may be. The term "mortgage", as used in this Lease, includes any deed to
secure debt, deed of trust or security deed and any other instrument creating a
lien in connection with any other method of financing or refinancing. The term
"mortgagee", as used in this Lease, refers to the holder(s) of the indebtedness
secured by a mortgage.
(c) In the event any proceedings are brought for the foreclosure
of, or in the event of exercise of the power of sale under, any mortgage
covering the Demised Premises or the Project, or in the event the interests of
Landlord under this Lease shall be transferred by reason of deed in lieu of
foreclosure or other legal proceedings, or in the event of termination or any
lease under which Landlord may hold title, Tenant shall, at the option of the
transferee or purchaser at foreclosure or under power of sale, or the lessor of
the Landlord upon such lease termination, as the case may be (sometimes
hereinafter called "such person"), attorn to such person and shall recognize
and be bound and obligated hereunder to such person as the Landlord under this
Lease; provided, however, that no such person shall be (i) bound by any payment
of Rent for more than one (1) month in advance, except prepayment in the nature
of security for the performance by Tenant of its obligations under this Lease
(and then only if such prepayments have been deposited with and are under the
control of such person); (ii) bound by any amendment or modification of this
Lease made without the express written consent of the mortgagee or lessor of
the Landlord, as the case may be; (iii) obligated to cure any defaults under
this Lease of any prior landlord (including Landlord); (iv) liable for any act
or omission of any prior landlord (including Landlord); (v) subject to any
offsets or defenses which Tenant might have against any prior landlord
(including Landlord); or (vi) bound by any warranty or representation of any
prior landlord (including Landlord) relating to work performed by any prior
landlord (including Landlord) under this Lease. Tenant agrees to execute any
attornment agreement not in conflict herewith requested by Landlord, the
mortgagee or such person. Tenant's obligation to attorn to such person shall
survive the exercise of any such power of sale, foreclosure or other
proceeding. Tenant agrees that the institution of any suit, action or other
proceeding by any mortgagee to realize on Landlord's interest in the Demised
Premises or the Building pursuant to the powers granted to a mortgagee under
its mortgage, shall not, by operation of law or otherwise, result in the
cancellation or termination of the obligations of Tenant hereunder. Landlord
and Tenant agree that notwithstanding that this Lease is expressly subject and
subordinate to any mortgages, any mortgagee, its successors and assigns, or
other holder of a mortgage or of a note secured thereby, may sell the Demised
Premises or the Building, in the manner provided in the mortgage and may, at
the option of such mortgagee, its successors and assigns, or other holder of
the mortgage or note secured thereby, make such sale of this Demised Premises
or Building subject to this Lease.
28. ESTOPPEL CERTIFICATES. Within ten (10) days after request thereto
by Landlord, Tenant agrees to execute and deliver to Landlord in recordable
form an estoppel certificate addressed to Landlord, any mortgagee or assignee
of Landlord's interest in, or purchaser of, the Demised Premises or the
Building or any part thereof, certifying (if such be the case) that this Lease
is unmodified and is in full force and effect (and if there base been
modifications, that the same is in full force and effect as modified and
stating said modifications); that there are no defenses or offsets against the
enforcement thereof or stating those claimed by Tenant, and stating the date to
which Rent and other charges have been paid. Such certificate shall also induce
such other information as may reasonably be required by such mortgagee,
proposed mortgagee, assignee, purchaser or Landlord. Any such certificate may
be relied upon by Landlord, any mortgagee, proposed mortgagee, assignee,
purchaser and any other party to whom such certificate is addressed.
29. NO ESTATE. This Lease shall create the relationship of landlord
and tenant only between Landlord and Tenant and no estate shall pass out of
Landlord. Tenant shall have only an usufruct, not subject to levy and sale and
not assignable in whole or in part by Tenant except as herein provided
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30. CUMULATIVE RIGHTS. All rights, powers and privileges conferred
hereunder upon the parties hereto shall be cumulative to, but not restrictive
of, or in lieu of those conferred by law.
31. HOLDING OVER. If Tenant remains in possession after expiration or
termination of the Lease Term with or without Landlord's written consent,
Tenant shall become a tenant-at-sufferance, and there shall be no renewal of
this Lease by operation of law. During the period of any such holding over, all
provisions of this Lease shall be and remain in effect except that the monthly
rental shall be double the amount of Rent (including any adjustments as
provided herein) payable for the last full calendar month of the Lease Term
including renewals or extensions. The inclusion of the preceding sentence in
this Lease shall not be construed as Landlord's consent for Tenant to hold
over.
32. SURRENDER OF PREMISES. Upon the expiration or other termination of
this Lease, Tenant shall quit and surrender to Landlord the Demised Premises
and every part thereof and all alterations, additions and improvements thereto,
broom clean and in good condition and state of repair, reasonable wear and tear
only excepted. If Tenant is not then in default, Tenant shall remove all
personalty and equipment not attached to the Demised Premises which it has
placed upon the Demised Premises, and Tenant shall restore the Demised Premises
to the condition immediately preceding the time of placement thereof. If Tenant
shall fail or refuse to remove all of Tenant's effects, personalty and
equipment from the Demised Premises upon the expiration or termination of this
Lease for any cause whatsoever or upon Tenant being dispossessed by process of
law or otherwise, such effects, personalty and equipment shall be deemed
conclusively to be abandoned and may be appropriated, sold, stored, destroyed
or otherwise disposed of by Landlord without written notice to Tenant or any
other party and without obligation to account for them. Tenant shall pay
Landlord on demand any and all expenses incurred by Landlord in the removal of
such property, including, without limitation, the cost of repairing any damage
to the Building or Project caused by the removal of such property and storage
charges (if Landlord elects to store such property). The covenants and
conditions of this Article 32 shall survive any expiration or termination of
this Lease.
33. NOTICES. All notices required or permitted to be given hereunder
shall be in writing and shall be deemed to have been fully given, whether
actually received or not, when deposited, postage prepaid, in the United States
Mail, certified, return receipt requested, and addressed to Landlord or Tenant
at their respective address set forth hereinabove or at such other address as
either party shall have theretofore given to the other by notice as herein
provided. Tenant hereby designates and appoints as its agent to receive notice
of all distraint proceedings and all other notices required under this Lease,
the person in charge of the Demised Premises at the time said notice is given
or occupying said Demised Premises at said time; and, if no person is in charge
of or occupying the said Demised Premises, then such service or notice may be
made by attaching the same, in lieu of mailing, on the main entrance to the
Demised Premises.
34. DAMAGE OR THEFT OF PERSONAL PROPERTY. All personal property
brought into the Demised Premises by Tenant, or Tenant's employees, agents, or
business visitors, shall be at the risk of Tenant only, and Landlord shall not
be liable for theft thereof or any damage thereto occasioned by any act of
co-tenants, occupants, invitees or other users of the Building or any other
person. Landlord shall not at any time be liable for damage to any property in
or upon the Demised Premises, which results from gas, smoke, water, rain, ice
or snow which issues or leaks from or forms upon any part of the Building or
from the pipes or plumbing work of the same, or from any other place
whatsoever.
35. EMINENT DOMAIN.
(a) If all or part of the Demised Premises shall be taken for any
public or quasi-public use by virtue of the exercise of the power of eminent
domain or by private purchase in lieu thereof, this Lease shall terminate as to
the part so taken as of the date of taking, and, in the case of a partial
taking, either Landlord or Tenant shall have the right to terminate this Lease
as to the balance of the Demised Premises by written notice to the other within
thirty (30) days after such date; provided, however, that a condition to the
exercise by Tenant of such right to terminate shall be that the portion of the
Demised Premises taken shall be of such extent and nature as substantially to
handicap, impede or impair Tenant's use of the balance of the Demised Premises.
If title to so much of the Project is taken that a reasonable amount of
reconstruction thereof will not in Landlord's sole discretion result in the
Building being a practical improvement and reasonably suitable for use for the
purpose for which it is designed, then this Lease shall terminate on the date
that the condemning authority actually takes possession of the part so
condemned or purchased.
(b) If this Lease is terminated under the provisions of this
Article 35, Rent shall be apportioned and adjusted as of the date of
termination. Tenant shall have no claim against Landlord or against the
condemning authority for the value of any leasehold estate or for the value of
the unexpired Lease Term provided that the foregoing shall not preclude any
claim that Tenant may have against the condemning authority for the unamortized
cost of leasehold improvements, to the extent the same were installed at
Tenant's expense (and not with the proceeds of the Tenant Improvement
Allowance), or for loss of business, moving expenses or other consequential
damages, in accordance with subparagraph (d) below.
(c) If there is a partial taking of the Project and this Lease is
not thereupon terminated under the provisions of this Article 35, then this
Lease shall remain in full force and effect, and Landlord shall, within a
reasonable time thereafter, repair or reconstruct the remaining portion of the
Building to the extent necessary to make the same a complete architectural
unit; provided, that in complying with its obligations hereunder, Landlord
shall not be required to expend more than the net proceeds of the condemnation
award which are paid to Landlord. Upon any such partial taking, Landlord shall
have the right to reduce the figure described in Article 8(b)(y) hereof by an
amount equal to the product of (x) the amount of tax savings arising from such
partial taking, as determined by Landlord in its sole but reasonable
discretion, divided by the number of square feet of Rentable Floor Area of the
Building, multiplied by (y) the number of square feet of Rentable Floor Area of
the Demised Premises.
(d) All compensation awarded or paid to Landlord upon a total or
partial taking of the Demised Premises or the Project shall belong to and be
the property of Landlord without any participation by Tenant. Nothing herein
shall be construed to preclude Tenant from prosecuting any claim directly
against the condemning authority for loss of business, for damage to, and cost
of removal of, trade fixtures, furniture and other personal property belonging
to Tenant, and for the unamortized cost of leasehold improvements to the extent
the same were installed at Tenant's expense (and not with the proceeds of the
Tenant Improvement Allowance); provided, however, that no such claim shall
diminish or adversely affect Landlord's award.
(e) Notwithstanding anything to the contrary contained in this
Article 35, if, during the Lease Term, the use or occupancy of any part of the
Project or the Demised Premises shall be taken or appropriated temporarily for
any public or quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain, this Lease shall be and remain
unaffected by such taking or appropriation and Tenant shall
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continue to pay in full all Rent payable hereunder by Tenant during the Lease
Term. In the event of any such temporary appropriation or taking, Tenant shall
be entitled to receive that portion of any award which represents compensation
for the loss of use or occupancy of the Demised Premises during the Lease Term,
and Landlord shall be entitled to receive that portion of any award which
represents the cost of restoration and compensation for the loss of use or
occupancy of the Demised Premises after the end of the Lease Term.
36. PARTIES. The term "Landlord", as used in this Lease, shall include
Landlord and its successors and assigns. It is hereby covenanted and agreed by
Tenant that should Landlord's interest in the Demised Premises cease to exist
for any reason during the Lease Term, then notwithstanding the happening of
such event, this Lease nevertheless shall remain in full force and effect, and
Tenant hereby agrees to attorn to the then owner of the Demised Premises. The
term "Tenant" shall include Tenant and its heirs, legal representatives and
successors, and shall also include Tenant's assignees and sublessees, if this
Lease shall be validly assigned or the Demised Premises sublet for the balance
of the Lease Term or any renewals or extensions thereof. In addition, Landlord
and Tenant covenant and agree that Landlord's right to transfer or assign
Landlord's interest in and to the Demised Premises, or any part or parts
thereof, shall be unrestricted, and that in the event of any such transfer or
assignment by Landlord which includes the Demised Premises, Landlord's
obligations to Tenant hereunder shall cease and terminate, and Tenant shall
look only and solely to Landlord's assignee or transferee for performance
thereof.
37. LIABILITY OF TENANT. Tenant hereby indemnifies Landlord from and
agrees to hold Landlord harmless against, any and all liability, loss, cost,
damage or expense, including, without limitation, court costs and reasonably
attorneys' fees, imposed on Landlord by any person whomsoever, caused in whole
or in part by any act or omission of Tenant, or any of its employees,
contractors, servants, agents, subtenants, assignees, representatives or
invitees, or otherwise occurring in connection with any default of Tenant
hereunder. The provisions of this Article 37 shall survive any termination of
this Lease.
38. RELOCATION OF THE PREMISES.
(a) In the event the Demised Premises leased to Tenant contain less
than one-half (1/2) of the total square feet of Rentable Floor Area on the
floor on which the Demised Premises are located, Landlord reserves the right at
any time or from time to time, at its option and upon giving not less than
thirty (30) days' prior written notice to Tenant, to transfer and remove Tenant
from the Demised Premises herein specified to any other available rooms and
offices of substantially equal size and area in the Building (or other building
in the development of which the Building is a part) and at an equivalent Base
Rental, provided that, if the size of the relocated space is larger than the
Demised Premises by more than ten (10%) percent, the Base Rental shall not
increase by more than ten (10%) percent. Landlord shall bear the expense of
said removal together with the reasonable expense of replacement business cards
and stationery and the expense of any renovation or alterations to said
substituted space necessary to make the same substantially conform in
arrangement, layout and level of tenant improvements (not to exceed $50.00 per
rentable square foot of the substituted space, reduced pro rata on a
straight-time basis relative to the remaining portion of the Term) to the
original space described in this Lease. If the substituted space is
unacceptable to Tenant. Tenant may (within five (5) days of Landlord's notice
of relocation) terminate this Lease for the remainder of the Term, in which
event neither Landlord nor Tenant shall have any further obligations hereunder.
If Landlord exercises such option, then the substituted space shall for all
purposes hereof be deemed to be and to constitute the Demised Premises under
this Lease and all terms, conditions, covenants, warranties, agreements and
provisions of this Lease including but not limited to the same Base Rental Rate
per square foot of Rentable Floor Area shall continue in full force and effect
and shall apply to the substituted space. Tenant agrees to vacate the Demised
Premises herein specified and relocate to said substituted space promptly after
the substituted space is ready for Tenant's occupancy as provided herein, and
Tenant's failure to do so shall constitute an event of default by Tenant under
this Lease.
(b) In the event the Demised Premises leased to Tenant contain
less than one-half (1/2) of the total square feet of Rentable Floor Area on the
floor on which the Demised Premises are located, Landlord shall have the right
to terminate this Lease effective at any time during the final twelve (12)
months of the Lease Term upon giving written notice of such election to Tenant
at least ninety (90) days prior to the effective date of such termination. In
the event Landlord shall exercise such option to terminate this Lease, Landlord
shall bear the cost of moving Tenant's furniture, files and other personal
property from the Demised Premises to other office space in the Metropolitan
Atlanta, Georgia area selected by Tenant, and in addition, the Base Rental for
the last month of Tenant's occupancy of the Demised Premises shall be waived.
39. FORCE MAJEURE. In the event of strike, lockout, labor trouble,
civil commotion, Act of God, or any other cause beyond a party's control
(collectively, "force majeure") resulting in Landlord's inability to supply the
services or perform the other obligations required of Landlord hereunder, this
Lease shall not terminate and Tenant's obligation to pay Rent and all other
charges and sums due and payable by Tenant shall not be affected or excused and
Landlord shall not be considered to be in default under this Lease. If, as a
result of force majeure, Tenant is delayed in performing any of its obligations
under this Lease, other than Tenant's obligation to take possession of the
Demised Premises on or before the Rental Commencement Date and to pay Rent and
all other charges and sums payable by Tenant hereunder, Tenant's performance
shall be excused for a period equal to such delay and Tenant shall not during
such period be considered to be in default under this Lease with respect to the
obligation, performance of which has thus been delayed.
40. LANDLORD'S LIABILITY. Landlord shall have no personal liability
with respect to any of the provisions of this Lease. If Landlord is in default
with respect to its obligations under this Lease, Tenant shall look solely to
the equity of Landlord in and to the Building and the Land for satisfaction of
Tenant's remedies, if any. It is expressly understood and agreed that
Landlord's liability under the terms of this Lease shall in no event exceed the
amount of its interest in and to said Land and Building. In no event shall any
partner of Landlord nor any joint venturer in Landlord, nor any officer,
director or shareholder of Landlord or any such partner or joint venturer of
Landlord be personally liable with respect to any of the provisions of this
Lease.
41. LANDLORD'S COVENANT OF QUIET ENJOYMENT. Provided Tenant performs
the terms, conditions and covenants of this Lease, and subject to the terms and
provisions hereof, Landlord covenants and agrees to take all necessary steps to
secure and to maintain for the benefit of Tenant the quite and peaceful
possession of the Demised Premises, for the Lease Term, without hindrance,
claim or molestation by Landlord or any other person lawfully claiming under
Landlord.
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42. SECURITY DEPOSITS.
(a) As security for Tenant's obligations to take possession of the
Demised Premises in accordance with the terms of this Lease and to comply with
all of Tenant's covenants, warranties and agreements hereunder, Tenant shall
deposit with Landlord the sum set forth in Article 1(m)(i) above on the date
Tenant executes and delivers this Lease to Landlord. Such amount shall be
applied by Landlord, without interest, to the first monthly installment(s) of
Base Rental as they become due hereunder. In the event Tenant fails to take
possession of the Demised Premises as aforesaid, said sum shall be retained by
Landlord for application in reduction, but not in satisfaction, of damages
suffered by Landlord as a result of such breach by Tenant.
(b) As additional security for the faithful performance by Tenant
throughout the Lease Term, and any extensions or renewals thereof, of all the
terms and conditions of the Lease on the part of Tenant to be performed, Tenant
shall deposit with COMPASS Management and Leasing, Inc., as agent for Landlord,
the sum set forth in Article 1(m)(ii) above on the date Tenant executes and
delivers this Lease to Landlord. Such amount shall be returned to Tenant,
without interest, within twenty (20) days after the day set for the expiration
of the Lease Term, or any extension or renewal thereof, provided Tenant has
fully and faithfully observed and performed all of the terms, covenants,
agreements, warranties and conditions hereof on its part to be observed and
performed. Landlord shall have the right to apply all or any part of said
deposit toward the cure of any default of Tenant. If all or any part of said
security deposit is so applied by Landlord, then Tenant shall immediately pay
to Landlord an amount sufficient to return said security deposit to the balance
on deposit with Landlord prior to said application.
(c) In the event of a sale or transfer of Landlord's interest in
the Demised Premises or the Building or a lease by Landlord of the Building,
Landlord shall have the right to transfer the within described security
deposits to the purchaser or lessor, as the case may be, and Landlord shall be
relieved of all liability to Tenant for the return of such security deposits.
Tenant shall look solely to the new owner or lessor for the return of said
security deposits. The security deposits shall not be mortgaged, assigned or
encumbered by Tenant. In the event of a permitted assignment under this Lease
by Tenant, the security deposits shall be held by Landlord as a deposit made by
the permitted assignee and Landlord shall have no further liability with
respect to the return of said security deposits to the original Tenant.
(d) Neither Landlord nor its agents shall be required to keep the
security deposits separate from their general accounts, it being agreed that
the security deposits may be commingled with other funds of Landlord or of its
agents. It is further agreed and acknowledged by Tenant that Landlord or its
agents shall have the right to deposit the security deposits in an
interest-bearing account, and all interest accrued on the security deposits
shall belong to Landlord and will be retained by Landlord as its property.
43. HAZARDOUS SUBSTANCES. Tenant hereby covenants and agrees that
Tenant shall not cause or permit any "Hazardous Substances" (as hereinafter
defined) to be generated, placed, held, stored, used, located or disposed of at
the Project or any part thereof, except for Hazardous Substances as are
commonly and legally used or stored as a consequence of using the Demised
Premises for general office and administrative purposes, but only so long as
the quantities thereof do not pose a threat to public health or to the
environment or would necessitate a "response action", as that term is defined
in CERCLA (as hereinafter defined), and so long as Tenant strictly complies or
causes compliance with all applicable governmental rules and regulations
concerning the use or production of such Hazardous Substances. For purposes of
this Article 43, "Hazardous Substances" shall mean and include those elements
or compounds which are contained in the list of Hazardous Substances adopted by
the United States Environmental Protection Agency (EPA) or the list of toxic
pollutants designated by Congress or the EPA which are defined as hazardous,
toxic, pollutant, infectious or radioactive by any other federal, state or
local statute, law, ordinance, code, rule, regulation, order or decree
regulating, relating to or imposing liability (including, without limitation,
strict liability) or standards of conduct concerning, any hazardous, toxic or
dangerous waste, substance or material, as now or at any time hereinafter in
effect (collectively "Environmental Laws"). Tenant hereby agrees to indemnify
Landlord and hold Landlord harmless from and against any and all losses,
liabilities, including strict liability, damages, injuries, expenses, including
reasonable attorneys' fees, costs of settlement or judgment and claims of any
and every kind whatsoever paid, incurred or suffered by, or asserted against,
Landlord by any person, entity or governmental agency for, with respect to, or
as a direct or indirect result of, the presence in, or the escape, leakage,
spillage, discharge, emission or release from, the Demised Premises of any
Hazardous Substances (including, without limitation, any losses, liabilities,
including strict liability, damages, injuries, expenses, including reasonable
attorneys' fees, costs of any settlement or judgment or claims asserted or
arising under the Comprehensive Environmental Response, Compensation and
Liability Act ["CERCLA"], any so-called federal, state or local "Superfund" or
"Superlien" laws or any other Environmental Law); provided, however, that the
foregoing indemnity is limited to matters arising solely from Tenant's
violation of the covenant contained in this Article. The obligations of Tenant
under this Article shall survive any expiration or termination of this Lease.
44. SUBMISSION OF LEASE. The submission of this Lease for examination
does not constitute an offer to lease and this Lease shall be effective only
upon execution hereof by Landlord and Tenant and upon execution of any required
Guaranty Agreement annexed hereto and incorporated herein as Exhibit "F".
45. SEVERABILITY. If any clause or provision of the Lease is illegal,
invalid or unenforceable under present or future laws, the remainder of this
Lease shall not be affected thereby, and in lieu of each clause or provision of
this Lease which is illegal, invalid or unenforceable, there shall be added as
a part of this Lease a clause or provision as nearly identical to the said
clause or provision as may be legal, valid and enforceable.
46. ENTIRE AGREEMENT. This Lease contains the entire agreement of the
parties and no representations, inducements, promises or agreements, oral or
otherwise, between the parties not embodied herein shall be of any force or
effect. No failure of Landlord to exercise any power given Landlord hereunder,
or to insist upon strict compliance by Tenant with any obligation of Tenant
hereunder, and no custom or practice of the parties at variance with the terms
hereof, shall constitute a waiver of Landlord's right to demand exact
compliance with the terms hereof. This Lease may not be altered, waived,
amended or extended except by an instrument in writing signed by Landlord and
Tenant. This Lease is not in recordable form, and Tenant agrees not to record
or cause to be recorded this Lease or any short form or memorandum thereof.
47. HEADINGS. The use of headings herein is solely for the convenience
of indexing the various paragraphs hereof and shall in no event be considered
in construing or interpreting any provision of this Lease.
48. BROKER. Broker(s) [as defined in Article 1(n)] is (are) entitled
to a leasing commission from Landlord by virtue of this Lease, which leasing
commission shall be paid by Landlord to Broker(s) in accordance with the terms
of a separate agreement between Landlord and Broker(s). Tenant hereby
12
<PAGE> 49
authorizes Broker(s) and Landlord to identify Tenant as a tenant of the
Building and to state the amount of space leased by Tenant in advertisements
and promotional materials relating to the Building. Tenant represents and
warrants to Landlord that [except with respect to any Broker(s) identified in
Article 1(n) hereinabove, which has (have) acted as agent for Tenant (and not
for Landlord) in this transaction] no broker, agent, commission salesperson, or
other person has represented Tenant in the negotiations for and procurement of
this Lease and of the Demised Premises and that [except with respect to any
Broker(s) identified in Article 1(n) hereinabove] no commissions, fees or
compensation of any kind are due and payable in connection herewith to any
broker, agent, commission salesperson or other person as a result of any act or
agreement of Tenant. Tenant agrees to indemnify and hold Landlord harmless from
all loss, liability, damage, claim, judgment, cost or expense (including
reasonable attorneys' fees and court costs) suffered or incurred by Landlord as
a result of a breach by Tenant of the representation and warranty contained in
the immediately preceding sentence or as a result of Tenant's failure to pay
commissions, fees or compensation due to any broker who represented Tenant,
whether or not disclosed, or as a result of any claim for any fee, commission
or similar compensation with respect to this Lease made by any broker, agent or
finder [other than the Broker(s) identified in Article 1(n) hereinabove]
claiming to have dealt with Tenant, whether or not such claim is meritorious.
The parties hereto do hereby acknowledge and agree that COMPASS Management and
Leasing, Inc., a subsidiary of Equitable Real Estate Investment Management,
Inc., has acted as agent for Landlord in this transaction and shall be paid a
commission by Landlord in connection with this transaction pursuant to the
terms of a separate written commission agreement. COMPASS Management and
Leasing, Inc. has not acted as agent for Tenant in this transaction. Landlord
hereby warrants and represents to Tenant that Landlord has not dealt with any
broker, agent or finder other than COMPASS Management and Leasing, Inc. in
connection with this Lease, and, Landlord hereby agrees to indemnify and hold
Tenant harmless from and against any and all loss, damage, liability, claim,
judgment, cost or expense (including, but not limited to, reasonable attorneys'
fees and court costs) that may be incurred or suffered by Tenant because of any
claim for any fee, commission or similar compensation with respect to this
Lease made by any broker, agent or finder claiming to have represented
Landlord.
49. GOVERNING LAW. The laws of the State of Georgia shall govern the
validity, performance and enforcement of this Lease.
50. AUTHORITY. If Tenant executes this Lease as a corporation, each of
the persons executing this Lease on behalf of Tenant does hereby personally
represent and warrant that Tenant is a duly incorporated or a duly qualified
(if a foreign corporation) corporation and is fully authorized and qualified to
do business in the State in which the Demised Premises are located, that the
corporation has full right and authority to enter into this Lease, and that
each person signing on behalf of the corporation is an officer of the
corporation and is authorized to sign on behalf of the corporation. If Tenant
signs as a partnership, joint venture or sole proprietorship or other business
entity (each being herein called "Entity"), each of the persons executing on
behalf of Tenant does hereby covenant and warrant that Tenant is a duly
authorized and existing Entity, that Tenant has full right and authority to
enter into this Lease, that all persons executing this Lease on behalf of the
Entity are authorized to do so on behalf of the Entity, and that such execution
is fully binding upon the Entity and its partners, joint venturers or
principal, as the case may be. Upon the request of Landlord, Tenant shall
deliver to Landlord documentation satisfactory to Landlord evidencing Tenant's
compliance with this Article, and Tenant agrees to promptly execute all
necessary and reasonable applications or documents as reasonably requested by
Landlord, required by the jurisdiction in which the Demised Premises is
located, to permit the issuance of necessary permits and certificates for
Tenant's use and occupancy of the Demised Premises.
51. JOINT AND SEVERAL LIABILITY. If Tenant comprises more than one
person, corporation, partnership or other entity, the liability hereunder of
all such persons, corporations, partnerships or other entities shall be joint
and several.
52. SPECIAL STIPULATIONS. The special stipulations attached hereto as
Exhibit "G" are hereby incorporated herein by this reference as though fully
set forth (if none, so state). To the extent the special stipulations conflict
with or are inconsistent with the foregoing provisions of this Lease or any
exhibit to this Lease, the special stipulations shall control.
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals as of the day, month and year first above written.
"LANDLORD":
KNICKERBOCKER MONARCH ASSOCIATES, L.P.
By: Knickerbocker Properties, Inc., XVIII,
its general partner
Date executed by Landlord By:
------------------------------------------
- ------------------------- Title:
---------------------------------------
[CORPORATE SEAL]
"TENANT":
DELTA AIR LINES, INC., a Delware corporation
Date executed by Tenant By: /s/
7-3-97 ------------------------------------------
- ------------------------- Title: Vice President Properties, Facilities
--------------------------------------
- - -Environments
--------------------------------------
Attest: /s/ Robert S. Harkey
--------------------------------------
Title: Senior Vice President-General Counsel
--------------------------------------
& Secretary
--------------------------------------
[CORPORATE SEAL]
13
<PAGE> 50
RULES AND REGULATIONS
1. No sign, picture, advertisement or notice visible from the exterior of the
Demised Premises shall be installed, affixed, inscribed, painted or
otherwise displayed by Tenant on any part of the Demised Premises or the
Building unless the same is first approved by Landlord. Any such sign,
picture, advertisement or notice approved by Landlord shall be painted or
installed for Tenant at Tenant's cost by Landlord or by a party approved
by Landlord. No awnings, curtains, blinds, shades or screens shall be
attached to or hung in, or used in connection with any window or door of
the Demised Premises without the prior consent of Landlord, including
approval by Landlord of the quality, type, design, color and manner of
attachment.
2. Tenant agrees that its use of electrical current shall never exceed the
capacity of existing feeders, risers or wiring installation.
3. The Demised Premises shall not be used for storage of merchandise held for
sale to the general public. Tenant shall not do or permit to be done in or
about the Demised Premises or Building anything which shall increase the
rate of insurance on said Building or obstruct or interfere with the rights
of other lessees of Landlord or annoy them in any way, including, but not
limited to, using any musical instrument, making loud or unseemly noises,
or singing, etc. The Demised Premises shall not be used for sleeping or
lodging. No cooking or related activities shall be done or permitted by
Tenant in the Demised Premises except with permission of Landlord. Tenant
will be permitted to use for its own employees within the Demised Premises
a small microwave oven and Underwriters' Laboratory approved equipment for
brewing coffee, tea, hot chocolate and similar beverages, provided that
such use is in accordance with all applicable federal, state, county and
city laws, codes, ordinances, rules and regulations. No vending machines of
any kind will be installed, permitted or used on any part of the Demised
Premises without the prior consent of Landlord. No part of said Building or
Demised Premises shall be used for gambling, immoral or other unlawful
purposes. No intoxicating beverages shall be sold in said Building or
Demised Premises without the prior written consent of Landlord. No area
outside of the Demised Premises shall be used for storage purposes at any
time.
4. No birds or animals of any kind shall be brought into the Building (other
than trained seeing-eye dogs required to be used by the visually
impaired). No bicycles, motorcycles or other motorized vehicles shall be
brought into the Building.
5. The sidewalks, entrances, passages, corridors, halls, elevators and
stairways in the Building shall not be obstructed by Tenant or used for any
purposes other than those for which same were intended as ingress and
egress. No windows, floors or skylights that reflect or admit light into
the Building shall be covered or obstructed by Tenant. Toilets, wash basins
and sinks shall not be used for any purpose other than those for which they
were constructed, and no sweeping, rubbish or other obstructing or improper
substances shall be thrown therein. Any damage resulting to them, or to
heating apparatus, from misuse by Tenant or its employees, shall be borne
by Tenant.
6. Only one (1) key for the Demised Premises will be furnished to Tenant
without charge. Landlord may make a reasonable charge for any additional
keys. No additional lock, latch or bolt of any kind shall be placed upon
any door nor shall any changes be made in existing locks without written
consent of Landlord and Tenant shall in each such case furnish Landlord
with a key for any such lock. At the termination of the Lease, Tenant shall
return to Landlord all keys furnished to Tenant by Landlord, or otherwise
procured by Tenant, and in the event of loss of any keys so furnished,
Tenants shall pay to Landlord the cost thereof.
7. Landlord shall have the right to prescribe the weight, position and manner
of installation of heavy articles such as safes, machines and other
equipment brought into the Building. No safes, furniture, boxes, large
parcels or other kind of freight shall be taken to or from the Demised
Premises or allowed in any elevator, hall or corridor except at times
allowed by Landlord. No deliveries shall be made in passenger elevators.
Tenants shall make prior arrangements with Landlord for use of freight
elevator for the purpose of transporting such articles and such articles
may be taken in or out of said Building only between or during such hours
as may be arranged with and designated by Landlord. The persons employed to
move the same must be approved by Landlord. No hand trucks, except those
equipped with rubber tires and side guards, shall be permitted in the
Building. No hand trucks shall be permitted in any passenger elevator. In
no event shall any weight be placed upon any floor by Tenant so as to
exceed the design conditions of the floors at the applicable locations.
8. No furniture, fixtures, equipment or other personal property may be placed
in or on the common areas of the Building, including without limitation any
balconies or patios adjacent to the Demised Premises, without the prior
written consent of Landlord. In responding to any such request, Landlord
may also specify (as a condition of any approval) the specific types of
personal property which are acceptable and the required method(s) of
securing such personal property in order to prevent injury or damage to
persons or property.
9. Tenant shall not cause or permit any gases, liquids or odors to be
produced upon or permeate from the Demised Premises, and no flammable,
combustible or explosive fluid, chemical, substance or item (including,
without limitation, natural Christmas trees) shall be brought into the
Building.
10. Every person, including Tenant, its employees and visitors, entering and
leaving the Building may be questioned by a watchman as to that person's
business therein and may be required to sign such person's name on a form
provided by Landlord for registering such person; provided that, except
for emergencies or other extraordinary circumstances, such procedures
shall not be required between the hours of 7:00 a.m. and 6:00 p.m., on all
days except Saturdays, Sundays and Holidays. Landlord may also implement a
card access security system to control access during such other times.
Landlord shall not be liable for excluding any person from the Building
during such other times, or for admission of any person to the Building at
any time, or for damages or loss for theft resulting therefrom to any
person, including Tenant.
11. Unless agreed to in writing by Landlord, Tenant shall not employ any person
other than Landlord's contractors for the purpose of cleaning and taking
care of Demised Premises. Cleaning service will not be furnished on nights
when rooms are occupied after 6:30 p.m., unless, by
Rules and Regulations
Page 1 of 2
<PAGE> 51
agreement in writing, service is extended to a later hour for specifically
designated rooms. Landlord shall not be responsible for any loss, theft,
mysterious disappearance of or damage to, any property, however occurring. Only
persons authorized by Landlord may furnished ice, drinking water, towels, and
other similar services within the Building and only at hours and under
regulations fixed by Landlord.
12. No connection shall be made to the electric wires or gas or electric
fixtures, without the consent in writing on each occasion of Landlord. All
glass, locks and trimmings in or upon the doors and windows of the Demised
Premises shall be kept whole and in good repair. Tenant shall not injure,
overload or deface the Building, the woodwork or the walls of the Demised
Premises, not permit any noisome, noxious, noisy or offensive business.
13. If Tenant requires wiring for a bell or buzzer system, such wiring shall be
done by the electrician of landlord only, and no outside wiring persons
shall be allowed to do work of this kind unless by the written permission
of Landlord or its representatives. If telegraph or telephonic service is
desired, the wiring for same shall be approved by Landlord, and no boring
or cutting for wiring shall be done unless approved by Landlord or its
representatives, as stated. The electric current shall not be used for
power or heating unless written permission to do so shall first have been
obtained from Landlord or its representatives in writing, and at an agreed
cost to Tenant.
14. Tenant and its employees and invitees shall observe and obey all parking
and traffic regulations as imposed by Landlord. All vehicles shall be
parked only in areas designated therefor by Landlord.
15. Canvassing, peddling, soliciting and distribution of handbills or any
other written materials in the Building are prohibited, and Tenant shall
cooperate to prevent the same.
16. Landlord shall have the right to change the name of the Building and to
change the street address of the Building, provided that in the case of a
change in the street address, Landlord shall give Tenant not less than 180
days' prior notice of the change, unless the change is required by
governmental authority.
17. The directory of the Building will be provided for the display of the name
and location of the tenants. Any additional name which Tenant shall desire
to place upon said directory must first be approved by Landlord, and if so
approved, a reasonable charge will be made therefor.
18. Tenant, in order to obtain maximum effectiveness of the cooling system,
shall lower and close the blinds (at not less than a 45(degree) angle) or
drapes when the sun's rays are directly in windows of the Demised
Premises. Tenant shall not remove the standard blinds installed in the
Demised Premises. Tenant shall not place items on window sills in the
Demised Premises.
19. Smoking is prohibited in the main building lobby, public corridors,
elevator lobbies, service elevator vestibules, stairwells, restrooms and
other common areas within the Building.
20. The employees, licensees and guests of Tenant shall wear appropriate
attire at all times in or about the Demised Premises and the Building.
This shall not prevent Tenant from having "casual days," but any such
casual dress shall be appropriate for an office environment and shall not
disrupt the decorum and professional atmosphere of the Building.
21. Landlord may waive any one or more of these Rules and Regulations for the
benefit of any particular lessee, but no such waiver by Landlord shall be
construed as a waiver of such Rules and Regulations in favor of any other
lessee, nor prevent Landlord from thereafter enforcing any such Rules and
Regulations against any or all of the other lessees of the Building.
22. These Rules and Regulations are supplemental to, and shall not be
construed to in any way modify or amend, in whole or in part, the terms,
covenants, agreements and conditions of any lease of any premises in the
Building.
23. Landlord reserves the right to make such other and reasonable Rules and
Regulations as in its judgment may from time to time be needed for the
safety, care and cleanliness of the Building and the Land, and for the
preservation of good order therein.
24. Landlord reserves the right to require Tenant to temporarily evacuate the
Demised Premises and the Project, or temporarily restrict Tenant's access
thereto, if Landlord, in its sole discretion, deems such action necessary
to protect or otherwise safeguard the health or safety of Tenant, any other
Building tenant, or any other Building occupant from any threat or
perceived threat of any kind made upon the Building, the Project or any
tenant of Landlord. Any such action taken by Landlord shall not be deemed
an actual or constructive eviction of Tenant, a breach of the covenant of
quiet enjoyment or an interruption of Tenant's business, and Tenant not
shall be entitled to any abatement of rent, loss or profits or damages for
any injury or inconvenience occasioned thereby.
Rules and Regulations
Page 2 of 2
<PAGE> 52
EXHIBIT "A"
LEGAL DESCRIPTION
MONARCH TOWER
All that tract or parcel of land lying and being in Land Lot 45 of the
17th District of Fulton County, Georgia and being more particularly described
as follows:
To locate the point of beginning commence at a point on the northwest line
of the right of way of Peachtree Road 755.5 feet northeasterly, as
measured along the northwesterly line of the right of way of Peachtree
Road from the corner formed by the intersection of the northwesterly line
of the right of way Peachtree Road with the northeasterly line of the
right of way of Stratford Road, run thence north 30 decrees 0.3 minutes 00
seconds west 300.11 feet to an iron pin; run thence north 23 degrees 57
minutes 46 seconds west 386.11 feet to a point marked by an iron pin being
the POINT OF BEGINNING; from said POINT OF BEGINNING run thence south 66
degrees 00 minutes 55 seconds west 70.00 feet to a reinforcing bar set;
thence north 23 degrees 57 minutes 46 seconds west 385.62 feet to a
reinforcing bar set; thence along an arc with a curve to the left an arc
distance of 154.87 feet to a point located on the right-of-way line of
Lenox Road (formerly the Buckhead Loop), said are being subtended by a
chord bearing north 39 degrees 58 minutes 33 seconds east a distance of
154.29 feet; thence along the southwesterly, southerly and southeasterly
right-of-way line of Lenox Road the following courses and distances: along
an arc of a curve to the left an arc distance of 89.02 feet to a point,
said arc being subtended by a chord bearing north 26 degrees 26 minutes 08
seconds east 88.91 feet in length; north 62 degrees 37 minutes 39 seconds
east 33.42 feet to a point; along an arc with a curve to the right an arc
distance of 289.42 feet to a point, said arc being subtended by a chord
bearing south 62 degrees 15 minutes 19 seconds east 288.12 feet in length;
along an arc of a curve to the right an arc distance of 72.55 feet, said
arc being subtended by a chord bearing south 50 degrees 27 minutes 50
seconds east 72.53 feet in length; south 48 degrees 06 minutes 00 seconds
east 76.95 feet to a point; thence leaving said right-of-way line and
running south 41 degrees 53 minutes 43 seconds west 5.00 feet to a point;
thence south 48 degrees 05 minutes 58 seconds east 38.78 feet to a point;
thence south 18 degrees 04 minutes 43 seconds east 49.69 feet to a point;
thence south 63 degrees 49 minutes 17 seconds west 1.60 feet to a point;
thence south 24 degrees 04 minutes 05 seconds east 49.00 feet to a point;
thence north 65 degrees 56 minutes 42 seconds east 1.51 feet to a point;
thence south 69 degrees 43 minutes 22 seconds east 28.95 feet to a point;
thence south 87 degrees 14 minutes 54 seconds west 17.51 feet to a point;
thence south 66 degrees 00 minutes 55 seconds west 423.68 to the Point of
Beginning, as depicted upon composite survey prepared for The Equitable
Life Assurance Society of the United States, Laing Dunwoody, Inc. and
Chicago Title Insurance Company prepared by W.L. Jordan & Co., Inc. dated
March 15, 1995.
<PAGE> 53
EXHIBIT "B"
[FLOOR PLAN]
Picture of the MONARCH TOWER 17th FLOOR PLAN
<PAGE> 54
EXHIBIT "C"
SUPPLEMENTAL NOTICE
RE: Lease dated as of _______________________________, 19______, by and
between KNICKERBOCKER MONARCH ASSOCIATES, L.P., as Landlord, and
_________________________________________, as Tenant.
Dear Sirs:
Pursuant to Article 3 of the captioned Lease, please be advised as
follows:
1. The Rental Commencement Date is the ___________________ day of
_____________________, 19_____, and the expiration date of the
Lease Term is the ________ day of ________, _____, subject
however to the terms and provisions of the Lease.
2. The Rentable Floor Area of the Demised Premises is _____________
square feet.
3. Terms denoted herein by initial capitalization shall have the
meanings ascribed thereto in the Lease.
"LANDLORD":
KNICKERBOCKER MONARCH ASSOCIATES, L.P.
By:
---------------------------------------
Title:
-------------------------------
<PAGE> 55
[FIRST GENERATIONI SPACE]
EXHIBIT "D"
LANDLORD'S CONSTRUCTION
1. Landlord and Tenant, at Tenant's sole cost and expense, shall cause to be
prepared by Landlord's architect and/or designer the following:
(a) Based upon Tenant's requirements, one (1) schematic partition layout
to scale sufficient to detail for Tenant's approval of the location
of partitions.
(b) One (1) modification of the schematic partition plan noted above.
2. Landlord and Tenant, at Tenant's sole cost and expense, shall cause to be
prepared by Landlord's architect and/or designer and/or engineer the
following:
(a) Any additional modification requested by Tenant to the schematic
partition plan described in Paragraph 1 above.
(b) At Tenant's option, a preliminary pricing drawing in sufficient
detail to obtain competitive bids for the work to be done by
Landlord's contractor under Paragraph 4 hereof.
(c) Complete, finished, detailed construction documents and
specifications for Tenant's partition layout, reflected ceiling and
other installations for the work to be done by Landlord's contractor
under Paragraphs 3 and 4 hereof, which shall be prepared by
Landlord's architect and/or designer.
(d) Complete mechanical and electrical plans and specifications where
necessary for installation of air conditioning system and ductwork,
heating, electrical, plumbing and other engineering plans for the
work to be done by Landlord's contractor under Paragraph 4 hereof,
which shall be prepared by Landlord's architect and/or designer
and/or engineer.
(e) Any subsequent modifications to the construction documents and
specifications requested by Tenant.
All such plans and specifications are expressly subject to Landlord's
approval and shall comply with all applicable laws, rules and
regulations. Tenant covenants and agrees to cause said plans and
specifications to be delivered to Landlord by _____________ (a)
approved by Tenant and Tenant's architect (if applicable) and (b) in
a form acceptable for issuance of a building permit and sufficient to
be released for construction. Any delay by Tenant in delivering the
plans and specifications as required by the previous sentence shall
cause a delay in the completion of Landlord's construction. Upon
approval by Landlord, Landlord will cause said plans to be filed, if
necessary, at Tenant's sole cost and expense with the appropriate
governmental agencies in such form (building permit, alteration or
other form) as Landlord may direct. The Demised Premises shall be
deemed "ready for occupancy" [as that term is used in Article 1(k) of
the Lease] when Landlord's construction, as provided in Paragraphs 3
and 4 hereof, is substantially completed and when a certificate of
occupancy is issued with respect to the Demised Premises. In the
event of any dispute as to when Landlord's construction has been
substantially completed as aforesaid, the determination of Landlord's
architect and/or designer shall be final and binding upon the
parties.
3. Landlord agrees, at it sole expense and without charge to Tenant, to
supply and install (except where indicated to the contrary) the following
work in the Demised Premises in accordance with Landlord's standard
specifications (the following describes the scope of the "building
standard" work):
(a) Air Conditioning. An air conditioning system, including diffusers and
returns, capable of maintaining 74(degree) F when outside temperature
is 92(degree) F and 70(degree) F when outside temperature is
14(degree) F. Air conditioning design basis is 7 watts per rentable
square foot of total electrical design consumption for both low
(120/208 volts) and high voltage (277/480 volts) electrical power,
based upon an occupancy rate of not more than one (1) person per 100
rentable square feet and venetian blinds drawn with slats tilted
against the sun at not less than 45(degree) from horizontal. Landlord
will provide a partially completed air conditioning system to include
the supply ductwork in place for all zones, one(1) calibrated
thermostat and/or sensor (uninstalled), air distribution ductwork in
place on the downstream side of the mixing boxes, and stacked on the
floor (for Tenant's installation) spin-ins, flex, interior supply
diffusers and return air grills with slot diffusers installed at the
perimeter for each zone.
(b) Electrical. An electrical capacity of 3.5 watts per square foot of
rentable area for low voltage electrical consumption (120/208 volts)
and 3.5 watts per square foot of rentable area for high voltage
lighting and HVAC (277/480 volts) will be provided at a location on
each floor. Landlord will provide (but not install) up to one (1) two
foot x four foot fluorescent lighting fixture per one hundred (100)
usable square feet of the Demised Premises.
(c) Sprinkler System. A complete sprinkler system at a rate of not more
than one (1) sprinkler head per 225 square feet of usable area
installed in accordance with Landlord's standard grid pattern.
(d) Ceiling System. A two foot x two foot suspended ceiling system with
uninstalled acoustical ceiling tiles stacked on floor.
(e) Venetian Blinds. Venetian blinds on all exterior windows in
accordance with Landlord's standard specifications.
(f) Building Directory. Incorporation of Tenant's name into the main
building directory at First (1st) Floor and Concourse levels.
Exhibit "D"
Page 1 of 3
<PAGE> 56
(g) Loading of Structure. Live loads typical at floors: 100 psf (includes
allowance for partitions).
4. Landlord agrees, at Tenant's sole cost and expense and in conformance with
construction documents and specifications approved by Landlord, to provide
and install the following material, equipment and work:
(a) Air Conditioning. Any modifications to or deviations from building
standard air conditioning system including, but not limited to,
capacity beyond design standards, provisions for supplying air
conditioning beyond Building Operating Hours as stated in this Lease
and/or providing non-standard equipment such as acoustical lined
ductwork, dampers, special diffusers and returns, direct equipment
connection or special thermostats/sensors. Tenant shall pay for the
installation of the thermostats, spin-ins, flex, interior supply
diffusers and return air grilles supplied by Landlord.
(b) Electrical.
(1) Electrical distribution system on each floor from the electrical
panel location on each floor.
(2) All light switches.
(3) All electrical receptacles.
(4) All telephone and data communication outlets (roughed-in).
(5) All light fixtures and related circuitry, panel boards in excess
of those supplied by Landlord per paragraph 3 above.
(6) All wiring of emergency light fixtures and furnishing and
installation of all extra exit signs.
(c) Ceiling System. Tenant's ceiling construction (in excess of that
supplied by Landlord per paragraph 3 above) and installation of
acoustical ceiling tile.
(d) Sprinkler System. Any modification to or deviation from the building
standard sprinkler system including relocation of or additions to the
number of sprinkler heads provided or the provision of a non-standard
sprinkler head.
(e) Plumbing. All plumbing work for facilities such as toilets and
lavatory in the Demised Premises.
(f) Partitions. All partition types including finish, the tenant side of
the main corridor walls which are within the Demised Premises.
(g) Doors. All doors and frames.
(h) Hardware. All hardware.
(i) Floors. All floor finish including base.
(j) Special Construction. Any special construction as shown on the
construction documents and specifications approved by Landlord
(including but not limited to design, engineering, fabrication and
installation of custom millwork, computer rooms, equipment rooms,
special use rooms, security systems, data and voice cabling, etc.).
(k) Signage. Tenant's identification sign conforming to Landlord's
standards, at entrances to Demised Premises.
(l) Fire Alarm System. All fire alarm devices, including speakers and
strobes, required within the Demised Premises by applicable building
code.
(m) Fire Extinguisher Cabinets. At locations not exceeding 75 feet apart.
5. Prior to commencing any work, Landlord or Landlord's contractor will
submit to Tenant written estimates of the cost of the work described in
Paragraphs 2 and 4 hereof. If Tenant shall fail to approve any such
estimate within five (5) business days, the same shall be deemed
disapproved in all respects by Tenant and Landlord shall not be authorized
to proceed thereon.
6. Tenant agrees to pay Landlord promptly upon being billed therefor the cost
of the work described in Paragraphs 2 and 4 hereof, less the amount of the
Tenant Improvement Allowance, if any, stated in Article 1(1) of the Lease.
Tenant agrees that the same shall be collectible as additional rent and in
default of payment thereof Landlord shall (in addition to all other
remedies) have the same rights as in the event of default of payment of
Base Rental. Tenant further agrees to pay to a construction manager
designated by Landlord, a fee for construction management in an amount
equal to five percent (5%) of the first $500,000.00, plus four percent
(4%) of the amount in excess of $500,000.00 but less than $1,500,000.00,
plus three percent (3%) of the amount in excess of $1,500,000.00 of the
cost of the work described in Paragraphs 1.2 and 4 hereof. The
construction management fee shall be paid on a monthly basis during the
course of performing such duties in the same portion as the percentage of
work completed to date. The failure to pay such fee promptly after being
billed therefor shall constitute a default under this Lease.
7. If (a) Tenant shall fail to furnish approved plans and specifications in
accordance with Paragraph 2 hereof, or (b) Landlord shall be delayed in
substantially completing Landlord's construction as a result of (i)
Tenant's request for materials, finishes or installations other than
Landlord's standard; or (ii) Tenant's changes in said plans; or (iii) the
performance of work by a person, firm or corporation employed by Tenant
and delays in the completion of said work by said person, firm or
corporation, Tenant agrees to pay to Landlord, in addition to any sum due
under Paragraph 6 above, a sum equal to any additional cost to Landlord in
completing Landlord's construction resulting from any of the foregoing
failures, acts
Exhibit "D"
Page 2 of 3
<PAGE> 57
or omissions by Tenant. Any such sums shall be in addition to any sums
payable pursuant to Paragraph 2 and 4 hereof and may be collected by
Landlord as additional rent from time to time, upon demand, and in default
of payment thereof, Landlord shall (in addition to all other remedies)
have the same rights as in the event of default of payment of Base Rental.
8. As provided for in Paragraph 3, the Demised Premises are delivered to
Tenant "as is" without any warranty or representation whatsoever. Any
alterations, additions or improvements requested by Tenant and approved by
Landlord shall be performed (i) by Landlord's contractor or another
contractor approved by Landlord, (ii) in a good and workmanlike manner,
and (iii) in accordance with all applicable laws, ordinances, rules and
regulations of governmental authorities having jurisdiction over the
Demised Premises.
9. Any approval by Landlord of or consent by Landlord to any plans,
specifications or other items to be submitted to and/or reviewed by
Landlord pursuant to this Lease shall be deemed to be strictly limited to
an acknowledgement of approval or consent by Landlord thereto and, whether
or not the work is performed by Landlord or by Tenant's contractor, such
approval or consent shall not constitute the assumption by Landlord of any
responsibility for the accuracy, sufficiency or feasibility of any plans,
specifications or other such items and shall not imply any
acknowledgement, representation or warranty by Landlord that the design is
safe, feasible, structurally sound or will comply with any legal or
governmental requirements, and Tenant shall be responsible for all of the
same.
Exhibit "D"
Page 3 of 3
<PAGE> 58
EXHIBIT "E"
BUILDING STANDARD SERVICES
Landlord shall furnish the following services to Tenant during the
Lease Term (the "Building Standard Services"):
(a) Hot and cold domestic water and common-use restrooms and toilets
at locations provided for general use and as reasonably deemed by Landlord to
be in keeping with the first-class standards of the Building.
(b) Subject to curtailment as required by governmental laws, rules or
mandatory regulations and subject to the design conditions set forth in
Paragraph 3(a) of Exhibit "D" attached hereto, central heat and air
conditioning in season, at such temperatures and in such amounts as are
reasonably deemed by Landlord to be in keeping with the first-class standards
of the Building. Such heating and air conditioning shall be furnished between
8:00 a.m. and 6:00 p.m. on weekdays (from Monday through Friday, inclusive) and
between 8:00 a.m. and 1:00 p.m. on Saturdays, all exclusive of Holidays, as
defined below (the "Building Operating Hours").
(c) Electric lighting service for all public areas and special
service areas of the Building in the manner and to the extent reasonably deemed
by Landlord to be in keeping with the first-class standards of the Building.
(d) Janitor service shall be provided five (5) days per week,
exclusive of Holidays (as hereinbelow defined), in a manner that Landlord
reasonably deems to be consistent with the first-class standards of the
Building.
(e) Security services for the Building comparable as to coverage,
control and responsiveness (but not necessarily as to means for accomplishing
same) to other similarly situated first-class, multi-tenant office buildings in
Atlanta, Georgia; provided, however, Landlord shall have no responsibility to
prevent, and shall not be liable to Tenant for, any liability or loss to
Tenant, its agents, employees and visitors arising out of losses due to theft,
burglary, or damage or injury to persons or property caused by persons gaining
access to the Demised Premises, and Tenant hereby releases Landlord from all
liability for such losses, damages or injury.
(f) Sufficient electrical capacity to operate (i) incandescent
lights, typewriters, calculating machines, photocopying machines and other
machines of the same low voltage electrical consumption (120/208 volts),
provided that the total rated electrical design load for said lighting and
machines of low electrical voltage shall not exceed 3.5 watts per square foot
of rentable area; and (ii) lighting (277/480 volts), provided that the total
rated electrical design load for said lighting shall not exceed 3.5 watts per
square foot of rentable area (each such rated electrical design loan to be
hereinafter referred to as the "Building Standard Rated Electrical Design
Load").
Should Tenant's total rated electrical design load for the entire
Premises or any portion thereof (including, but not limited to, computer or
telephone rooms) exceed the Building Standard Rated Electrical Design Load for
either low or high voltage electrical consumption, or if Tenant's electrical
design requires low voltage or high voltage circuits in excess of Tenant's
share of the building standard circuits, Landlord will (at Tenant's expense)
install such additional circuits and associated high voltage panels and/or
additional low voltage panels with associated transformers (which additional
circuits, panels and transformers shall be hereinafter referred to as the
"Additional Electrical Equipment"). If the Additional Electrical Equipment is
installed because Tenant's low voltage or high voltage rated electrical design
load exceeds the applicable Building Standard Rated Electrical Design Loan,
then a meter shall also be added (at Tenant's expense) to measure the
electricity used through the Additional Electrical Equipment.
The design and installation of any Additional Electrical
Equipment (or any related meter) required by Tenant shall be subject to the
prior approval of Landlord (which approval shall not be unreasonably withheld).
All expenses incurred by Landlord in connection with the review and approval of
any Additional Electrical Equipment shall also be reimbursed to Landlord by
Tenant. Tenant shall also pay on demand the actual metered cost of electricity
consumed through the Additional Electrical Equipment (if applicable), plus any
actual accounting expenses incurred by Landlord in connection with the metering
thereof.
If any of Tenant's electrical equipment requires conditioned air
in excess of building standard air conditioning, the same shall be installed by
Landlord (on Tenant's behalf), and Tenant shall pay all design, installation,
meeting, operating and maintenance costs relating thereto.
If Tenant requires that certain areas within Tenant's Demised
Premises must operate in excess of the normal Building Operating Hours (as
hereinabove defined), the electrical service to such areas shall be separately
circuited and metered (at Tenant's expense) such that Tenant shall be billed
the costs associated with electricity consumed during the hours other than
Building Operating Hours.
(g) All building standard fluorescent bulb replacement in all areas
and all incandescent bulb replacement in public areas, toilet and restroom
areas, and stairwells.
(h) Non-exclusive multiple cab passenger service to the Demised
Premises during Building Operating Hours (as hereinabove defined) and at least
one (1) cab passenger service to the floor(s) on which the Demised Premises are
located twenty-four (24) hours per day and non-exclusive freight elevator
service during Building Operating Hours (all subject to temporary cessation for
ordinary repair and maintenance and during times when life safety systems
override normal Building operating systems) with such freight elevator service
available at other times upon reasonable prior notice and the payment by Tenant
to Landlord of any additional expense actually incurred by Landlord in
connection therewith.
To the extent the services described above require electricity and
water supplied by public utilities, Landlord's covenants thereunder shall only
impose on Landlord the obligation to use its reasonable efforts to cause the
applicable public utilities to furnish same. Except for deliberate and willful
acts of Landlord, failure by Landlord to furnish the services described herein,
or any cessation thereof, shall not render Landlord liable for damages to
either person or property, nor be construed as an eviction of Tenant, nor work
an abatement of rent, nor relieve Tenant from fulfillment of any covenant
Exhibit "E"
Page 1 of 2
<PAGE> 59
or agreement hereof. In addition to the foregoing, should any of the equipment
or machinery, for any cause, fail to operate or function properly, Tenant shall
have no claim for rebate of rent or damages on account of an interruption in
service occasioned thereby or resulting therefrom; provided, however, Landlord
agrees to use reasonable efforts to promptly repair said equipment or machinery
and to restore said services during normal business hours.
The following dates shall constitute "Holidays", as that term is used
in this Lease: New Year's Day, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, Christmas, and any other holiday generally recognized as such
by landlords of office space in the metropolitan Atlanta office market, as
determined by Landlord in good faith. If, in the case of any specific holiday
mentioned in the preceding sentence, a different day shall be observed than the
respective day mentioned, then that day which constitutes the day observed by
national banks in Atlanta, Georgia on account of said holiday shall constitute
the Holiday under this Lease.
Exhibit "E"
Page 2 of 2
<PAGE> 60
EXHIBIT "F"
GUARANTY
(INTENTIONALLY DELETED)
<PAGE> 61
EXHIBIT "G"
SPECIAL STIPULATIONS
1. AMERICANS WITH DISABILITIES ACT.
If and to the extent Landlord is required to comply with the
provisions of Title III of the Americans With Disabilities Act (the "ADA") with
respect to the common areas of the Project, Landlord agrees that it will use
reasonable efforts to comply in every material respect with the applicable
provisions of the ADA concerning the common areas of the Project: provided,
however, Landlord shall not be required to comply with the provisions of the
ADA if and to the extent the requirement of compliance therewith arises from or
extends to (a) the use or occupancy of the Project, or any portion thereof, by
any lessee, tenant, sublessee, subtenant, licensee or occupant (including
Tenant), or (b) any alteration, improvement, addition, remodeling or renovation
made, or proposed to be made, to any space in the Project leased or available
for lease (including the Demised Premises). All costs, expenses and
disbursements of every kind and nature in connection with the Landlord's
obligations under this Section shall be included in Operating Expenses. Tenant
hereby agrees that Tenant's sole remedy against Landlord for any claim that
Landlord has breached its obligations under this Section shall be a suit for
specific performance and Tenant hereby waives any claim against Landlord for
damages, whether actual, consequential or otherwise.
2. PARKING.
For use by Tenant's officers, employees, agents, and invitees,
Landlord shall provide in the parking garage which is located on the Land one
(1) unassigned, non-exclusive parking space and one (1) reserved parking space.
The cost of such parking will be at the normal monthly rates established from
time to time by Landlord, which rate is currently Fifty-Five and No/100 Dollars
($55.00) per month per space for unassigned parking spaces and Seventy-Five and
No/100 Dollars ($75.00) per month per space for reserved parking spaces.
3. LANDLORD'S CONSENT TO ASSIGNMENT AND SUBLETTING REQUESTS.
(a) Notwithstanding anything contained in Article 21 to the
contrary, provided (a) Tenant is not in default hereunder, and (b) Tenant's
request to assign or sublease does not occur during the last twenty-five (25%)
percent of the Lease Term and relate to more than twenty (20%) percent of the
rentable square feet of the Demised Premises, Landlord shall not unreasonably
withhold its consent to Tenant's request to assign this Lease or to sublease
the Demised Premises. In determining the reasonableness of Landlord's approval
of or failure to consent to Tenant's assignment of this Lease or the subleasing
of the Demised Premises. Landlord may take into consideration all relevant
factors surrounding the proposed sublease and assignment, including without
limitation, the following:
(i) the business reputation of the proposed assignee or
subtenant and its partners, officers, directors, and
stockholders;
(ii) the nature of the business and the proposed use of
the Demised Premises by the proposed assignee or
subtenant;
(iii) the financial condition of the proposed assignee or
subtenant;
(iv) the effect that the proposed assignee or subtenant
would have on the operations and maintenance of the
Building and Landlord's investment therein;
(v) whether or not the proposed assignee or subtenant is
reputable and of a kind customarily found in a
"Class A" office building;
(vi) whether or not the proposed assignee or subtenant is
presently a tenant (or subsidiary, affiliate or
parent of a tenant) in the Building;
(vii) restrictions, if any, contained in other leases or
agreements affecting the Building;
(viii) the extent to which the proposed subtenant or
assignee and Tenant provide Landlord with assurances
reasonably satisfactory to Landlord as to the
satisfaction of Tenant's obligations hereunder,
including the payment of rent;
(ix) restrictions, if any, imposed by the holder of any
mortgage encumbering the Building or any portion
thereof; and
(x) whether or not the proposed assignee or subtenant is
willing to agree in the assignment of lease agreement
or sublease agreement, as the case may be, to comply
at its expense, with all laws, ordinances, orders,
directions, requirements, rules and regulations of
all governmental authorities, then in force and which
may thereafter be in force, which impose any duty on
Landlord or the assignee or subtenant, as the case
may be, with respect to the use, occupancy or
alteration of the Demised Premises or any portion
thereof.
(b) Notwithstanding anything contained in Article 21 to the
contrary, provided Tenant is not in default hereunder, Tenant shall have the
right, upon at least ten (10) days' prior written notice to Landlord and the
delivery of the executed copy of the proposed assignment agreement or sublease
as provided below, to assign this Lease or to sublet all or any portion of the
Demised Premises to an Affiliate (as hereinafter defined) having a net worth
and credit rating which is equal to or greater than the net worth and credit
rating of Tenant on the date of execution hereof (or, if then greater, on the
date such approval is requested); provided, however, no such assignment or
subletting shall relieve Tenant of its obligations to Landlord hereunder. The
term
Exhibit "G"
Page 1 of 2
<PAGE> 62
"Affiliate" shall mean any parent corporation or any subsidiary which controls
or is controlled by Tenant, or any corporation in which or with which Tenant is
merged or consolidated provided that by operation of law or by effective
provisions contained in the instruments of merger or consolidation the
liabilities of the corporations participating in such merger or consolidation
are assumed by the corporation surviving such merger or created by such
consolidation. The term "control" shall mean ownership of not less than
fifty-one percent of the voting rights attributable to the shares of the
controlled corporation. Contemporaneously with any such notice to Landlord,
Tenant shall deliver a counterpart executed copy of such assignment agreement
or sublease, as the case may be. Any such assignment or sublease agreement
shall provide, inter alia, that it is subject to all of the terms and
provisions of this Lease and that the Lease may not be further assigned without
the prior written consent of Landlord, and any such sublease shall specify that
such sublease shall not be assigned or the Demised Premises further sublet,
without the prior written consent of Landlord. In addition, no such subletting
shall be for a term which shall extend beyond one (1) day prior to the
expiration of this Lease.
(c) Tenant hereby agrees that Tenant's sole remedy against
Landlord for any claim that Landlord has acted unreasonably in withholding its
consent to Tenant's request to assign this Lease or sublet the Demised Premises
shall be a suit for specific performance and Tenant hereby waives any claim
against Landlord for damages, whether actual or consequential or otherwise.
Exhibit "G"
Page 2 of 2
<PAGE> 63
SCHEDULE 3G
OTHER BENEFITS
1. Continued membership in Delta Employees' Credit Union on same terms
and conditions as other retirees.
2. Continued opportunity to purchase certain additional group insurance,
including dependent life, group life insurance and group accident
insurance on same terms and conditions as other retirees.
3. Continued participation in the Directors' Charitable Award Program,
as the program exists from time to time.
4. Payment of unused earned and accrued vacation pay through July 31,
1997.
<PAGE> 1
EXHIBIT 10.16
(Form of Agreement for Chief Operating Officer and Executive Vice Presidents)
EXECUTIVE RETENTION PROTECTION AGREEMENT
EXECUTIVE RETENTION PROTECTION AGREEMENT ("Agreement") dated as of August
1, 1997 (the "Effective Date") by and between Delta Air Lines, Inc., a Delaware
corporation (the "Company"), and [NAME] ("Executive").
WHEREAS, Executive is presently employed by the Company in a key management
capacity; and
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its stockholders that
appropriate steps be taken to reinforce and encourage the continued attention of
key management personnel, including Executive, to their assigned duties without
the distraction that may arise from personal uncertainties associated with any
pending or threatened change in control of the Company; and
WHEREAS, the Board has also determined that it is in the best interests of
the Company and its stockholders to encourage Executive's continued availability
to the Company in the event of a change in control.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements of the parties set forth in this Agreement, and of
other good and valuable consideration including, but not limited to, Executive's
continuing employment with the Company, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE 1
TERM OF AGREEMENT
SECTION 1.01. Initial Term. The term of this Agreement shall commence on
the Effective Date and shall expire December 31, 1998 (the "Initial Term"),
subject to Sections 1.02 and 1.03.
SECTION 1.02. Extensions. As of each December 31 after the Effective
Date, the term of this Agreement shall automatically be extended by one year
(each such additional one-year period following the Initial Term a "Successive
Period") unless, at least sixty days prior to such December 31, (i) either party
has provided the other with written notice of such party's intent that the term
of this Agreement not be so extended or (ii) there occurs a termination of
Executive's employment with the Company.
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SECTION 1.03. Automatic Extension Upon Change in Control. In the event
that a Change in Control occurs during the Initial Term or any Successive
Period, upon the effective date of such Change in Control the term of this
Agreement shall automatically be extended for a period of 36 months from the
effective date of such Change in Control. The 36-month extension described in
this Section 1.03 shall take effect regardless of whether, before or after the
effective date of a Change in Control, Executive or the Company has given
written notice of intent not to extend the term of the Agreement pursuant to
Section 1.02 or there has occurred a termination of Executive's employment,
provided the term of the Agreement has not yet expired as of such effective
date.
ARTICLE 2
OBLIGATIONS OF COMPANY ON CHANGE IN CONTROL
SECTION 2.01. Deferred Compensation. (a) In the event that a Change in
Control occurs during the term of this Agreement, the Company shall promptly
thereafter cause to be irrevocably deposited in trust for the benefit of
Executive and his or her beneficiaries, on the terms set forth in Section
2.01(c), an amount equal to the balance as of the date of such deposit of
Executive's accounts under the Deferred Compensation Plan. (Such trust is
hereinafter referred to as the "Deferred Compensation Trust.") From and after
the date of such Change in Control, the Company shall cause to be irrevocably
deposited in the Deferred Compensation Trust any additional amounts that may be
deferred from time to time by Executive under the Deferred Compensation Plan.
Each such subsequent deposit shall be made on the date the applicable deferred
amount would otherwise have been received by Executive, but for Executive's
election to defer such receipt under the Deferred Compensation Plan.
(b) The trustee of the Deferred Compensation Trust shall be a bank that is
organized under the laws of the United States of America, has assets exceeding
$500,000,000, and may validly exercise trustee powers under Georgia state law.
All trustee's fees and other expenses of administering the Deferred Compensation
Trust shall be borne by the Company.
(c) The instrument governing the Deferred Compensation Trust (the "Trust
Instrument") shall, to the extent reasonably necessary to assure that the
Deferred Compensation Plan will continue to be treated as "unfunded" for
purposes of ERISA and the Code, provide that upon insolvency of the Company the
assets of the Trust will be subject to the claims of the Company's general
creditors. The Trust Instrument shall provide that in all other respects the
assets of the Deferred Compensation Trust will be maintained for the exclusive
benefit of Executive and his or her beneficiaries, and will otherwise be subject
to all fiduciary and other requirements of applicable state trust law. The
Trust Instrument shall require that
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<PAGE> 3
the trustee invest the assets of the Trust in a manner calculated to match as
closely as the trustee deems reasonably possible the investment elections made
from time to time by Executive under the Deferred Compensation Plan, and shall
provide for payment of benefits in accordance with the terms of Executive's
applicable payment elections as in effect from time to time under the Deferred
Compensation Plan.
(d) After the date of a Change in Control, the Company shall not (other
than pursuant to Section 3.03(i) hereof) take any steps to disturb or alter
Executive's (or Executive's beneficiaries') rights to receive amounts deferred
under the Deferred Compensation Plan in accordance with such Executive's
applicable payment elections as in effect from time to time. Nothing herein or
in the Trust Instrument shall relieve the Company of its obligation to pay
benefits under the Deferred Compensation Plan in accordance with the terms of
such Plan, to the extent such benefits are not paid from the Deferred
Compensation Trust.
SECTION 2.02. Payment of Performance-Based Awards. In the event that a
Change in Control occurs during the term of this Agreement and while Executive
is employed by the Company, the Company shall promptly thereafter pay Executive
the sum of (i) the Reference Incentive Compensation Award, prorated to reflect
the portion of the fiscal year elapsed through the date of the Change in
Control, and (ii) the Reference Long-Term Award, for each performance period
that includes the date of the Change in Control under any long-term incentive
plan maintained by the Company, prorated to reflect the portion of such
performance period elapsed through the date of the Change in Control. The
amounts referred to in clauses (i) and (ii) above shall be paid in the form of
cash or shares of Company stock, in accordance with the terms of the applicable
award agreements. The payment under this Section 2.02 shall discharge all
liabilities of the Company to Executive under the Company's annual and long-term
incentive plans and programs, and under this Agreement, with respect to
performance-based incentive compensation (other than stock options and stock
appreciation rights) for the periods referred to in clauses (i) and (ii) above.
SECTION 2.03. Stock Options, Stock Appreciation Rights and
Non-Performance-Based Award. In the event that a Change in Control occurs
during the term of this Agreement and while Executive is employed by the
Company, all outstanding stock options, stock appreciation rights, restricted
stock (if not performance-based), or other non-performance-based awards held by
Executive pursuant to the provisions of the Company's 1989 Stock Incentive Plan
or any successor plan shall become immediately vested, nonforfeitable and
exercisable as of the date of the Change in Control.
SECTION 2.04. Gross-Up Payment. In the event that a Change in Control
occurs during the term of this Agreement, if any payment or acceleration of
vesting
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<PAGE> 4
or exercisability under this Article 2 would result in the imposition of excise
tax under Section 4999 of the Code, or of any interest or penalties with respect
to such excise tax, then Executive shall be entitled to a Gross-Up Payment with
respect to such excise tax, interest or penalties. Such Gross-Up Payment shall
be determined in the manner set forth in Article 4 (excluding Paragraph A and
the last sentence of Paragraph B of Section 4.01), substituting the term "Change
in Control" for the term "Qualifying Event" in Section 4.02. In addition, such
Gross-Up Payment shall be subject to the provisions of Section 4.03 in the same
manner as if such Gross-Up Payment had been paid under Article 4. The Company
shall pay Executive the Gross-Up Payment described in this Section 2.04 as soon
as practicable following the Change in Control, but in no event later than 30
days from such Change in Control.
ARTICLE 3
SEVERANCE BENEFITS
SECTION 3.01. Right to Severance Benefits. In the event that a Qualifying
Event occurs during the term of this Agreement, Executive shall be entitled to
receive from the Company Severance Benefits as described in Section 3.03 and the
Gross-Up Payment described in Section 4.01. The Severance Benefits described in
Sections 3.03(a), 3.03(b), 3.03(c), 3.03(d), 3.03(e), 3.03(f), 3.03(h) and
3.03(i), as well as the Gross-Up Payment, shall be paid or provided to Executive
as soon as practicable following the Qualifying Event, but in no event later
than 30 days from such Qualifying Event.
SECTION 3.02. Qualifying Event. A "Qualifying Event" means any of the
following events:
(a) The involuntary termination of Executive's employment by the Company
during the 36-month period following a Change in Control, other than (i) for
Cause, or (ii) by reason of Executive's death or Disability;
(b) Executive's voluntary termination of employment for Good Reason during
the 36-month period following a Change in Control; or
(c) The occurrence of a Change in Control within one year after (i) the
involuntary termination of Executive's employment by the Company other than (A)
for Cause, or (B) by reason of Executive's death or Disability; or (ii)
Executive's voluntary termination of employment for Good Reason; if, in the case
of either clause (i) or (ii), the involuntary termination or actions giving rise
to the existence of Good Reason, as the case may be, were undertaken by the
Company in anticipation of a Change in Control.
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<PAGE> 5
SECTION 3.03. Severance Benefits. Executive shall be entitled to the
following benefits (the "Severance Benefits") under the circumstances described
in Section 3.01:
(a) The Company shall pay Executive a lump sum, in cash, equal to
Executive's earned but unpaid Base Salary and other earned but unpaid cash
entitlements for the period through and including the date of termination of
Executive's employment, including unused earned and accrued vacation pay and
unreimbursed business expenses. In addition, Executive shall be entitled to any
other benefits earned or accrued by Executive for the period through and
including the date of termination of Executive's employment under any other
employee benefit plans and arrangements maintained by the Company, in accordance
with the terms of such plans and arrangements, except as modified herein.
(b) In the case of a Qualifying Event described in Section 3.02(c), the
Company shall pay Executive the amount that would have been payable to Executive
under Section 2.02, had the Change in Control occurred as of the date of
termination of Executive's employment. The payment under this Section 3.03(b)
shall be reduced by any payments previously made to Executive under the
Company's annual and long-term incentive plans and programs, and under this
Agreement, with respect to performance-based incentive compensation (other than
stock options and stock appreciation rights) for the periods referred to in
clauses (i) and (ii) of Section 2.02.
(c) The Company shall pay Executive a lump sum, in cash, equal to three
times the sum of Executive's Reference Salary and Reference Incentive
Compensation Award.
(d) The Company shall pay Executive a lump sum, in cash, equal to the
actuarial present value of the difference between the retirement benefits
described in clauses (i) and (ii) below:
(i) The retirement benefits described in this clause shall be the
total benefits that would be payable to Executive and his or her spouse
under the Qualified Pension Plan and the Nonqualified Pension Plans in
the form of a monthly annuity commencing as of Executive's Earliest
Retirement Date, calculated in accordance with the terms of such plans
as in effect on the date of termination of Executive's employment (or,
if greater, as in effect immediately prior to the Change in Control),
and assuming:
(A) Executive is fully vested in his or her benefits under
such plans;
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<PAGE> 6
(B) The number of years of Executive's credited service for
purposes of benefit accrual under such plans is equal to three
plus the number of such years of service credited under such
plans without regard to this Section 3.03(d)(i)(B);
(C) Executive's age as of the Earliest Retirement Date is
equal to Executive's actual age as of such date plus three years,
for purposes of calculating any reduction under such plans for
early commencement of benefits; and
(D) As of Executive's annuity starting date, Executive has a
spouse who meets the requirements set forth in the Qualified
Pension Plan for entitlement to automatic joint and survivor
annuity benefits.
(ii) The retirement benefits described in this clause shall be the
benefits that would be payable to Executive and his or her spouse under
the Qualified Pension Plan in the form of a monthly annuity commencing as
of Executive's Earliest Retirement Date, calculated in accordance with
the terms of such Plan, assuming that as of Executive's annuity starting
date Executive has a spouse who meets the requirements set forth in the
Qualified Pension Plan for entitlement to automatic joint and survivor
annuity benefits.
For purposes of this Section 3.03(d), "actuarial present value" shall be
calculated using the assumptions in effect, immediately prior to the Change in
Control, for purposes of calculating actuarial equivalence under the Qualified
Pension Plan. The payment under this Section 3.03(d) shall be reduced, in the
case of a Qualifying Event described in Section 3.02(c), by the total amount of
payments (if any) made to Executive and his or her spouse under the Nonqualified
Pension Plans between the date of termination of Executive's employment and the
date of payment under this Section 3.03(d). The payment under this Section
3.03(d) shall discharge all liabilities of the Company with respect to
retirement benefits of Executive under the Nonqualified Pension Plans.
(e) (i) If Executive has attained age 52 as of the date of termination of
his or her employment, Executive shall be entitled to retiree medical and
monthly survivor benefits from the Company commencing as of the date of
the Qualifying Event. Such benefits shall be provided at a level of
coverage no less generous, and at the same cost to Executive, as the
retiree medical and monthly survivor benefits for which Executive would
have been eligible upon retirement under the retiree benefits program
maintained by the Company as in effect immediately prior to the Change in
Control, provided, that if Executive has earned at least ten years of
Continuous Service under the Qualified Pension Plan as of the date of
termination of
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employment (taking into account the assumption set forth in Section
3.03(d)(i)(B)), the Company shall pay Executive a lump sum, in cash,
equal to the present value (as of the date of the Qualifying Event) of
any premium imposed solely because of early retirement. The assumption
set forth in Section 3.03(d)(i)(B) shall be taken into account in
determining the level of any service-related premium to which Executive
becomes subject at any time with respect to retiree medical benefits
provided by the Company.
(ii) If, after taking into account the assumption set forth in
Section 3.03(d)(i)(C), Executive has attained age 52 as of the date of
termination of his or her employment, the Company shall, at its election,
provide to Executive either: (A) retiree medical and monthly survivor
benefits described in (i) above; or (B) a lump sum, in cash, equal to the
present value (as of the date of the Qualifying Event) of the retiree
medical and monthly survivor benefits described in (i) above.
(iii) If, after taking into account the assumption set forth in
Section 3.03(d)(i)(C), Executive has not attained age 52 as of the date
of termination of his or her employment, the Company shall pay Executive
a lump sum, in cash, equal to the present value (as of the date of the
Qualifying Event) of medical, disability and monthly survivor coverage
(as provided to active nonpilot personnel) of Executive and Executive's
eligible dependents under the Medical Plans and Disability Plan for 36
months from the date of the Qualifying Event.
(iv) In determining present value under clauses (i), (ii) and (iii)
above, all terms applicable to Executive under the Medical Plans and
Disability Plan immediately prior to the date of the Change in Control
(including the level of premiums payable by Executive) shall be taken
into account. The amount of such present value shall be determined by
Northern Trust Retirement Consulting Inc. (the "Actuarial Firm") on the
basis of such assumptions as the Actuarial Firm determines to be
reasonable. In the event that the Actuarial Firm is serving as actuary
for the Person effecting the Change in Control or is otherwise
unavailable, Executive may appoint another nationally recognized
actuarial firm to make the determinations required hereunder (which
actuarial firm shall then be referred to as the Actuarial Firm
hereunder). The Actuarial Firm shall provide its determination and
detailed supporting calculations both to the Company and Executive within
fifteen business days of the receipt of notice from Executive that there
has been a Qualifying Event, or such earlier time as is requested by the
Company. All fees and expenses of the Actuarial Firm shall be borne
solely by the Company.
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(f) The Company shall provide Executive with a fully paid-up term life
insurance policy (with premiums pre-paid for the remainder of Executive's life)
on Executive's life, providing Executive's beneficiaries with a death benefit of
$50,000. In addition, if Executive is eligible for early or normal retirement
benefits under the Qualified Pension Plan as of the date of termination of
Executive's employment, the Company shall provide Executive a fully paid-up term
life insurance policy (with premiums pre-paid for the remainder of Executive's
life) on Executive's life, providing Executive's beneficiaries with a death
benefit of two times Executive's Reference Salary. For purposes of determining
Executive's entitlement to the life insurance policy described in the preceding
sentence, the assumptions set forth in Sections 3.03(d)(i)(B) and 3.03(d)(i)(C)
shall be taken into account.
(g) Executive and Executive's spouse, for the remainder of their respective
lives, and Executive's dependent children, for so long as they are under age 18
(or under age 23 if a full-time student), shall be entitled to free system-wide
flight privileges on Company flights to any location which the Company serves.
Such privileges shall entitle Executive, Executive's spouse and Executive's
dependent children to unlimited positive space (or space available, at
Executive's option) first-class tickets, but Executive's dependent children
shall not be entitled to first-class privileges if under age 8; provided further
that all of such flight privileges shall otherwise be subject to the same
conditions and restrictions as pertain from time to time to the flight
privileges generally provided by the Company to its retirees. Nothing herein
shall be deemed as a limitation upon any retiree flight privileges for which
Executive may otherwise qualify.
(h) In the case of a Qualifying Event described in Section 3.02(c), all
outstanding stock options, stock appreciation rights, restricted stock (if not
performance-based), or other non-performance-based awards held by Executive
pursuant to the provisions of the Company's 1989 Stock Incentive Plan or any
successor plan shall become immediately vested, nonforfeitable and exercisable
as of the date of the Change in Control. In addition, in the case of such a
Qualifying Event, the Company shall, with respect to any such stock option,
stock appreciation right, restricted stock or other nonperformance-based award
forfeited by Executive on or after the date of termination of Executive's
employment (except where such forfeiture occurs solely by reason of expiration
of the term of such award), pay to Executive a lump sum, in cash, equal to the
fair market value such award would have had as of the date of the Change in
Control, taking into account the exercise price, if any, associated with such
award and treating such award as fully vested and exercisable.
(i) The Company shall pay (or cause the Deferred Compensation Trust to pay)
to Executive a lump sum, in cash, equal to the balance of Executive's accounts
under the Deferred Compensation Plan.
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(j) The Company shall indemnify Executive (and Executive's legal
representatives or other successors) to the fullest extent permitted by the
Certificate of Incorporation and By-Laws of the Company, as in effect at such
time or on the Effective Date, or by the terms of any indemnification agreement
between the Company and Executive, whichever affords or afforded greater
protection to Executive, and Executive shall be entitled to the protection of
any insurance policies the Company may elect to maintain generally for the
benefit of its directors and officers (and to the extent the Company maintains
such an insurance policy or policies, Executive shall be covered by such policy
or policies, in accordance with its or their terms, to the maximum extent of the
coverage available for any Company officer or director), against all costs,
charges and expenses whatsoever incurred or sustained by Executive or
Executive's legal representatives at the time such costs, charges and expenses
are incurred or sustained, in connection with any action, suit or proceeding to
which Executive (or Executive's legal representatives or other successors) may
be made a party by reason of Executive's being or having been a director,
officer or employee of the Company, or any Subsidiary or Executive's serving or
having served any other enterprise as a director, officer, employee or fiduciary
at the request of the Company.
ARTICLE 4
CERTAIN TAX PAYMENTS
SECTION 4.01. Gross-Up Payment. The Company shall pay to Executive an
additional lump sum payment (the "Gross-Up Payment"), in cash, equal to the sum
of the amounts described in Paragraphs A and B (if any), below:
A. Executive shall be entitled under this paragraph to the sum of
(i) the present value of all of Executive's applicable Federal, state
and local taxes arising due to payments or coverage provided under
Section 3.03(e), and (ii) an additional amount such that after payment
by Executive of all of Executive's applicable Federal, state and local
taxes on such additional amount, Executive will retain an amount equal
to the total of Executive's applicable Federal, state and local taxes
arising due to the payment required pursuant to clause (i) above. For
purposes of clause (i) above, present value shall be determined using
the appropriate "applicable federal rate" promulgated by the Treasury
Department under Code Section 1274(d) for the month in which the
Gross-Up Payment is made, assuming that all taxes will be paid on the
due date therefor (without regard to extensions).
B. If any portion of the Severance Benefits or any other payment
under this Agreement, or under any other agreement with, or plan of the
Company, including but not limited to stock options and other long-term
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incentives (in the aggregate "Total Payments") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or
penalties with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then Executive shall be entitled under this
paragraph to an additional amount such that after payment by Executive of
all of Executive's applicable Federal, state and local taxes, including
any Excise Tax, imposed upon such additional amount, Executive will
retain an amount equal to the Excise Tax imposed on the Total Payments.
The amount determined under this Paragraph B upon the occurrence of a
Qualifying Event shall be reduced by the amount of any Gross-Up Payment
previously paid to Executive under Section 2.04.
For purposes of Paragraphs A and B above, Executive's applicable Federal, state
and local taxes shall be computed at the maximum marginal rates, taking into
account the effect of any loss of personal exemptions resulting from receipt of
the Gross-Up Payment.
SECTION 4.02. Determinations. All determinations required to be made
under this Article 4, including the amount of the Gross-Up Payment, whether a
payment is required under Paragraph B of Section 4.01, and the assumptions to be
used in determining the Gross-Up Payment, shall be made by Arthur Andersen LLP
(the "Accounting Firm") which shall provide detailed supporting calculations
both to the Company and Executive within twenty business days of the receipt of
notice from Executive that there has been a Qualifying Event, or such earlier
time as is requested by the Company. In the event that the Accounting Firm is
serving as accountant or auditor for the Person effecting the Change in Control
or is otherwise unavailable, Executive may appoint another nationally recognized
accounting firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company.
SECTION 4.03. Subsequent Redetermination. Executive agrees (unless
requested otherwise by the Company) to use reasonable efforts to contest in good
faith any subsequent determination by the Internal Revenue Service that
Executive owes an amount of Excise Tax greater than the amount determined
pursuant to Section 4.02; provided, that Executive shall be entitled to
reimbursement by the Company of all fees and expenses reasonably incurred by
Executive in contesting such determination. In the event the Internal Revenue
Service or any court of competent jurisdiction determines that Executive owes an
amount of Excise Tax that is either greater or less than the amount previously
taken into account and paid under this Article 4, the Company shall promptly pay
to Executive, or Executive shall promptly repay to the Company, as the case may
be, the amount of such excess or shortfall. In the case of any payment that the
Company is required
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to make to Executive pursuant to the preceding sentence (a "Later Payment"), the
Company shall also pay to Executive an additional amount such that after payment
by Executive of all of Executive's applicable Federal, state and local taxes on
such additional amount, Executive will retain an amount equal to the total of
Executive's applicable Federal, state and local taxes arising due to the Later
Payment. In the case of any repayment of Excise Tax that Executive is required
to make to the Company pursuant to the second sentence of this Section 4.03,
Executive shall also repay to the Company the amount of any additional payment
received by Executive from the Company in respect of applicable Federal, state
and local taxes on such repaid Excise Tax, to the extent Executive is entitled
to a refund of (or has not yet paid) such Federal, state or local taxes.
ARTICLE 5
SUCCESSORS AND ASSIGNMENTS
SECTION 5.01. Successors. The Company will require any successor (whether
by reason of a Change in Control, direct or indirect, by purchase, merger,
consolidation, or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform the obligations
under this Agreement in the same manner and to the same extent that the Company
would be required to perform it if no such succession had taken place.
SECTION 5.02. Assignment by Executive. This Agreement shall inure to the
benefit of and be enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees, and
legatees. If Executive should die while any amount is owed but unpaid to
Executive hereunder, all such amounts, unless otherwise provided herein, shall
be paid to Executive's devisee, legatee, or other designee, or if there is no
such designee, to Executive's estate. Executive's rights hereunder shall not
otherwise be assignable.
ARTICLE 6
MISCELLANEOUS
SECTION 6.01. Notices. Any notice required to be delivered hereunder
shall be in writing and shall be addressed
if to the Company, to:
Delta Air Lines, Inc.
Hartsfield Atlanta International Airport
Post Office Box 20706
Atlanta, GA 30320-2534
Attn: General Counsel;
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if to Executive, to Executive's last known address as reflected on the
books and records of the Company
or such other address as such party may hereafter specify for the purpose by
written notice to the other party hereto. Any such notice shall be deemed
received on the date of receipt by the recipient thereof if received prior to 5
p.m. in the place of receipt and such day is a business day in the place of
receipt. Otherwise, any such notice shall be deemed not to have been received
until the next succeeding business day in the place of receipt.
SECTION 6.02. Legal Fees and Expenses. The Company shall pay all legal
fees, costs of litigation, prejudgment interest, and other expenses which are
reasonably incurred by Executive as a result of (i) the Company's refusal to
provide Severance Benefits or other amounts in accordance herewith, (ii) the
Company's (or any third party's) contesting the validity, enforceability, or
interpretation of the Agreement, (iii) any conflict between the parties
pertaining to this Agreement, (iv) Executive's contesting any determination by
the Internal Revenue Service pursuant to Section 4.03, or (v) Executive's
pursuing any claim under Section 6.16 hereof.
SECTION 6.03. Arbitration. Executive shall have the right and option to
elect (in lieu of litigation) to have any dispute or controversy arising under
or in connection with this Agreement settled by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by Executive within 50
miles from the location of his or her job with the Company, in accordance with
the rules of the American Arbitration Association then in effect. Executive's
election to arbitrate, as herein provided, and the decision of the arbitrators
in that proceeding, shall be binding on the Company and Executive. Judgment may
be entered on the award of the arbitrator in any court having jurisdiction. All
expenses of such arbitration, including the fees and expenses reasonably
incurred by Executive, shall be borne by the Company.
SECTION 6.04. Unfunded Agreement. Except to the extent otherwise provided
in Article 2, the obligations of the Company under this Agreement represent an
unsecured, unfunded promise to pay benefits to Executive and/or Executive's
beneficiaries, and shall not entitle Executive or such beneficiaries to a
preferential claim to any asset of the Company.
SECTION 6.05. Non-Exclusivity of Benefits. Unless specifically provided
herein, neither the provisions of this Agreement nor the benefits provided
hereunder shall reduce any amounts otherwise payable, or in any way diminish
Executive's rights as an employee of the Company, whether existing now or
hereafter, under any compensation and/or benefit plans (qualified or
nonqualified),
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programs, policies, or practices provided by the Company, for which Executive
may qualify. Vested benefits or other amounts which Executive is otherwise
entitled to receive under any plan, policy, practice, or program of the Company
(i.e., including, but not limited to, vested benefits under the Qualified
Pension Plan), at or subsequent to the date of termination of Executive's
employment shall be payable in accordance with such plan, policy, practice, or
program except as expressly modified by this Agreement.
SECTION 6.06. Compensation Taken Into Account. Severance Benefits
provided hereunder (other than the Base Salary and Reference Incentive
Compensation Award payable pursuant to Sections 3.03(a) or 3.03(b)) shall not be
considered for purposes of determining Executive's benefits under any other plan
or program of the Company (including without limitation the Qualified Pension
Plan and the Nonqualified Pension Plans).
SECTION 6.07. Employment Status. Nothing herein contained shall
interfere with the Company's right to terminate Executive's employment with the
Company at any time, with or without Cause, subject to the Company's obligation
to provide such Severance Benefits and other amounts as may be required
hereunder.
SECTION 6.08. Mitigation. In no event shall Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to Executive under any of the provisions of this Agreement, nor
shall the amount of any payment hereunder be reduced by any compensation earned
by Executive as a result of employment by another employer.
SECTION 6.09. No Set-Off. The Company's obligations to make all payments
and honor all commitments under this Agreement shall be absolute and
unconditional and shall not be affected by any circumstances including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against Executive.
SECTION 6.10. Entire Agreement. This Agreement represents the entire
agreement between the parties with respect to Executive's employment and/or
severance rights upon a Change in Control, and supersedes all prior discussions,
negotiations, and agreements concerning such rights, including, but not limited
to, any prior severance agreement made between Executive and the Company.
SECTION 6.11. Tax Withholding. Notwithstanding anything in this
Agreement to the contrary, the Company shall withhold from any amounts payable
under this Agreement all federal, state, city, or other taxes as are legally
required to be withheld.
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SECTION 6.12. Waiver of Rights. The waiver by either party of a breach of
any provision of this Agreement shall not operate or be construed as a
continuing waiver or as a consent to or waiver of any subsequent breach hereof.
SECTION 6.13. Severability. In the event any provision of the Agreement
shall be held illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of the Agreement, and the Agreement shall
be construed and enforced as if the illegal or invalid provision had not been
included.
SECTION 6.14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia without reference
to principles of conflict of laws.
SECTION 6.15. Counterparts. This Agreement may be signed in several
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were on the same instrument.
SECTION 6.16. Claim Review Procedure. If Executive is denied benefits
under this Agreement, Executive may request, in writing, a review of the denial
by the Company or its designee within 60 days of receiving written notice of the
denial. The Company shall respond in writing to a written request for review
within 90 days of receipt of such request. Neither the claim procedure set
forth in this Section 6.16 nor Executive's failure to adhere to such procedure
shall derogate from Executive's right to enforce this Agreement through legal
action, including arbitration as provided in Section 6.03.
ARTICLE 7
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings set forth below.
"Accounting Firm" has the meaning accorded such term in Section
4.02.
"Actuarial Firm" has the meaning accorded such term in Section
3.03(e)(iv).
"Affiliate" and "Associate" have the respective meanings accorded
to such terms in Rule 12b-2 under the Exchange Act as in effect on the
Effective Date.
"Base Salary" means, at any time, the then-regular annual rate of
pay which Executive is receiving as annual salary.
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"Beneficial Ownership." A Person shall be deemed the "Beneficial
Owner" of, and shall be deemed to "beneficially own," securities
pursuant to Rule 13d-3 under the Exchange Act as in effect on the
Effective Date.
"Board" has the meaning accorded such term in the second "Whereas"
clause of this Agreement.
"Cause" means the occurrence of any one or more of the following:
(a) A demonstrably willful and deliberate act or failure to
act by Executive (other than as a result of incapacity due to
physical or mental illness) which is committed in bad faith,
without reasonable belief that such action or inaction is in the
best interests of the Company, and which act or inaction is not
remedied within fifteen business days of written notice from the
Company; or
(b) Executive's conviction for committing an act of fraud,
embezzlement, theft, or any other act constituting a felony
involving moral turpitude.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to
Executive a copy of a resolution duly adopted by the affirmative vote
(which cannot be delegated) of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice to Executive and an opportunity for
Executive, together with Executive's counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, Executive
is guilty of conduct set forth above in clauses (a) or (b) of this
definition and specifying the particulars thereof in detail.
"Change in Control" means, and shall be deemed to have occurred
upon, the first to occur of any of the following events:
(a) Any Person (other than an Excluded Person) acquires,
together with all Affiliates and Associates of such Person,
Beneficial Ownership of securities representing 20% or more of the
combined voting power of the Voting Stock then outstanding, unless
such Person acquires Beneficial Ownership of 20% or more of the
combined voting power of the Voting Stock then outstanding solely as
a result of an acquisition of Voting Stock by the Company which, by
reducing the Voting Stock outstanding, increases the proportionate
Voting Stock beneficially owned by such Person (together with all
Affiliates and Associates of such Person) to 20% or more of the
combined voting power of the Voting Stock then
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outstanding; provided, that if a Person shall become the
Beneficial Owner of 20% or more of the combined voting power of
the Voting Stock then outstanding by reason of such Voting Stock
acquisition by the Company and shall thereafter become the
Beneficial Owner of any additional Voting Stock which causes the
proportionate voting power of Voting Stock beneficially owned by
such Person to increase to 20% or more of the combined voting
power of the Voting Stock then outstanding, such Person shall,
upon becoming the Beneficial Owner of such additional Voting
Stock, be deemed to have become the Beneficial Owner of 20% or
more of the combined voting power of the Voting Stock then
outstanding other than solely as a result of such Voting Stock
acquisition by the Company;
(b) During any period of two consecutive years (not including
any period prior to the Effective Date), individuals who at the
beginning of such period constitute the Board (and any new
Director, whose election by the Board or nomination for election by
the Company's stockholders was approved by a vote of at least
two-thirds of the Directors then still in office who either were
Directors at the beginning of the period or whose election or
nomination for election was so approved), cease for any reason to
constitute a majority of Directors then constituting the Board;
(c) A reorganization, merger or consolidation of the Company
is consummated, in each case, unless, immediately following such
reorganization, merger or consolidation, (i) more than 50% of,
respectively, the then outstanding shares of common stock of the
corporation resulting from such reorganization, merger or
consolidation 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 of the Voting Stock
outstanding immediately prior to such reorganization, merger or
consolidation, (ii) no Person (but excluding for this purpose any
Excluded Person and any Person beneficially owning, immediately
prior to such reorganization, merger or consolidation, directly or
indirectly, 20% or more of the voting power of the outstanding
Voting Stock) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common stock
of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding
voting securities of such corporation entitled to vote generally in
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the election of directors and (iii) at least a majority of the
members of the board of directors of the corporation resulting from
such reorganization, merger or consolidation were members of the
Board at the time of the execution of the initial agreement
providing for such reorganization, merger or consolidation; or
(d) The shareholders of the Company approve (i) a complete
liquidation or dissolution of the Company or (ii) the sale or other
disposition of all or substantially all of the assets of the
Company, other than to any corporation with respect to which,
immediately following such sale or other disposition, (A) 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 of the
Voting Stock outstanding immediately prior to such sale or other
disposition of assets, (B) no Person (but excluding for this
purpose any Excluded Person and any Person beneficially owning,
immediately prior to such sale or other disposition, directly or
indirectly, 20% or more of the voting power of the outstanding
Voting Stock) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common stock
of such corporation or the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (C) at least a majority
of the members of the board of directors of such corporation were
members of the Board at the time of the execution of the initial
agreement or action of the Board providing for such sale or other
disposition of assets of the Company.
Notwithstanding the foregoing, in no event shall a "Change in Control"
be deemed to have occurred (i) as a result of the formation of a Holding
Company, or (ii) with respect to Executive, if Executive is part of a
"group," within the meaning of Section 13(d)(3) of the Exchange Act as
in effect on the Effective Date, which consummates the Change in Control
transaction. In addition, for purposes of the definition of "Change in
Control" a Person engaged in business as an underwriter of securities
shall not be deemed to be the "Beneficial Owner" of, or to "beneficially
own," any securities acquired through such Person's participation in
good faith in a firm commitment underwriting until the expiration of
forty days after the date of such acquisition.
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"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning accorded such term in the introductory
paragraph of this Agreement.
"Deferred Compensation Plan" means the Company's Executive Deferred
Compensation Plan (or any similar successor plan adopted by the Company),
as in effect immediately prior to the Change in Control.
"Deferred Compensation Trust" has the meaning accorded such term in
Section 2.01.
"Disability" means Long-Term Disability, as such term is defined in
the Disability Plan.
"Disability Plan" means the Delta Family-Care Disability and
Survivorship Plan (or any successor disability and/or survivorship plan
adopted by the Company), as in effect immediately prior to the Change in
Control (subject to changes in coverage levels applicable to all
employees generally covered by such Plan).
"Earliest Retirement Date" means the earliest date, after the date
of termination of Executive's employment, as of which Executive would be
eligible to commence receiving retirement benefits under the Qualified
Pension Plan.
"Effective Date" has the meaning accorded such term in the
introductory paragraph of this Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excise Tax" has the meaning accorded such term in Section 4.01.
"Excluded Person" means (i) the Company; (ii) any of the Company's
Subsidiaries; (iii) any Holding Company; (iv) any employee benefit plan
of the Company, any of its Subsidiaries or a Holding Company; or (v) any
Person organized, appointed or established by the Company, any of its
Subsidiaries or a Holding Company for or pursuant to the terms of any
plan described in clause (iv).
"Executive" has the meaning accorded such term in the introductory
paragraph of this Agreement.
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"Good Reason" means, without Executive's express written consent,
the occurrence of any one or more of the following:
(a) The assignment to Executive of duties inconsistent with
Executive's authorities, duties, responsibilities and status as an
officer of the Company, or a reduction or alteration in the nature
or status of Executive's authorities, duties, or responsibilities,
from those in effect as of the Reference Date; other than an
insubstantial and inadvertent act that is remedied by the Company
promptly after receipt of notice thereof given by Executive;
(b) The Company's requiring Executive to be based at a
location in excess of 50 miles from Executive's principal job
location or office immediately prior to the Reference Date; except
for required travel on the Company's business to an extent
consistent with Executive's business travel obligations
immediately prior to the Reference Date;
(c) A reduction by the Company of Executive's Base Salary as
in effect on the Reference Date (other than pursuant to a
reduction by a uniform percentage of the salary of all full-time
domestic employees of the Company who are not subject to a
collective bargaining agreement); or a reduction in Executive's
short-term or long-term incentive compensation opportunities under
the executive incentive compensation plans of the Company for
which Executive is eligible as in effect on the Reference Date;
(d) The failure by the Company to keep in effect
compensation, retirement, health and welfare benefits, or
perquisite programs under which Executive receives benefits
substantially similar, in the aggregate, to the benefits under
such programs as exist immediately prior to the Reference Date
(other than pursuant to an equivalent reduction in such benefits
of all full-time domestic employees of the Company who are not
subject to a collective bargaining agreement); or the failure of
the Company to meet the funding requirements, if any, of any of
such programs; or
(e) Any material breach by the Company of its obligations
under this Agreement or any failure of a successor of the Company
to assume and agree to perform the Company's entire obligations
under this Agreement, as required by Article 5 herein, provided
that such successor has received at least ten days written notice
from the Company or Executive of the requirements of Article 5.
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"Gross-Up Payment" has the meaning accorded such term in Section
4.01.
"Holding Company" means an entity that becomes a holding company for
the Company or its businesses as a part of any reorganization, merger,
consolidation or other transaction, provided that the outstanding shares
of common stock of such entity and the combined voting power of the then
outstanding voting securities of such entity entitled to vote generally
in the election of directors is, immediately after such reorganization,
merger, consolidation or other transaction, beneficially owned, directly
or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Voting
Stock outstanding immediately prior to such reorganization, merger,
consolidation or other transaction in substantially the same proportions
as their ownership, immediately prior to such reorganization, merger,
consolidation or other transaction, of such outstanding Voting Stock.
"Initial Term" has the meaning accorded such term in Section 1.01.
"Later Payment" has the meaning accorded such term in Section 4.03.
"Medical Plans" means the DeltaFlex and the Delta Family-Care
Medical Plans (or any successor medical plans adopted by the Company), as
in effect immediately prior to the Change in Control (subject to changes
in coverage levels applicable to all employees generally covered by such
Plans).
"Nonqualified Pension Plans" means the 1991 Delta Excess Benefit
Plan and the Delta Supplemental Excess Benefit Plan (or any successor
nonqualified defined benefit retirement plans adopted by the Company).
"Person" means an individual, corporation, partnership, association,
trust or any other entity or organization.
"Qualified Pension Plan" means the Delta Family-Care Retirement Plan
(or any successor qualified defined benefit retirement plan adopted by
the Company).
"Qualifying Event" has the meaning accorded such term in Section
3.02.
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"Reference Date" means the earlier to occur of (i) a Change in
Control and (ii) the date 90 days prior to the termination of Executive's
employment.
"Reference Incentive Compensation Award" means:
(a) for purposes of Article 2 hereof, the greater of the
target annual incentive compensation award or bonus (A) for the
Company's most recently completed fiscal year prior to the Change
in Control; and (B) for the Company's fiscal year that includes
the Change in Control.
(b) for purposes of Article 3 hereof, the greater of the
target annual incentive compensation award or bonus (A) for the
Company's most recently completed fiscal year prior to the
termination of Executive's employment; and (B) for the Company's
fiscal year that includes Executive's termination of employment.
For purposes of both parts (a) and (b) of this definition, the
"target annual incentive compensation award or bonus" with respect to any
fiscal year shall be determined by multiplying the target salary
percentage applicable to Executive for such year by the Reference Salary.
"Reference Long-Term Award" means, for each performance period that
includes the date of a Change in Control under a long-term incentive plan
maintained by the Company, the greater of (i) the actual award payable to
Executive for such performance period, calculated as if such performance
period had ended on the date of the Change in Control and (ii) the target
award payable to Executive for such performance period.
"Reference Salary" means the greater of Executive's annual rate of
Base Salary as in effect (i) upon the date of termination of Executive's
employment, and (ii) immediately prior to the Change in Control.
"Severance Benefits" has the meaning accorded such term in Section
3.03.
"Subsidiary" of any Person means any other Person of which
securities or other ownership interests having voting power to elect a
majority of the board of directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person.
"Successive Period" has the meaning accorded such term in Section
1.02.
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"Total Payments" has the meaning accorded such term in Section 4.01.
"Trust Instrument" has the meaning accorded such term in Section
2.01.
"Voting Stock" means securities of the Company entitled to vote
generally in the election of members of the Board.
IN WITNESS WHEREOF, the Company and Executive have executed this Agreement,
to be effective as of the day and year first written above.
EXECUTIVE Delta Air Lines, Inc.
______________________ By: ____________________
Name:
Title:
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EXHIBIT 10.16
(Form of Agreement for Senior Vice Presidents)
EXECUTIVE RETENTION PROTECTION AGREEMENT
EXECUTIVE RETENTION PROTECTION AGREEMENT ("Agreement") dated as of August
1, 1997 (the "Effective Date") by and between Delta Air Lines, Inc., a Delaware
corporation (the "Company"), and [NAME] ("Executive").
WHEREAS, Executive is presently employed by the Company in a key management
capacity; and
WHEREAS, the Board of Directors of the Company (the "Board") has determined
that it is in the best interests of the Company and its stockholders that
appropriate steps be taken to reinforce and encourage the continued attention of
key management personnel, including Executive, to their assigned duties without
the distraction that may arise from personal uncertainties associated with any
pending or threatened change in control of the Company; and
WHEREAS, the Board has also determined that it is in the best interests of
the Company and its stockholders to encourage Executive's continued availability
to the Company in the event of a change in control.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements of the parties set forth in this Agreement, and of
other good and valuable consideration including, but not limited to, Executive's
continuing employment with the Company, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
ARTICLE 1
TERM OF AGREEMENT
SECTION 1.01. Initial Term. The term of this Agreement shall commence on
the Effective Date and shall expire December 31, 1998 (the "Initial Term"),
subject to Sections 1.02 and 1.03.
SECTION 1.02. Extensions. As of each December 31 after the Effective
Date, the term of this Agreement shall automatically be extended by one year
(each such additional one-year period following the Initial Term a "Successive
Period") unless, at least sixty days prior to such December 31, (i) either party
has provided the other with written notice of such party's intent that the term
of this Agreement not be so extended or (ii) there occurs a termination of
Executive's employment with the Company.
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SECTION 1.03. Automatic Extension Upon Change in Control. In the event
that a Change in Control occurs during the Initial Term or any Successive
Period, upon the effective date of such Change in Control the term of this
Agreement shall automatically be extended for a period of 24 months from the
effective date of such Change in Control. The 24-month extension described in
this Section 1.03 shall take effect regardless of whether, before or after the
effective date of a Change in Control, Executive or the Company has given
written notice of intent not to extend the term of the Agreement pursuant to
Section 1.02 or there has occurred a termination of Executive's employment,
provided the term of the Agreement has not yet expired as of such effective
date.
ARTICLE 2
OBLIGATIONS OF COMPANY ON CHANGE IN CONTROL
SECTION 2.01. Deferred Compensation. (a) In the event that a Change in
Control occurs during the term of this Agreement, the Company shall promptly
thereafter cause to be irrevocably deposited in trust for the benefit of
Executive and his or her beneficiaries, on the terms set forth in Section
2.01(c), an amount equal to the balance as of the date of such deposit of
Executive's accounts under the Deferred Compensation Plan. (Such trust is
hereinafter referred to as the "Deferred Compensation Trust.") From and after
the date of such Change in Control, the Company shall cause to be irrevocably
deposited in the Deferred Compensation Trust any additional amounts that may be
deferred from time to time by Executive under the Deferred Compensation Plan.
Each such subsequent deposit shall be made on the date the applicable deferred
amount would otherwise have been received by Executive, but for Executive's
election to defer such receipt under the Deferred Compensation Plan.
(b) The trustee of the Deferred Compensation Trust shall be a bank that is
organized under the laws of the United States of America, has assets exceeding
$500,000,000, and may validly exercise trustee powers under Georgia state law.
All trustee's fees and other expenses of administering the Deferred Compensation
Trust shall be borne by the Company.
(c) The instrument governing the Deferred Compensation Trust (the "Trust
Instrument") shall, to the extent reasonably necessary to assure that the
Deferred Compensation Plan will continue to be treated as "unfunded" for
purposes of ERISA and the Code, provide that upon insolvency of the Company the
assets of the Trust will be subject to the claims of the Company's general
creditors. The Trust Instrument shall provide that in all other respects the
assets of the Deferred Compensation Trust will be maintained for the exclusive
benefit of Executive and his or her beneficiaries, and will otherwise be subject
to all fiduciary and other requirements of applicable state trust law. The
Trust Instrument shall
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require that the trustee invest the assets of the Trust in a manner calculated
to match as closely as the trustee deems reasonably possible the investment
elections made from time to time by Executive under the Deferred Compensation
Plan, and shall provide for payment of benefits in accordance with the terms of
Executive's applicable payment elections as in effect from time to time under
the Deferred Compensation Plan.
(d) After the date of a Change in Control, the Company shall not (other
than pursuant to Section 3.03(i) hereof) take any steps to disturb or alter
Executive's (or Executive's beneficiaries') rights to receive amounts deferred
under the Deferred Compensation Plan in accordance with such Executive's
applicable payment elections as in effect from time to time. Nothing herein or
in the Trust Instrument shall relieve the Company of its obligation to pay
benefits under the Deferred Compensation Plan in accordance with the terms of
such Plan, to the extent such benefits are not paid from the Deferred
Compensation Trust.
SECTION 2.02. Payment of Performance-Based Awards. In the event that a
Change in Control occurs during the term of this Agreement and while Executive
is employed by the Company, the Company shall promptly thereafter pay Executive
the sum of (i) the Reference Incentive Compensation Award, prorated to reflect
the portion of the fiscal year elapsed through the date of the Change in
Control, and (ii) the Reference Long-Term Award, for each performance period
that includes the date of the Change in Control under any long-term incentive
plan maintained by the Company, prorated to reflect the portion of such
performance period elapsed through the date of the Change in Control. The
amounts referred to in clauses (i) and (ii) above shall be paid in the form of
cash or shares of Company stock, in accordance with the terms of the applicable
award agreements. The payment under this Section 2.02 shall discharge all
liabilities of the Company to Executive under the Company's annual and long-term
incentive plans and programs, and under this Agreement, with respect to
performance-based incentive compensation (other than stock options and stock
appreciation rights) for the periods referred to in clauses (i) and (ii) above.
SECTION 2.03. Stock Options, Stock Appreciation Rights and
Non-Performance-Based Awards. In the event that a Change in Control occurs
during the term of this Agreement and while Executive is employed by the
Company, all outstanding stock options, stock appreciation rights, restricted
stock (if not performance-based), or other non-performance-based awards held by
Executive pursuant to the provisions of the Company's 1989 Stock Incentive Plan
or any successor plan shall become immediately vested, nonforfeitable and
exercisable as of the date of the Change in Control.
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SECTION 2.04. Gross-Up Payment. In the event that a Change in Control
occurs during the term of this Agreement, if any payment or acceleration of
vesting or exercisability under this Article 2 would result in the imposition of
excise tax under Section 4999 of the Code, or of any interest or penalties with
respect to such excise tax, then Executive shall be entitled to a Gross-Up
Payment with respect to such excise tax, interest or penalties. Such Gross-Up
Payment shall be determined in the manner set forth in Article 4 (excluding
Paragraph A and the last sentence of Paragraph B of Section 4.01), substituting
the term "Change in Control" for the term "Qualifying Event" in Section 4.02. In
addition, such Gross-Up Payment shall be subject to the provisions of Section
4.03 in the same manner as if such Gross-Up Payment had been paid under Article
4. The Company shall pay Executive the Gross-Up Payment described in this
Section 2.04 as soon as practicable following the Change in Control, but in no
event later than 30 days from such Change in Control.
ARTICLE 3
SEVERANCE BENEFITS
SECTION 3.01. Right to Severance Benefits. In the event that a Qualifying
Event occurs during the term of this Agreement, Executive shall be entitled to
receive from the Company Severance Benefits as described in Section 3.03 and the
Gross-Up Payment described in Section 4.01. The Severance Benefits described in
Sections 3.03(a), 3.03(b), 3.03(c), 3.03(d), 3.03(e), 3.03(f), 3.03(h) and
3.03(i), as well as the Gross-Up Payment, shall be paid or provided to Executive
as soon as practicable following the Qualifying Event, but in no event later
than 30 days from such Qualifying Event.
SECTION 3.02. Qualifying Event. A "Qualifying Event" means any of the
following events:
(a) The involuntary termination of Executive's employment by the Company
during the 24-month period following a Change in Control, other than (i) for
Cause, or (ii) by reason of Executive's death or Disability;
(b) Executive's voluntary termination of employment for Good Reason during
the 24-month period following a Change in Control; or
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(c) The occurrence of a Change in Control within one year after (i) the
involuntary termination of Executive's employment by the Company other than (A)
for Cause, or (B) by reason of Executive's death or Disability; or (ii)
Executive's voluntary termination of employment for Good Reason; if, in the case
of either clause (i) or (ii), the involuntary termination or actions giving rise
to the existence of Good Reason, as the case may be, were undertaken by the
Company in anticipation of a Change in Control.
SECTION 3.03. Severance Benefits. Executive shall be entitled to the
following benefits (the "Severance Benefits") under the circumstances described
in Section 3.01:
(a) The Company shall pay Executive a lump sum, in cash, equal to
Executive's earned but unpaid Base Salary and other earned but unpaid cash
entitlements for the period through and including the date of termination of
Executive's employment, including unused earned and accrued vacation pay and
unreimbursed business expenses. In addition, Executive shall be entitled to any
other benefits earned or accrued by Executive for the period through and
including the date of termination of Executive's employment under any other
employee benefit plans and arrangements maintained by the Company, in accordance
with the terms of such plans and arrangements, except as modified herein.
(b) In the case of a Qualifying Event described in Section 3.02(c), the
Company shall pay Executive the amount that would have been payable to Executive
under Section 2.02, had the Change in Control occurred as of the date of
termination of Executive's employment. The payment under this Section 3.03(b)
shall be reduced by any payments previously made to Executive under the
Company's annual and long-term incentive plans and programs, and under this
Agreement, with respect to performance-based incentive compensation (other than
stock options and stock appreciation rights) for the periods referred to in
clauses (i) and (ii) of Section 2.02.
(c) The Company shall pay Executive a lump sum, in cash, equal to two times
the sum of Executive's Reference Salary and Reference Incentive Compensation
Award.
(d) The Company shall pay Executive a lump sum, in cash, equal to the
actuarial present value of the difference between the retirement benefits
described in clauses (i) and (ii) below:
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(i) The retirement benefits described in this clause shall be
the total benefits that would be payable to Executive and his or
her spouse under the Qualified Pension Plan and the Nonqualified
Pension Plans in the form of a monthly annuity commencing as of
Executive's Earliest Retirement Date, calculated in accordance
with the terms of such plans as in effect on the date of
termination of Executive's employment (or, if greater, as in
effect immediately prior to the Change in Control), and assuming:
(A) Executive is fully vested in his or her
benefits under such plans;
(B) The number of years of Executive's credited
service for purposes of benefit accrual under such plans is
equal to two plus the number of such years of service
credited under such plans without regard to this Section
3.03(d)(i)(B);
(C) Executive's age as of the Earliest Retirement
Date is equal to Executive's actual age as of such date
plus two years, for purposes of calculating any reduction
under such plans for early commencement of benefits; and
(D) As of Executive's annuity starting date,
Executive has a spouse who meets the requirements set forth
in the Qualified Pension Plan for entitlement to automatic
joint and survivor annuity benefits.
(ii) The retirement benefits described in this clause shall
be the benefits that would be payable to Executive and his or her
spouse under the Qualified Pension Plan in the form of a monthly
annuity commencing as of Executive's Earliest Retirement Date,
calculated in accordance with the terms of such Plan, assuming
that as of Executive's annuity starting date Executive has a
spouse who meets the requirements set forth in the Qualified
Pension Plan for entitlement to automatic joint and survivor
annuity benefits.
For purposes of this Section 3.03(d), "actuarial present value" shall be
calculated using the assumptions in effect, immediately prior to the Change in
Control, for purposes of calculating actuarial equivalence under the Qualified
Pension Plan. The payment under this Section 3.03(d) shall be reduced, in the
case of a Qualifying Event described in Section 3.02(c), by the total amount of
payments
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(if any) made to Executive and his or her spouse under the Nonqualified Pension
Plans between the date of termination of Executive's employment and the date of
payment under this Section 3.03(d). The payment under this Section 3.03(d)
shall discharge all liabilities of the Company with respect to retirement
benefits of Executive under the Nonqualified Pension Plans.
(e) (i) If Executive has attained age 52 as of the date of termination
of his or her employment, Executive shall be entitled to retiree medical
and monthly survivor benefits from the Company commencing as of the date
of the Qualifying Event. Such benefits shall be provided at a level of
coverage no less generous, and at the same cost to Executive, as the
retiree medical and monthly survivor benefits for which Executive would
have been eligible upon retirement under the retiree benefits program
maintained by the Company as in effect immediately prior to the Change in
Control, provided, that if Executive has earned at least ten years of
Continuous Service under the Qualified Pension Plan as of the date of
termination of employment (taking into account the assumption set forth
in Section 3.03(d)(i)(B)), the Company shall pay Executive a lump sum, in
cash, equal to the present value (as of the date of the Qualifying Event)
of any premium imposed solely because of early retirement. The
assumption set forth in Section 3.03(d)(i)(B) shall be taken into account
in determining the level of any service-related premium to which
Executive becomes subject at any time with respect to retiree medical
benefits provided by the Company.
(ii) If, after taking into account the assumption set forth in
Section 3.03(d)(i)(C), Executive has attained age 52 as of the date of
termination of his or her employment, the Company shall, at its election,
provide to Executive either: (A) retiree medical and monthly survivor
benefits described in (i) above; or (B) a lump sum, in cash, equal to the
present value (as of the date of the Qualifying Event) of the retiree
medical and monthly survivor benefits described in (i) above.
(iii) If, after taking into account the assumption set forth in
Section 3.03(d)(i)(C), Executive has not attained age 52 as of the date
of termination of his or her employment, the Company shall pay Executive
a lump sum, in cash, equal to the present value (as of the date of the
Qualifying Event) of medical, disability and monthly survivor coverage
(as provided to active nonpilot personnel) of Executive and Executive's
eligible dependents under the Medical Plans and Disability Plan for 24
months from the date of the Qualifying Event.
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(iv) In determining present value under clauses (i), (ii) and
(iii) above, all terms applicable to Executive under the Medical Plans
and Disability Plan immediately prior to the date of the Change in
Control (including the level of premiums payable by Executive) shall be
taken into account. The amount of such present value shall be determined
by Northern Trust Retirement Consulting Inc. (the "Actuarial Firm") on
the basis of such assumptions as the Actuarial Firm determines to be
reasonable. In the event that the Actuarial Firm is serving as actuary
for the Person effecting the Change in Control or is otherwise
unavailable, Executive may appoint another nationally recognized
actuarial firm to make the determinations required hereunder (which
actuarial firm shall then be referred to as the Actuarial Firm
hereunder). The Actuarial Firm shall provide its determination and
detailed supporting calculations both to the Company and Executive within
fifteen business days of the receipt of notice from Executive that there
has been a Qualifying Event, or such earlier time as is requested by the
Company. All fees and expenses of the Actuarial Firm shall be borne
solely by the Company.
(f) The Company shall provide Executive with a fully paid-up term life
insurance policy (with premiums pre-paid for the remainder of Executive's life)
on Executive's life, providing Executive's beneficiaries with a death benefit of
$50,000. In addition, if Executive is eligible for early or normal retirement
benefits under the Qualified Pension Plan as of the date of termination of
Executive's employment, the Company shall provide Executive a fully paid-up term
life insurance policy (with premiums pre-paid for the remainder of Executive's
life) on Executive's life, providing Executive's beneficiaries with a death
benefit of two times Executive's Reference Salary. For purposes of determining
Executive's entitlement to the life insurance policy described in the preceding
sentence, the assumptions set forth in Sections 3.03(d)(i)(B) and 3.03(d)(i)(C)
shall be taken into account.
(g) Executive and Executive's spouse, for the remainder of their
respective lives, and Executive's dependent children, for so long as they are
under age 18 (or under age 23 if a full-time student), shall be entitled to free
system-wide flight privileges on Company flights to any location which the
Company serves. Such privileges shall entitle Executive, Executive's spouse and
Executive's dependent children to unlimited space available first-class tickets,
but Executive's dependent children shall not be entitled to first-class
privileges if under age 8; provided further that all of such flight privileges
shall otherwise be subject to the same conditions and restrictions as pertain
from time to time to the flight privileges generally provided by the Company to
its retirees. Nothing herein shall be deemed as a limitation upon any retiree
flight privileges for which Executive may otherwise qualify.
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(h) In the case of a Qualifying Event described in Section 3.02(c), all
outstanding stock options, stock appreciation rights, restricted stock (if not
performance-based), or other non-performance-based awards held by Executive
pursuant to the provisions of the Company's 1989 Stock Incentive Plan or any
successor plan shall become immediately vested, nonforfeitable and exercisable
as of the date of the Change in Control. In addition, in the case of such a
Qualifying Event, the Company shall, with respect to any such stock option,
stock appreciation right, restricted stock or other nonperformance-based award
forfeited by Executive on or after the date of termination of Executive's
employment (except where such forfeiture occurs solely by reason of expiration
of the term of such award), pay to Executive a lump sum, in cash, equal to the
fair market value such award would have had as of the date of the Change in
Control, taking into account the exercise price, if any, associated with such
award and treating such award as fully vested and exercisable.
(i) The Company shall pay (or cause the Deferred Compensation Trust to
pay) to Executive a lump sum, in cash, equal to the balance of Executive's
accounts under the Deferred Compensation Plan.
(j) The Company shall indemnify Executive (and Executive's legal
representatives or other successors) to the fullest extent permitted by the
Certificate of Incorporation and By-Laws of the Company, as in effect at such
time or on the Effective Date, or by the terms of any indemnification agreement
between the Company and Executive, whichever affords or afforded greater
protection to Executive, and Executive shall be entitled to the protection of
any insurance policies the Company may elect to maintain generally for the
benefit of its directors and officers (and to the extent the Company maintains
such an insurance policy or policies, Executive shall be covered by such policy
or policies, in accordance with its or their terms, to the maximum extent of the
coverage available for any Company officer or director), against all costs,
charges and expenses whatsoever incurred or sustained by Executive or
Executive's legal representatives at the time such costs, charges and expenses
are incurred or sustained, in connection with any action, suit or proceeding to
which Executive (or Executive's legal representatives or other successors) may
be made a party by reason of Executive's being or having been a director,
officer or employee of the Company, or any Subsidiary or Executive's serving or
having served any other enterprise as a director, officer, employee or fiduciary
at the request of the Company.
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ARTICLE 4
CERTAIN TAX PAYMENTS
SECTION 4.01. Gross-Up Payment. The Company shall pay to Executive an
additional lump sum payment (the "Gross-Up Payment"), in cash, equal to the sum
of the amounts described in Paragraphs A and B (if any), below:
A. Executive shall be entitled under this paragraph to the sum of
(i) the present value of all of Executive's applicable Federal, state and
local taxes arising due to payments or coverage provided under Section
3.03(e), and (ii) an additional amount such that after payment by
Executive of all of Executive's applicable Federal, state and local taxes
on such additional amount, Executive will retain an amount equal to the
total of Executive's applicable Federal, state and local taxes arising
due to the payment required pursuant to clause (i) above. For purposes
of clause (i) above, present value shall be determined using the
appropriate "applicable federal rate" promulgated by the Treasury
Department under Code Section 1274(d) for the month in which the Gross-Up
Payment is made, assuming that all taxes will be paid on the due date
therefor (without regard to extensions).
B. If any portion of the Severance Benefits or any other payment
under this Agreement, or under any other agreement with, or plan of the
Company, including but not limited to stock options and other long-term
incentives (in the aggregate "Total Payments") would be subject to the
excise tax imposed by Section 4999 of the Code or any interest or
penalties with respect to such excise tax (such excise tax, together with
any such interest and penalties, are hereinafter collectively referred to
as the "Excise Tax"), then Executive shall be entitled under this
paragraph to an additional amount such that after payment by Executive of
all of Executive's applicable Federal, state and local taxes, including
any Excise Tax, imposed upon such additional amount, Executive will
retain an amount equal to the Excise Tax imposed on the Total Payments.
The amount determined under this Paragraph B upon the occurrence of a
Qualifying Event shall be reduced by the amount of any Gross-Up Payment
previously paid to Executive under Section 2.04.
For purposes of Paragraphs A and B above, Executive's applicable Federal, state
and local taxes shall be computed at the maximum marginal rates, taking into
account the effect of any loss of personal exemptions resulting from receipt of
the Gross-Up Payment.
SECTION 4.02. Determinations. All determinations required to be made
under this Article 4, including the amount of the Gross-Up Payment, whether a
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payment is required under Paragraph B of Section 4.01, and the assumptions to be
used in determining the Gross-Up Payment, shall be made by Arthur Andersen LLP
(the "Accounting Firm") which shall provide detailed supporting calculations
both to the Company and Executive within twenty business days of the receipt of
notice from Executive that there has been a Qualifying Event, or such earlier
time as is requested by the Company. In the event that the Accounting Firm is
serving as accountant or auditor for the Person effecting the Change in Control
or is otherwise unavailable, Executive may appoint another nationally recognized
accounting firm to make the determinations required hereunder (which accounting
firm shall then be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the Company.
SECTION 4.03. Subsequent Redeterminations. Executive agrees (unless
requested otherwise by the Company) to use reasonable efforts to contest in good
faith any subsequent determination by the Internal Revenue Service that
Executive owes an amount of Excise Tax greater than the amount determined
pursuant to Section 4.02; provided, that Executive shall be entitled to
reimbursement by the Company of all fees and expenses reasonably incurred by
Executive in contesting such determination. In the event the Internal Revenue
Service or any court of competent jurisdiction determines that Executive owes an
amount of Excise Tax that is either greater or less than the amount previously
taken into account and paid under this Article 4, the Company shall promptly pay
to Executive, or Executive shall promptly repay to the Company, as the case may
be, the amount of such excess or shortfall. In the case of any payment that the
Company is required to make to Executive pursuant to the preceding sentence (a
"Later Payment"), the Company shall also pay to Executive an additional amount
such that after payment by Executive of all of Executive's applicable Federal,
state and local taxes on such additional amount, Executive will retain an amount
equal to the total of Executive's applicable Federal, state and local taxes
arising due to the Later Payment. In the case of any repayment of Excise Tax
that Executive is required to make to the Company pursuant to the second
sentence of this Section 4.03, Executive shall also repay to the Company the
amount of any additional payment received by Executive from the Company in
respect of applicable Federal, state and local taxes on such repaid Excise Tax,
to the extent Executive is entitled to a refund of (or has not yet paid) such
Federal, state or local taxes.
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ARTICLE 5
SUCCESSORS AND ASSIGNMENTS
SECTION 5.01 Successors. The Company will require any successor (whether
by reason of a Change in Control, direct or indirect, by purchase, merger,
consolidation, or otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform the obligations
under this Agreement in the same manner and to the same extent that the Company
would be required to perform it if no such succession had taken place.
SECTION 5.02. Assignment by Executive. This Agreement shall inure to the
benefit of and be enforceable by Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees, and
legatees. If Executive should die while any amount is owed but unpaid to
Executive hereunder, all such amounts, unless otherwise provided herein, shall
be paid to Executive's devisee, legatee, or other designee, or if there is no
such designee, to Executive's estate. Executive's rights hereunder shall not
otherwise be assignable.
ARTICLE 6
MISCELLANEOUS
SECTION 6.01 Notices. Any notice required to be delivered hereunder
shall be in writing and shall be addressed
if to the Company, to:
Delta Air Lines, Inc.
Hartsfield Atlanta International Airport
Post Office Box 20706
Atlanta, GA 30320-2534
Attn: General Counsel;
if to Executive, to Executive's last known address as reflected on the
books and records of the Company
or such other address as such party may hereafter specify for the purpose by
written notice to the other party hereto. Any such notice shall be deemed
received on the date of receipt by the recipient thereof if received prior to 5
p.m. in the place of receipt and such day is a business day in the place of
receipt. Otherwise, any such notice shall be deemed not to have been received
until the next succeeding business day in the place of receipt.
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<PAGE> 35
SECTION 6.02. Legal Fees and Expenses. The Company shall pay all legal
fees, costs of litigation, prejudgment interest, and other expenses which are
reasonably incurred by Executive as a result of (i) the Company's refusal to
provide Severance Benefits or other amounts in accordance herewith, (ii) the
Company's (or any third party's) contesting the validity, enforceability, or
interpretation of the Agreement, (iii) any conflict between the parties
pertaining to this Agreement, (iv) Executive's contesting any determination by
the Internal Revenue Service pursuant to Section 4.03, or (v) Executive's
pursuing any claim under Section 6.16 hereof.
SECTION 6.03. Arbitration. Executive shall have the right and option to
elect (in lieu of litigation) to have any dispute or controversy arising under
or in connection with this Agreement settled by arbitration, conducted before a
panel of three arbitrators sitting in a location selected by Executive within 50
miles from the location of his or her job with the Company, in accordance with
the rules of the American Arbitration Association then in effect. Executive's
election to arbitrate, as herein provided, and the decision of the arbitrators
in that proceeding, shall be binding on the Company and Executive. Judgment may
be entered on the award of the arbitrator in any court having jurisdiction. All
expenses of such arbitration, including the fees and expenses reasonably
incurred by Executive, shall be borne by the Company.
SECTION 6.04. Unfunded Agreement. Except to the extent otherwise provided
in Article 2, the obligations of the Company under this Agreement represent an
unsecured, unfunded promise to pay benefits to Executive and/or Executive's
beneficiaries, and shall not entitle Executive or such beneficiaries to a
preferential claim to any asset of the Company.
SECTION 6.05. Non-Exclusivity of Benefits. Unless specifically provided
herein, neither the provisions of this Agreement nor the benefits provided
hereunder shall reduce any amounts otherwise payable, or in any way diminish
Executive's rights as an employee of the Company, whether existing now or
hereafter, under any compensation and/or benefit plans (qualified or
nonqualified), programs, policies, or practices provided by the Company, for
which Executive may qualify. Vested benefits or other amounts which Executive
is otherwise entitled to receive under any plan, policy, practice, or program of
the Company (i.e., including, but not limited to, vested benefits under the
Qualified Pension Plan), at or subsequent to the date of termination of
Executive's employment shall be payable in accordance with such plan, policy,
practice, or program except as expressly modified by this Agreement.
SECTION 6.06. Compensation Taken Into Account. Severance Benefits
provided hereunder (other than the Base Salary and Reference Incentive
13
<PAGE> 36
Compensation Award payable pursuant to Sections 3.03(a) or 3.03(b)) shall not be
considered for purposes of determining Executive's benefits under any other plan
or program of the Company (including without limitation the Qualified Pension
Plan and the Nonqualified Pension Plans).
SECTION 6.07. Employment Status. Nothing herein contained shall interfere
with the Company's right to terminate Executive's employment with the Company at
any time, with or without Cause, subject to the Company's obligation to provide
such Severance Benefits and other amounts as may be required hereunder.
SECTION 6.08 Mitigation. In no event shall Executive be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to Executive under any of the provisions of this Agreement, nor
shall the amount of any payment hereunder be reduced by any compensation earned
by Executive as a result of employment by another employer.
SECTION 6.09. No Set-Off. The Company's obligations to make all payments
and honor all commitments under this Agreement shall be absolute and
unconditional and shall not be affected by any circumstances including, without
limitation, any set-off, counterclaim, recoupment, defense or other right which
the Company may have against Executive.
SECTION 6.10. Entire Agreement. This Agreement represents the entire
agreement between the parties with respect to Executive's employment and/or
severance rights upon a Change in Control, and supersedes all prior discussions,
negotiations, and agreements concerning such rights, including, but not limited
to, any prior severance agreement made between Executive and the Company.
SECTION 6.11. Tax Withholding. Notwithstanding anything in this
Agreement to the contrary, the Company shall withhold from any amounts payable
under this Agreement all federal, state, city, or other taxes as are legally
required to be withheld.
SECTION 6.12. Waiver of Rights. The waiver by either party of a breach of
any provision of this Agreement shall not operate or be construed as a
continuing waiver or as a consent to or waiver of any subsequent breach hereof.
14
<PAGE> 37
SECTION 6.13. Severability. In the event any provision of the Agreement
shall be held illegal or invalid for any reason, the illegality or invalidity
shall not affect the remaining parts of the Agreement, and the Agreement shall
be construed and enforced as if the illegal or invalid provision had not been
included.
SECTION 6.14. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia without reference
to principles of conflict of laws.
SECTION 6.15. Counterparts. This Agreement may be signed in several
counterparts, each of which shall be an original, with the same effect as if
the signatures thereto and hereto were on the same instrument.
SECTION 6.16. Claim Review Procedure. If Executive is denied benefits
under this Agreement, Executive may request, in writing, a review of the denial
by the Company or its designee within 60 days of receiving written notice of
the denial. The Company shall respond in writing to a written request for
review within 90 days of receipt of such request. Neither the claim procedure
set forth in this Section 6.16 nor Executive's failure to adhere to such
procedure shall derogate from Executive's right to enforce this Agreement
through legal action, including arbitration as provided in Section 6.03.
ARTICLE 7
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
meanings set forth below.
"Accounting Firm" has the meaning accorded such term in
Section 4.02.
"Actuarial Firm" has the meaning accorded such term in
Section 3.03(e)(iv).
"Affiliate" and "Associate" have the respective meanings accorded
to such terms in Rule 12b-2 under the Exchange Act as in effect on the
Effective Date.
"Base Salary" means, at any time, the then-regular annual rate of
pay which Executive is receiving as annual salary.
15
<PAGE> 38
"Beneficial Ownership." A Person shall be deemed the "Beneficial
Owner" of, and shall be deemed to "beneficially own," securities pursuant
to Rule 13d-3 under the Exchange Act as in effect on the Effective Date.
"Board" has the meaning accorded such term in the second "Whereas"
clause of this Agreement.
"Cause" means the occurrence of any one or more of the following:
(a) A demonstrably willful and deliberate act or failure to
act by Executive (other than as a result of incapacity due to
physical or mental illness) which is committed in bad faith,
without reasonable belief that such action or inaction is in the
best interests of the Company, and which act or inaction is not
remedied within fifteen business days of written notice from the
Company; or
(b) Executive's conviction for committing an act of fraud,
embezzlement, theft, or any other act constituting a felony
involving moral turpitude.
Notwithstanding the foregoing, Executive shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to
Executive a copy of a resolution duly adopted by the affirmative vote
(which cannot be delegated) of not less than three-quarters of the entire
membership of the Board at a meeting of the Board called and held for
such purpose (after reasonable notice to Executive and an opportunity for
Executive, together with Executive's counsel, to be heard before the
Board), finding that, in the good faith opinion of the Board, Executive
is guilty of conduct set forth above in clauses (a) or (b) of this
definition and specifying the particulars thereof in detail.
"Change in Control" means, and shall be deemed to have occurred
upon, the first to occur of any of the following events:
(a) Any Person (other than an Excluded Person) acquires,
together with all Affiliates and Associates of such Person,
Beneficial Ownership of securities representing 20% or more of
the combined voting power of the Voting Stock then outstanding,
unless such Person acquires Beneficial Ownership of 20% or more
of the combined voting power of the Voting Stock then
16
<PAGE> 39
outstanding solely as a result of an acquisition of Voting Stock
by the Company which, by reducing the Voting Stock outstanding,
increases the proportionate Voting Stock beneficially owned by
such Person (together with all Affiliates and Associates of such
Person) to 20% or more of the combined voting power of the Voting
Stock then outstanding; provided, that if a Person shall become
the Beneficial Owner of 20% or more of the combined voting power
of the Voting Stock then outstanding by reason of such Voting
Stock acquisition by the Company and shall thereafter become the
Beneficial Owner of any additional Voting Stock which causes the
proportionate voting power of Voting Stock beneficially owned by
such Person to increase to 20% or more of the combined voting
power of the Voting Stock then outstanding, such Person shall,
upon becoming the Beneficial Owner of such additional Voting
Stock, be deemed to have become the Beneficial Owner of 20% or
more of the combined voting power of the Voting Stock then
outstanding other than solely as a result of such Voting Stock
acquisition by the Company;
(b) During any period of two consecutive years (not
including any period prior to the Effective Date), individuals
who at the beginning of such period constitute the Board (and any
new Director, whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of
at least two-thirds of the Directors then still in office who
either were Directors at the beginning of the period or whose
election or nomination for election was so approved), cease for
any reason to constitute a majority of Directors then
constituting the Board;
(c) A reorganization, merger or consolidation of the
Company is consummated, in each case, unless, immediately
following such reorganization, merger or consolidation, (i) more
than 50% of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization,
merger or consolidation 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 of the
Voting Stock outstanding immediately prior to such
reorganization, merger or consolidation, (ii) no Person (but
excluding for this purpose any Excluded Person and any Person
beneficially owning, immediately
17
<PAGE> 40
prior to such reorganization, merger or consolidation, directly
or indirectly, 20% or more of the voting power of the outstanding
Voting Stock) beneficially owns, directly or indirectly, 20% or
more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization,
merger or consolidation or the combined voting power of the then
outstanding voting securities of such corporation entitled to vote
generally in the election of directors and (iii) at least a
majority of the members of the board of directors of the
corporation resulting from such reorganization, merger or
consolidation were members of the Board at the time of the
execution of the initial agreement providing for such
reorganization, merger or consolidation; or
(d) The shareholders of the Company approve (i) a complete
liquidation or dissolution of the Company or (ii) the sale or
other disposition of all or substantially all of the assets of
the Company, other than to any corporation with respect to which,
immediately following such sale or other disposition, (A) 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 of the Voting Stock outstanding immediately
prior to such sale or other disposition of assets, (B) no Person
(but excluding for this purpose any Excluded Person and any
Person beneficially owning, immediately prior to such sale or
other disposition, directly or indirectly, 20% or more of the
voting power of the outstanding Voting Stock) beneficially owns,
directly or indirectly, 20% or more of, respectively, the then
outstanding shares of common stock of such corporation or the
combined voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors and (C) at least a majority of the members of the board
of directors of such corporation were members of the Board at the
time of the execution of the initial agreement or action of the
Board providing for such sale or other disposition of assets of
the Company.
Notwithstanding the foregoing, in no event shall a "Change in Control"
be deemed to have occurred (i) as a result of the formation of a Holding
Company, or (ii) with respect to Executive, if Executive is part of a
18
<PAGE> 41
"group," within the meaning of Section 13(d)(3) of the Exchange Act as
in effect on the Effective Date, which consummates the Change in Control
transaction. In addition, for purposes of the definition of "Change in
Control" a Person engaged in business as an underwriter of securities
shall not be deemed to be the "Beneficial Owner" of, or to "beneficially
own," any securities acquired through such Person's participation in
good faith in a firm commitment underwriting until the expiration of
forty days after the date of such acquisition.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning accorded such term in the introductory
paragraph of this Agreement.
"Deferred Compensation Plan" means the Company's Executive Deferred
Compensation Plan (or any similar successor plan adopted by the
Company), as in effect immediately prior to the Change in Control.
"Deferred Compensation Trust" has the meaning accorded such term
in Section 2.01.
"Disability" means Long-Term Disability, as such term is defined in
the Disability Plan.
"Disability Plan" means the Delta Family-Care Disability and
Survivorship Plan (or any successor disability and/or survivorship plan
adopted by the Company), as in effect immediately prior to the Change in
Control (subject to changes in coverage levels applicable to all
employees generally covered by such Plan).
"Earliest Retirement Date" means the earliest date, after the date
of termination of Executive's employment, as of which Executive would be
eligible to commence receiving retirement benefits under the Qualified
Pension Plan.
"Effective Date" has the meaning accorded such term in the
introductory paragraph of this Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
19
<PAGE> 42
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Excise Tax" has the meaning accorded such term in Section 4.01.
"Excluded Person" means (i) the Company; (ii) any of the Company's
Subsidiaries; (iii) any Holding Company; (iv) any employee benefit plan
of the Company, any of its Subsidiaries or a Holding Company; or (v) any
Person organized, appointed or established by the Company, any of its
Subsidiaries or a Holding Company for or pursuant to the terms of any
plan described in clause (iv).
"Executive" has the meaning accorded such term in the introductory
paragraph of this Agreement.
"Good Reason" means, without Executive's express written consent,
the occurrence of any one or more of the following:
(a) The assignment to Executive of duties inconsistent with
Executive's authorities, duties, responsibilities and status as an
officer of the Company, or a reduction or alteration in the nature
or status of Executive's authorities, duties, or responsibilities,
from those in effect as of the Reference Date; other than an
insubstantial and inadvertent act that is remedied by the Company
promptly after receipt of notice thereof given by Executive;
(b) The Company's requiring Executive to be based at a
location in excess of 50 miles from Executive's principal job
location or office immediately prior to the Reference Date; except
for required travel on the Company's business to an extent
consistent with Executive's business travel obligations
immediately prior to the Reference Date;
(c) A reduction by the Company of Executive's Base Salary as
in effect on the Reference Date (other than pursuant to a
reduction by a uniform percentage of the salary of all full-time
domestic employees of the Company who are not subject to a
collective bargaining agreement); or a reduction in Executive's
short-term or long-term incentive compensation opportunities under
the executive incentive compensation plans of the Company for
which Executive is eligible as in effect on the Reference Date;
20
<PAGE> 43
(d) The failure by the Company to keep in effect
compensation, retirement, health and welfare benefits, or
perquisite programs under which Executive receives benefits
substantially similar, in the aggregate, to the benefits under
such programs as exist immediately prior to the Reference Date
(other than pursuant to an equivalent reduction in such benefits
of all full-time domestic employees of the Company who are not
subject to a collective bargaining agreement); or the failure of
the Company to meet the funding requirements, if any, of any of
such programs; or
(e) Any material breach by the Company of its obligations
under this Agreement or any failure of a successor of the Company
to assume and agree to perform the Company's entire obligations
under this Agreement, as required by Article 5 herein, provided
that such successor has received at least ten days written notice
from the Company or Executive of the requirements of Article 5.
"Gross-Up Payment" has the meaning accorded such term in Section
4.01.
"Holding Company" means an entity that becomes a holding company for
the Company or its businesses as a part of any reorganization, merger,
consolidation or other transaction, provided that the outstanding shares
of common stock of such entity and the combined voting power of the then
outstanding voting securities of such entity entitled to vote generally
in the election of directors is, immediately after such reorganization,
merger, consolidation or other transaction, beneficially owned, directly
or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners, respectively, of the Voting
Stock outstanding immediately prior to such reorganization, merger,
consolidation or other transaction in substantially the same proportions
as their ownership, immediately prior to such reorganization, merger,
consolidation or other transaction, of such outstanding Voting Stock.
"Initial Term" has the meaning accorded such term in Section 1.01.
"Later Payment" has the meaning accorded such term in
Section 4.03.
"Medical Plans" means the DeltaFlex and the Delta Family-Care
Medical Plans (or any successor medical plans adopted by the Company),
21
<PAGE> 44
as in effect immediately prior to the Change in Control (subject to
changes in coverage levels applicable to all employees generally covered
by such Plans).
"Nonqualified Pension Plans" means the 1991 Delta Excess Benefit Plan and
the Delta Supplemental Excess Benefit Plan (or any successor nonqualified
defined benefit retirement plans adopted by the Company).
"Person" means an individual, corporation, partnership, association,
trust or any other entity or organization.
"Qualified Pension Plan" means the Delta Family-Care Retirement Plan
(or any successor qualified defined benefit retirement plan adopted by
the Company).
"Qualifying Event" has the meaning accorded such term in Section
3.02.
"Reference Date" means the earlier to occur of (i) a Change in
Control and (ii) the date 90 days prior to the termination of Executive's
employment.
"Reference Incentive Compensation Award" means:
(a) for purposes of Article 2 hereof, the greater of the
target annual incentive compensation award or bonus (A) for the
Company's most recently completed fiscal year prior to the Change
in Control; and (B) for the Company's fiscal year that includes
the Change in Control.
(b) for purposes of Article 3 hereof, the greater of the
target annual incentive compensation award or bonus (A) for the
Company's most recently completed fiscal year prior to the
termination of Executive's employment; and (B) for the Company's
fiscal year that includes Executive's termination of employment.
For purposes of both parts (a) and (b) of this definition, the
"target annual incentive compensation award or bonus" with respect to any
fiscal year shall be determined by multiplying the target salary
percentage applicable to Executive for such year by the Reference Salary.
22
<PAGE> 45
"Reference Long-Term Award" means, for each performance period that
includes the date of a Change in Control under a long-term incentive plan
maintained by the Company, the greater of (i) the actual award payable to
Executive for such performance period, calculated as if such performance
period had ended on the date of the Change in Control and (ii) the target
award payable to Executive for such performance period.
"Reference Salary" means the greater of Executive's annual rate of
Base Salary as in effect (i) upon the date of termination of Executive's
employment, and (ii) immediately prior to the Change in Control.
"Severance Benefits" has the meaning accorded such term in Section
3.03.
"Subsidiary" of any Person means any other Person of which
securities or other ownership interests having voting power to elect a
majority of the board of directors or other Persons performing similar
functions are at the time directly or indirectly owned by such Person.
"Successive Period" has the meaning accorded such term in Section
1.02.
"Total Payments" has the meaning accorded such term in Section
4.01.
"Trust Instrument" has the meaning accorded such term in Section
2.01.
"Voting Stock" means securities of the Company entitled to vote
generally in the election of members of the Board.
IN WITNESS WHEREOF, the Company and Executive have executed this
Agreement, to be effective as of the day and year first written above.
EXECUTIVE Delta Air Lines, Inc.
By:
- ------------------------------ ----------------------------------
Name:
Title:
23
<PAGE> 1
EXHIBIT 11
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
FOR FISCAL YEARS ENDED JUNE 30, 1997,
1996 AND 1995 (In millions, except
per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995
----------------- ----------------- ----------------
<S> <C> <C> <C>
PRIMARY:
Weighted average shares outstanding 74 52 51
Additional shares assuming
exercise of stock options 1 - -
---------------- ---------------- ----------------
Average shares outstanding as adjusted 75 52 51
================ ================ ================
Income before cumulative effect of
accounting change $ 854 $ 156 294
Preferred dividends series C - (74) (80)
Preferred dividends series B (9) (8) (8)
---------------- ---------------- ----------------
Income before cumulative effect of
accounting change available to primary shares 845 74 206
Cumulative effect of accounting change - - 114
---------------- ---------------- ----------------
Net income available to primary shares $ 845 $ 74 320
================ ================ ================
Primary income per common share before
cumulative effect of accounting change $ 11.30 $ 1.42 4.07
Cumulative effect of accounting change - - 2.25
---------------- ---------------- ----------------
Primary income per common share $ 11.30 $ 1.42 6.32
================ ================ ================
FULLY DILUTED:
Weighted average shares outstanding 74 52 51
Additional shares assuming:
Conversion of series C convertible preferred stock - 17 17
Conversion of series B ESOP convertible
preferred stock 2 2 2
Conversion of 3.23% convertible subordinated notes - 9 10
Exercise of stock options 1 - -
---------------- ---------------- ----------------
Average shares outstanding as adjusted 77 80 80
================ ================ ================
Income before cumulative effect of
accounting change $ 854 $ 156 294
Interest on 3.23% convertible subordinated
notes, net of tax - 26 32
Additional required ESOP contribution
assuming conversion of series
B ESOP convertible preferred stock, net of ta (5) x (4) (5)
---------------- ---------------- ----------------
Income before cumulative effect of
accounting change available to fully
diluted shares 849 178 321
Cumulative effect of accounting change - - 114
---------------- ---------------- ----------------
Net income available to fully
diluted common shares $ 849 $ 178 435
================ ================ ================
Fully diluted income per common share
before cumulative effect of accounting change $ 11.01 $ 2.21* 4.01
Cumulative effect of accounting change - - 1.42
---------------- ---------------- ----------------
Fully diluted income per common share $ 11.01 $ 2.21* 5.43
================ ================ ================
</TABLE>
*Antidilutive
<PAGE> 1
EXHIBIT 12
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions, except ratios)
<TABLE>
<CAPTION>
-------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Earnings (loss):
Earnings (loss) before income taxes and cumulative
effect of accounting changes $1,415 $ 276 $ 494 $(660) $(651)
Add (deduct):
Fixed charges from below 673 582 665 689 616
Interest capitalized (33) (26) (30) (33) (62)
Interest offset on
Guaranteed Serial
ESOP Notes - (2) (4) (14) (15)
----------------------------------------------------
Earnings (loss) as adjusted $2,055 $ 830 $1,125 $ (18) $(112)
====================================================
Fixed charges:
Interest expense $ 207 $ 269 $ 292 $ 304 $ 239
Portion of rental expense representative
of the interest factor 466 311 369 371 362
Additional interest on
Guaranteed Serial
ESOP Notes - 2 4 14 15
----------------------------------------------------
Total fixed charges $ 673 $ 582 $ 665 $ 689 $ 616
====================================================
Ratio of earnings to fixed charges 3.05 1.43 1.69 - -
</TABLE>
- -----------------------------------------------------------------
Earnings for the fiscal years ended June 30, 1994 and 1993 were inadequate to
cover fixed charges. Additional earnings of $707 million for the fiscal year
ended June 30, 1994, and of $728 million for the fiscal year ended June 30,
1993, would have been necessary to bring the ratio to 1.0.
<PAGE> 1
EXHIBIT 13
AIRCRAFT FLEET
Delta's aircraft fleet is a cornerstone of the Company's business. Delta has
long maintained one of the youngest and most technologically advanced fleets in
the U.S. airline industry. In March 1997, Delta reached an understanding with
The Boeing Company for firm orders, options and rolling options to purchase
certain aircraft. The understanding includes 106 firm aircraft orders through
fiscal 2007, with an additional 124 options and 414 rolling options through
fiscal 2018. Options have scheduled delivery slots while rolling options
replace options and are assigned delivery slots as options expire or are
exercised. The new Boeing understanding also contemplates the termination of
existing options, the cancellation of Delta's remaining MD-90 orders and the
advancement of certain of Delta's existing orders. The understanding is subject
to certain conditions, including the negotiation of mutually acceptable
12
<PAGE> 2
AIRCRAFT FLEET AT JUNE 30, 1997
<TABLE>
<CAPTION>
Type of Average Age
Aircraft (Years) Owned Leased Total
- ------------------------------------------------------------
<S> <C> <C> <C> <C>
B-727-200 20.3 115 14 129
B-737-200 12.6 1 53 54
B-737-300 11.3 - 13 13
B-757-200 8.5 50 41 91
B-767-200 14.1 15 - 15
B-767-300 8.1 2 24 26
B-767-300ER 4.6 20 7 27
L-1011-1 19.6 24 - 24
L-1011-200 19.0 1 - 1
L-1011-250 14.7 6 - 6
L-1011-500 16.4 17 - 17
MD-11 3.7 7 7 14
MD-88 7.0 63 57 120
MD-90 1.6 16 - 16
- ----------------------------------------------------------
Total 11.8 337 216 553
=====================
</TABLE>
AIRCRAFT DELIVERY SCHEDULES
Aircraft on Firm Order at June 30, 1997 (excludes new Boeing understanding)
<TABLE>
<CAPTION>
Delivery in Year Ending June 30:
----------------------------------------
After
Orders 1998 1999 2000 2001 2001 Total
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
B-757-200 - - 1 3 - 4
B-767-300 - 2 - - - 2
B-767-300ER 9 - - - - 9
MD-11 1 - - - - 1
MD-90 - 5 5 3 2 15
- ----------------------------------------------------------
Total 10 7 6 6 2 31
==========================================================
</TABLE>
Aircraft on Firm Order Pursuant to New Boeing Understanding
<TABLE>
<CAPTION>
Delivery in Year Ending June 30:
--------------------------------------
After
Orders* 1998 1999 2000 2001 2001 Total
- ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
B-737-600/700/800 - 7 - - 63 70
B-757-200 - 5 - - - 5
B-767-300ER 1 9 - - - 10
B-767-400 - - 2 19 - 21
- -----------------------------------------------------------
Total 1 21 2 19 63 106
===========================================================
</TABLE>
*Subject to definitive purchase agreements.
definitive purchase agreements with Boeing. See Note 9 of Notes to Consolidated
Financial Statements.
In conjunction with the understanding, Delta announced a 20-year aircraft
acquisition plan. This long-range plan supports Delta's goals for fleet
replacement and rationalization and creates the opportunity for disciplined
internal growth. Furthermore, it helps ensure the Company is ready with the
right aircraft at the right time and at the right price to build on Delta's
market strengths - even if the competitive landscape changes in unanticipated
ways.
The Company's understanding with Boeing includes long-term price controls
and risk sharing and gives Delta flexibility to adjust to changing
circumstances. Subject to certain conditions, the Company will have the
flexibility to adjust scheduled aircraft deliveries as well as to substitute
between aircraft models and aircraft types. Delta's long-term plan is to
simplify its fleet by reducing aircraft family types from six to three, while
replacing older aircraft types with newer Boeing 767 and 737 aircraft over
several years. The increased efficiencies are expected to result in significant
long-term cost savings in areas such as maintenance, spare parts inventories,
scheduling and training.
Structured to focus on shareholder value, the plan is intended to maintain
Delta's ability to pay for the aircraft with internally generated funds, while
enabling the Company to continue to make progress toward achieving financial
goals for operating margin, return on investment and a return to investment
grade status.
The majority of the aircraft under firm order in Delta's fleet plan will
be used to replace older aircraft, primarily the L-1011 and B-727 aircraft. As
previously announced, the Company plans to remove all L-1011 aircraft from
transatlantic service by the end of fiscal 1998 and retire all L-1011 aircraft
from the fleet within the next several years. The L-1011 aircraft will be
replaced primarily with Boeing 767 aircraft. The B-727 aircraft eventually will
be retired and replaced primarily with new generation Boeing 737 aircraft.
13
<PAGE> 3
In addition to new aircraft deliveries in fiscal 1997, Delta announced its
intent to acquire six B-767-300ER aircraft from another carrier. The Company
took delivery of five of the aircraft during fiscal 1997, and the remaining
aircraft was delivered during early fiscal 1998. Including these deliveries,
Delta accepted delivery of 21 aircraft during fiscal 1997, comprising five
B-757-200 aircraft, ten B-767-300ER aircraft, four MD-90 aircraft and two MD-11
aircraft.
With fleet refinement actions taken during the fiscal year and the
recently announced long-term fleet plan, Delta continues to make progress
toward its goals of improved operational flexibility, management of capital
spending and simplification of the Company's aircraft fleet.
14
<PAGE> 4
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
DELTA AIR LINES, INC.
RESULTS OF OPERATIONS -
FISCAL 1997 COMPARED WITH FISCAL 1996
For fiscal 1997, Delta recorded net income of $854 million ($11.30 primary and
$11.01 fully diluted income per common share) and operating income of $1.5
billion. In fiscal 1996, Delta recorded net income of $156 million ($1.42
primary and fully diluted income per common share), and operating income of
$463 million.
<TABLE>
<CAPTION>
FINANCIAL RESULTS SUMMARY
(In Millions, Except
Share Amounts) 1997 1996 Change
- ----------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues $13,590 $12,455 +9%
Operating Expenses 12,060 11,992 +1
- ----------------------------------------------------------
Operating Income 1,530 463 *
Other Expense, Net 115 187 -39
- ----------------------------------------------------------
Income Before Income Taxes 1,415 276 *
Income Taxes Provided, Net 561 120 *
- ----------------------------------------------------------
Net Income 854 156 *
Preferred Stock Dividends 9 82 -89
- ----------------------------------------------------------
Net Income Available to
Common Shareholders $ 845 $ 74 *
==========================================================
Primary Income Per
Common Share: $ 11.30 $ 1.42 *
==========================================================
Fully Diluted Income
Per Common Share: $ 11.01 $ 1.42 *
==========================================================
Number of Shares Used to
Compute Income Per
Common Share:
Primary 74,786,517 52,101,152 N/A
Fully Diluted 77,087,619 52,101,152 N/A
</TABLE>
* Exceeds 100%
Fiscal 1997 results include pretax restructuring and other non-recurring
charges totaling $52 million ($32 million after-tax or $0.42 primary and $0.41
fully diluted income per common share) related to the realignment of the
Company's transatlantic and European operations. Fiscal 1996 results include
pretax restructuring and other non-recurring charges totaling $829 million
($506 million after-tax or $9.71 per common share) related to the write-down of
Delta's L-1011 fleet and the continuation of the Company's Leadership 7.5 cost
reduction program. See Note 16 of Notes to Consolidated Financial Statements.
Excluding the restructuring and other non-recurring charges in fiscal 1997
and 1996, net income for fiscal 1997 totaled $886 million ($11.72 primary and
$11.42 fully diluted income per common share) and operating income was $1.6
billion, compared to net income of $662 million ($11.13 primary and $8.49 fully
diluted income per common share) and operating income of $1.3 billion in fiscal
1996.
OPERATING REVENUE DETAIL
<TABLE>
<CAPTION>
(In Millions) 1997 1996 Change
- ----------------------------------------------------------
<S> <C> <C> <C>
Passenger $12,505 $11,616 + 8%
Cargo 554 521 + 6
Other, Net 531 318 +67
- ----------------------------------------------------------
Total $13,590 $12,455 + 9%
==========================================================
</TABLE>
Operating revenues for fiscal 1997 were $13.6 billion, up 9% from $12.5
billion in fiscal 1996. Passenger revenue increased 8%, reflecting a 10%
increase in revenue passenger miles, partially offset by a 2% decline in
passenger mile yield. Domestic load factor increased four points to 70%, as
domestic revenue passenger miles and domestic capacity rose 13% and 6%,
respectively. The increase in domestic passenger traffic is due to the
Company's realignment of its domestic route system on December 1, 1995, which
increased the Company's operations at its Atlanta and Cincinnati hubs; improved
asset utilization; reduced operations by a low-cost, low-fare competitor; and
favorable economic conditions. Domestic passenger mile yield decreased 3%,
reflecting the Company's use of more competitive pricing strategies; the
continued presence of low-cost, low-fare carriers in domestic markets served by
Delta; and the March 7, 1997 reimposition of the U.S. transportation excise
tax. International load factor increased three points to 76%, as international
revenue passenger miles increased 3%, while operating capacity decreased 1%.
The increase in international traffic is primarily due to improved asset
utilization and favorable economic conditions, while the decline in
international capacity is mainly due to the cancellation of service on certain
international routes. The international passenger mile yield decreased 2%, due
to the Company's use of more competitive pricing strategies.
Cargo revenues in fiscal 1997 increased 6% to $554 million. Cargo ton
miles increased 12%, while the cargo ton mile yield declined 5%, primarily due
to the Company's utilization of more competitive pricing strategies and an
increase in the average stage length related to freight shipments.
All other revenues were up 67% to $531 million, mainly due to the
expansion of joint marketing programs associated with the Company's SkyMiles(R)
frequent flyer program and improved results from code-share arrangements.
21
<PAGE> 5
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
DELTA AIR LINES, INC.
<TABLE>
<CAPTION>
REVENUE-RELATED STATISTICS
1997 1996 Change
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue Passengers
Enplaned (Thousands) 101,147 91,341 + 11%
Revenue Passenger
Miles (Millions) 97,758 88,673 + 10%
Passenger Load Factor 71.4% 67.8% + 3.6 pts.
Passenger Mile Yield 12.79(cent) 13.10(cent) - 2%
Cargo Ton Miles (Millions) 1,532 1,368 + 12%
Cargo Ton Mile Yield 36.14(cent) 38.08(cent) - 5%
Operating Revenue Per
Available Seat Mile 9.93(cent) 9.53(cent) + 4%
</TABLE>
Operating expenses in fiscal 1997 totaled $12.1 billion, up 1% from $12.0
billion in fiscal 1996. Operating capacity increased 5% to 136.8 billion
available seat miles, and operating cost per available seat mile decreased 4%
to 8.81(cent). Excluding restructuring and other non-recurring charges in
fiscal 1997 and 1996, operating expenses were up 8%, and operating cost per
available seat mile increased 3%. The increase in operating expenses is
primarily due to higher salaries and related costs, aircraft fuel expense and
certain traffic-related costs.
<TABLE>
<CAPTION>
OPERATING EXPENSE DETAIL
(In Millions) 1997 1996 Change
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and Related Costs $ 4,444 $ 4,206 + 6%
Aircraft Fuel 1,723 1,464 +18
Passenger Commissions 1,016 1,042 - 2
Contracted Services 751 704 + 7
Depreciation and Amortization 710 634 +12
Other Selling Expenses 677 594 +14
Aircraft Rent 547 555 - 1
Aircraft Maintenance Materials
and Outside Repairs 434 376 +15
Passenger Service 389 368 + 6
Facilities and Other Rent 386 379 + 2
Landing Fees 256 248 + 3
Restructuring and Other
Non-Recurring Charges 52 829 *
Other Operating 675 593 +14
- ----------------------------------------------------------------------
Total $12,060 $11,992 + 1%
- ----------------------------------------------------------------------
</TABLE>
* Exceeds 100%
Salaries and related costs increased 6%, primarily due to a 5% increase in
full-time equivalent employees to handle higher passenger traffic and improve
customer service, as well as higher costs associated with certain employee
compensation plans. Aircraft fuel expense increased 18%, as the average fuel
price per gallon rose 13% to 66.28(cent), and fuel gallons consumed increased
4%. Passenger commissions expense decreased 2%, reflecting lower expenses for
certain travel agent incentive programs which were partially offset by higher
commission costs associated with increased passenger traffic. Contracted
services expense rose 7%, the result of increased outsourcing of certain
airport functions and higher information technology costs. Depreciation and
amortization expense increased 12%, due to the acquisition of 12 new aircraft
and 18 used aircraft, including the purchase of nine B-727-200 aircraft which
the Company had previously been operating under operating leases, additional
ground equipment acquisitions and the amortization of software development
costs. Other selling expenses increased 14%, due to higher booking fee payments
to computer reservation system providers related to higher passenger traffic,
higher credit card processing charges and increased advertising costs. Aircraft
maintenance materials and outside repairs expense increased 15%, reflecting
higher usage of airframe and engine materials related to increased scheduled
maintenance visits and non-recurring credits received from certain engine and
brake manufacturers in fiscal 1996. Passenger service expense increased 6% due
to increased passenger traffic. Other operating expenses increased 14%, due to
higher insurance expense, higher frequent flyer expense related to the
expansion of the Company's joint marketing programs, increased usage of
miscellaneous supplies and higher fuel taxes resulting from the October 1, 1995
expiration of the exemption from the 4.3 cents per gallon federal tax on
commercial aviation jet fuel used in domestic operations, partially offset by
increased services provided to outside parties.
<TABLE>
<CAPTION>
Operating Statistics
1997 1996 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Available Seat Miles (Millions) 136,821 130,751 + 5%
Available Ton Miles (Millions) 18,984 18,084 + 5%
Fuel Gallons
Consumed (Millions) 2,599 2,500 + 4%
Average Fuel Price Per Gallon 66.28(cent) 58.53(cent) + 13%
Breakeven Passenger Load Factor:
Including Restructuring and
Other Non-Recurring Charges 62.7% 65.1% -2.4 pts.
Excluding Restructuring and
Other Non-Recurring Charges 62.4% 60.3% +2.1 pts.
Operating Cost Per
Available Seat Mile:
Including Restructuring and
Other Non-Recurring Charges 8.81(cent) 9.17(cent) - 4%
Excluding Restructuring and
Other Non-Recurring Charges 8.78(cent) 8.54(cent) + 3%
- ------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 6
Nonoperating expense for fiscal 1997 totaled $115 million, compared to
$187 million in fiscal 1996. Interest expense decreased 23%, due to a lower
average level of debt outstanding. Interest capitalized on funds advanced for
the purchase of flight equipment and construction of facilities increased 24%,
primarily resulting from a higher average balance of outstanding advance
payments for equipment. Interest income declined 29% to $61 million, due to a
lower average level of short-term investments and a slight decline in interest
rates during fiscal 1997. Miscellaneous expense, net decreased 93% to $2
million due to increased income from associated companies and reduced voluntary
debt retirement and foreign exchange losses, partially offset by Delta's $20
million payment to settle certain class action antitrust lawsuits filed by
travel agents.
RESULTS OF OPERATIONS -
FISCAL 1996 COMPARED WITH FISCAL 1995
For fiscal 1996, Delta recorded net income of $156 million ($1.42 primary and
fully diluted income per common share) and operating income of $463 million. In
fiscal 1995, Delta recorded net income of $408 million ($6.32 primary and $5.43
fully diluted income per common share) and operating income of $661 million.
Fiscal 1996 results include pretax restructuring and other non-recurring
charges totaling $829 million ($506 million after-tax or $9.71 per common
share) as discussed above. See Note 16 of Notes to Consolidated Financial
Statements. Fiscal 1995 results include a one-time $114 million after-tax
benefit ($2.25 primary and $1.42 fully diluted benefit per common share)
related to the adoption of Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (SFAS 112). See Note 10 of
Notes to Consolidated Financial Statements.
Excluding the restructuring and other non-recurring charges in fiscal 1996
and the cumulative effect of the adoption of SFAS 112 in fiscal 1995, net
income for fiscal 1996 totaled $662 million ($11.13 primary and $8.49 fully
diluted income per common share) and operating income was $1.3 billion,
compared to net income of $294 million ($4.07 primary and $4.01 fully diluted
income per common share) and operating income of $661 million in fiscal 1995.
The improvement in financial results for fiscal 1996 (excluding
restructuring and other non-recurring charges) as compared to fiscal 1995
primarily reflects cost reductions in most operating expense categories under
the Company's Leadership 7.5 program. These reductions resulted in a $370
million, or 3%, decline in operating expenses, excluding restructuring and
other non-recurring charges in fiscal 1996.
Operating revenues for fiscal 1996 were $12.5 billion, up 2% from $12.2
billion in fiscal 1995. Passenger revenue increased $297 million, or 3%, due to
increased traffic stimulated by competitive pricing actions, the expiration of
the U.S. transportation excise tax and general improvements in economies
worldwide. The passenger mile yield was virtually unchanged. Domestic load
factor increased two points to 66%, as domestic revenue passenger miles and
domestic capacity rose 6% and 3%, respectively. The domestic passenger mile
yield decreased 1%, the result of discount fare promotions and the continued
presence of low-cost, low-fare carriers in markets served by Delta.
International load factor increased one point to 73%, as international revenue
passenger miles decreased 7% while operating capacity decreased 8%. The decline
in international capacity is mainly due to the cancellation of service on
certain international routes. The international passenger mile yield increased
2%, primarily due to higher average fare levels in certain international
markets.
Cargo revenues in fiscal 1996 decreased 8% to $521 million, the result of
a 9% decline in cargo ton miles, partially offset by a 1% increase in the ton
mile yield. The decrease in cargo ton miles was primarily due to the
cancellation of service on certain international routes and the resulting
decrease in the average cargo trip length. All other revenues were up 3% to
$318 million, mainly due to increased revenues from joint marketing programs
associated with the Company's SkyMiles(R) frequent flyer program.
Operating expenses in fiscal 1996 totaled $12.0 billion, up 4% from $11.5
billion in fiscal 1995. Operating capacity increased less than 1% to 130.8
billion available seat miles, and operating cost per available seat mile
increased 4% to 9.17(cent). Excluding restructuring and other non-recurring
charges in fiscal 1996, operating expenses were down 3%, and operating cost per
available seat mile decreased 3%.
Nonoperating expense for fiscal 1996 totaled $187 million, compared to
$167 million in fiscal 1995. Interest expense decreased 8%, primarily due to a
lower average level of outstanding debt, partially offset by an increase in
interest related to the extension and reclassification of 40 B-737-200 aircraft
leases. Interest capitalized on funds advanced for the purchase of flight
equipment and construction of facilities decreased 13%, primarily resulting
from a lower average balance of outstanding advance payments for equipment.
Interest income declined 9% to $86 million, primarily due to a lower average
level of short-term investments and lower interest rates during the year.
Miscellaneous expense, net rose to $30 million for fiscal 1996 compared to less
than $1 million for fiscal
23
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
DELTA AIR LINES, INC.
1995 primarily due to costs associated with the repurchase and retirement of
long-term debt and foreign exchange losses.
CAPITALIZATION, FINANCING AND LIQUIDITY - FISCAL YEAR 1997
Cash and cash equivalents and short-term investments totaled $1.2 billion at
June 30, 1997, compared to $1.7 billion at June 30, 1996. The principal source
of funds during fiscal 1997 was $2.0 billion of cash from operations.
During fiscal 1997, Delta invested $1.6 billion in flight equipment and
$350 million in ground property and equipment. The Company also made payments
of $196 million on long-term debt and capital lease obligations, including
Delta's voluntary repurchase and retirement of $88 million principal amount of
long-term debt. The Company also paid $379 million to repurchase 5,378,700
common shares under its Common Stock repurchase program discussed in the Other
Matters section below. In addition, the Company paid cash dividends of $29
million on its Series B ESOP Convertible Preferred Stock and $15 million on its
Common Stock. The Company may repurchase additional long-term debt and Common
Stock from time to time.
As of June 30, 1997, the Company had negative working capital of $1.2
billion, compared to negative working capital of $356 million at June 30, 1996.
A negative working capital position is normal for Delta and does not indicate a
lack of liquidity. The Company expects to meet its current obligations as they
become due through available cash, short-term investments and internally
generated funds, supplemented as necessary by debt financing and proceeds from
sale and leaseback transactions. At August 15, 1997, the Company had $1.25
billion of credit available under its 1997 Bank Credit Agreement, subject to
compliance with certain conditions. See Note 7 of Notes to Consolidated
Financial Statements.
Long-term debt and capital lease obligations, including current
maturities, totaled $2.1 billion at June 30, 1997, compared to $2.3 billion at
June 30, 1996. Shareholders' equity was $3.0 billion at June 30, 1997, compared
to $2.5 billion at June 30, 1996. The Company's debt-to-equity position,
including current maturities, was 41% debt and 59% equity at June 30, 1997,
compared to 47% debt and 53% equity at June 30, 1996.
At August 15, 1997, there was outstanding $290 million principal amount of
the Delta Family-Care Savings Plan's Series C Guaranteed Serial ESOP Notes
(Series C ESOP Notes), which are guaranteed by Delta. The Series C ESOP Notes
currently have the benefit of a credit enhancement in the form of a letter of
credit in the amount of $450 million under Delta's credit agreement with a
group of banks. Delta is required to purchase the Series C ESOP Notes in
certain circumstances. See Note 7 of Notes to Consolidated Financial
Statements.
FISCAL YEAR 1996
In fiscal 1996, the principal sources of funds were $1.4 billion of cash from
operations, $35 million from the issuance of Common Stock, and $26 million from
the sale of flight equipment. During fiscal 1996, Delta invested $639 million
in flight equipment and $297 million in ground property and equipment. The
Company also made payments of $440 million on long-term debt and capital lease
obligations, including Delta's voluntary repurchase and retirement of $224
million principal amount of long-term debt. The Company paid cash dividends of
$80 million on its Series C Convertible Preferred Stock, $30 million on its
Series B ESOP Convertible Preferred Stock, and $10 million on its Common Stock.
In addition, Delta paid $66 million to repurchase 821,300 common shares under
its Common Stock repurchase program.
FISCAL YEAR 1995
In fiscal 1995, the principal sources of funds were $1.1 billion of cash from
operations; $139 million from the repayment to Delta of certain
debtor-in-possession financing (including $24 million recorded in cash from
operations representing accrued interest, net of the settlement of certain
other claims); and $137 million from the sale of flight equipment. During
fiscal 1995, Delta invested $458 million in flight equipment and $168 million
in ground property and equipment. The Company also made payments of $572
million on long-term debt and capital lease obligations, including Delta's
voluntary repurchase and retirement of $534 million principal amount of
long-term debt. In addition, the Company paid cash dividends of $80 million on
its Series C Convertible Preferred Stock, $30 million on its Series B ESOP
Convertible Preferred Stock, and $10 million on its Common Stock.
COMMITMENTS
Future expenditures for aircraft, engines and engine hushkits on firm order as
of June 30, 1997 are estimated to be $1.6 billion.
In March 1997, Delta and The Boeing Company (Boeing) reached an
understanding which provides for Delta placing orders to purchase, and
obtaining options and rolling options to purchase, certain aircraft. This
understanding, which would also accelerate the delivery dates for certain of
Delta's existing orders, terminate all of Delta's existing options and cancel
24
<PAGE> 8
Delta's remaining MD-90 orders, is subject to certain conditions, including the
negotiation of mutually acceptable definitive purchase agreements between Delta
and Boeing.
Future expenditures for aircraft, engines and engine hushkits on firm
order as of June 30, 1997 (as modified by the accelerated delivery dates for,
and the cancellation of, certain of these orders as provided for under Delta's
understanding with Boeing), and the aircraft orders provided for under Delta's
understanding with Boeing, are estimated to be $5.9 billion.
The Company expects to finance its commitments using available cash,
short-term investments and internally generated funds, supplemented as
necessary by debt financings and proceeds from sale and leaseback transactions.
The Company also has certain commitments related to its code-sharing
arrangements. See Notes 8 and 9 of Notes to Consolidated Financial Statements
for additional information on the Company's commitments.
MARKET RISKS ASSOCIATED WITH FINANCIAL INSTRUMENTS
The Company's results of operations are significantly impacted by the price of
jet fuel. Based on the Company's jet fuel consumption for fiscal 1997, a
one-cent change in the average annual price per gallon of jet fuel will impact
Delta's aircraft fuel expense by approximately $26 million. The following table
shows Delta's jet fuel consumption and costs for fiscal 1997, 1996 and 1995.
<TABLE>
<CAPTION>
Gallons Aircraft Fuel
Consumed Expense Average Price
Year (In Millions) (In Millions) Per Gallon
- ----------------------------------------------------------------
<S> <C> <C> <C>
1997 2,599 $1,723 66.28(cent)
1996 2,500 1,464 58.53(cent)
1995 2,533 1,370 54.09(cent)
</TABLE>
During fiscal 1996, Delta initiated a fuel hedging program under which the
Company may enter into certain contracts with counterparties, not to exceed one
year in duration, to manage the Company's exposure to jet fuel price
volatility. Gains and losses resulting from fuel hedging transactions are
recognized as a component of fuel expense when the underlying fuel being hedged
is used. Gains resulting from the fuel hedging program for fiscal 1997 and 1996
were immaterial to Delta's total aircraft fuel expense. See Note 4 of Notes to
Consolidated Financial Statements.
Delta's equity investments in Singapore Airlines and Swissair are
considered "available for sale" for accounting purposes, and any unrealized
gain or loss is deferred as a component of shareholders' equity. See Note 2 of
Notes to Consolidated Financial Statements. The following table summarizes the
cost basis and fair value of these investments at June 30, 1997, together with
the high, low and average fair values (in millions) of each investment based on
valuations performed at each month end during the past three fiscal years.
<TABLE>
<CAPTION>
Fiscal 1995 Through 1997
Fair Value Data
Historical Fair Value at ------------------------
Investee Cost Basis June 30, 1997 High Low Average
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Singapore $181 $315 $373 $282 $333
Swissair 85 117 117 58 82
- ------------------------------------------------------------------------
Total $266 $432
================================
</TABLE>
OTHER MATTERS
CHANGE IN MANAGEMENT
Effective July 31, 1997, Ronald W. Allen retired as the Company's Chairman of
the Board, President and Chief Executive Officer, and resigned from the Board
of Directors.
Effective August 14, 1997, the Board of Directors (Board) elected Leo F.
Mullin as the Company's President and Chief Executive Officer and a member of
the Board. Mr. Mullin comes to Delta from Unicom Corporation and Commonwealth
Edison Company, where he most recently served as Vice Chairman. The Board also
elected Gerald Grinstein, a current member of the Board and former Chairman of
Burlington Northern Santa Fe Corporation and Western Air Lines, Inc., as
Non-Executive Chairman of the Board; Maurice W. Worth, a Delta veteran of 36
years, as Chief Operating Officer; and Mary Johnston Evans, who had been
serving as Non-Executive Acting Chairman of the Board since Mr. Allen's
resignation, as Chairman of the Executive Committee of the Board.
DEFERRED TAX ASSETS
At June 30, 1997, Delta had net cumulative deferred tax assets of $516 million,
which consisted of $2.133 billion of deferred tax assets, offset by $1.617
billion of deferred tax liabilities. Included in the deferred tax assets are,
among other items, $741 million related to obligations for postretirement
benefits and $216 million related to alternative minimum tax (AMT) credit
carryforwards. The AMT credit carryforwards do not expire.
Management believes that a significant portion of the deferred tax assets
will be realized through reversals of existing taxable temporary differences
with similar reversal patterns. To realize the benefits of the remaining
deferred tax assets,
25
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS continued
DELTA AIR LINES, INC.
excluding AMT credits, Delta needs to generate approximately $800 million in
future taxable income.
Following is a summary of Delta's pretax book income and taxable income
for the last three fiscal years, prior to net operating loss carrybacks:
<TABLE>
<CAPTION>
(In Millions) 1997 1996 1995
- ----------------------------------------------------------
<S> <C> <C> <C>
Pretax Book Income $1,415 $276 $494
Taxable Income $1,246 $635 $282
</TABLE>
Delta's ability to generate sufficient future taxable income to fully
utilize its existing deferred tax assets is dependent upon various factors,
many of which are beyond management's control. Accordingly, there can be no
assurance that Delta will meet its expectations of future taxable income.
However, based on Delta's earnings history, expectations of future taxable
income, the extended period over which postretirement benefits will be
recognized, and the fact that AMT credits do not expire, management believes
that it is more likely than not that future taxable income will be sufficient
to fully utilize the deferred tax assets which existed at June 30, 1997. See
Note 6 of Notes to Consolidated Financial Statements.
BROAD-BASED STOCK OPTION PLANS
During fiscal 1997, the Company's shareholders approved two plans providing for
the issuance of non-qualified stock options to substantially all of Delta's
non-officer personnel in their individual capacity to purchase a total of 24.7
million shares of Common Stock. The plans provide for grants in three equal
annual installments at an exercise price equal to the opening price of the
Common Stock on the New York Stock Exchange on the grant date. On October 30,
1996, Delta granted eligible personnel non-qualified stock options to purchase
a total of 8.2 million shares of Common Stock at an exercise price of $69 per
share. The second and third grant dates under the plans are scheduled to occur
on October 30, 1997 and 1998, respectively. For additional information, see
Note 14 of Notes to Consolidated Financial Statements.
STOCK REPURCHASE AUTHORIZATION
Delta's Board of Directors has authorized the Company to repurchase up to 24.7
million shares of Common Stock and Common Stock equivalents. Under this
authorization, the Company may repurchase up to 6.2 million of these shares
before October 30, 1997 -- the date the initial stock option grants under the
broad-based stock option plans become exercisable -- and repurchase the
remaining shares as Delta personnel exercise their stock options under these
plans. Repurchases are subject to market conditions and may be made on the open
market or in privately negotiated transactions. Through June 30, 1997, the
Company repurchased 6.2 million shares of Common Stock for $445 million under
this authorization. For additional information, see Note 15 of Notes to
Consolidated Financial Statements.
COMPENSATION AND BENEFITS ENHANCEMENT
The Company has announced compensation and benefit enhancements for its
non-contract domestic employees, effective July 1, 1997. These changes are
expected to increase Delta's salary and related expense by approximately $180
million in fiscal 1998. This estimate is a forward-looking statement that
involves a number of risks and uncertainties that could cause the actual
results to differ materially from the projected results. See Forward-Looking
Information below.
YEAR 2000 COMPUTER ISSUE
Many computer systems in use today were designed and developed using two
digits, rather than four, to specify the year. As a result, such systems will
recognize the year 2000 as "00." This could cause many computer applications to
fail completely or to create erroneous results unless corrective measures are
taken.
The Company utilizes software and related computer technologies essential
to its operations that will be affected by the Year 2000 issue. Delta is
studying what actions will be necessary to make its computer systems Year 2000
compliant. The expense associated with these actions cannot presently be
determined, but could be material.
COMPETITIVE ENVIRONMENT
Delta expects that low-fare competition is likely to continue in domestic and
international markets. If price reductions are not offset by increases in
traffic or changes in the mix of traffic that improve the passenger mile yield,
Delta's operating results will be adversely affected.
TRANSPORTATION EXCISE TAXES
Effective October 1, 1997, the Taxpayer Relief Act imposes certain new taxes
and modifies certain existing taxes on the aviation industry. Among other
things, the new law (1) imposes a new $1 per passenger per domestic flight
segment tax, which increases in stages to $3 by January 1, 2002 and is indexed
to changes in the Consumer Price Index beginning January 1, 2003; (2) increases
the existing $6 per passenger international departure tax to $12 per passenger
(which is indexed to changes in the Consumer Price Index beginning January 1,
1999) for each international arrival and departure;
26
<PAGE> 10
(3) imposes a new 7.5% tax on payments to air carriers for frequent flyer
miles; and (4) reduces the passenger ticket tax on domestic air transportation
from the current 10% to 9%, which declines to 7.5% by October 1, 1999. The
impact of these modifications on Delta cannot presently be determined.
ENVIRONMENTAL AND LEGAL CONTINGENCIES
The Company is a defendant in certain legal actions relating to alleged
employment discrimination practices, antitrust matters, environmental issues
and other matters concerning the Company's business. Although the ultimate
outcome of these matters cannot be predicted with certainty and could have a
material adverse effect on Delta's consolidated financial condition, results of
operations or liquidity, management presently believes that the resolution of
these actions is not likely to have a material adverse effect on Delta's
consolidated financial condition, results of operations or liquidity. For
additional information, see Note 12 of Notes to Consolidated Financial
Statements.
REALIGNMENT OF DELTA'S TRANSATLANTIC
AND EUROPEAN OPERATIONS
During fiscal 1997, the Company implemented a series of actions to strengthen
its transatlantic and European operations. These actions included increasing
the Company's operations at New York-Kennedy International Airport and
decreasing its operations at Frankfurt, Germany. The Company recorded pretax
restructuring and other non-recurring charges of $52 million during the March
1997 quarter related to this realignment. See Note 16 of Notes to Consolidated
Financial Statements. Delta expects these actions will improve its system
operating income by approximately $62 million a year. The projected improvement
in system operating income is a forward-looking statement that involves a
number of risks and uncertainties that could cause the actual results to differ
materially from the projected results. See Forward-Looking Information below.
FORWARD-LOOKING INFORMATION
Delta and its representatives may make forward-looking statements about the
Company and its business from time to time, either orally or in writing. These
forward-looking statements involve a number of risks and uncertainties that
could cause the actual results to differ materially from the projected results.
It is not possible to list all of the many factors and events that could cause
the actual results to differ materially from the projected results. Such
factors and events may include, but are not limited to, (1) competitive factors
such as the airline pricing environment and the capacity decisions of other
airlines; (2) general economic conditions; (3) changes in jet fuel prices; (4)
fluctuations in foreign currency exchange rates; (5) actions by the United
States and foreign governments; and (6) the willingness of customers to travel.
NEW ACCOUNTING STANDARDS
Effective July 1, 1996, Delta adopted the disclosure requirements of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). SFAS 123 encourages, but does not require, the use of
a fair value based method of accounting for stock-based compensation plans
under which the fair value of stock options is determined on the date of grant
and expensed over the vesting period. Delta has elected to continue to measure
compensation expense for stock-based compensation plans as prescribed under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" (APB 25). Companies that continue to apply APB 25 are required to
include in the notes to financial statements pro forma disclosure of net income
and income per share as if the fair value method prescribed under SFAS 123 had
been applied. See Note 14 of Notes to Consolidated Financial Statements.
In March 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS
128), which establishes new standards for computing and presenting income per
share data. SFAS 128, which is effective for financial statements issued for
periods ending after December 15, 1997, requires restatement of all
prior-period income per share data presented. The adoption of SFAS 128 is not
expected to have a material impact on the Company's income per share data.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" (SFAS 130), which establishes
standards for displaying comprehensive income and its components in a full set
of general-purpose financial statements. SFAS 130 is effective for fiscal years
beginning after December 15, 1997.
Also in June 1997, the FASB issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (SFAS 131). SFAS 131 establishes standards for reporting
information about operating segments in annual financial statements and
requires reporting selected information about operating segments in interim
financial reports issued to shareholders. SFAS 131 is effective for fiscal
years beginning after December 15, 1997.
27
<PAGE> 11
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1997 AND 1996
DELTA AIR LINES, INC.
<TABLE>
<CAPTION>
Assets 1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
(In Millions)
CURRENT ASSETS:
Cash and cash equivalents $ 662 $ 1,145
Short-term investments 508 507
Accounts receivable, net of allowance for uncollectible accounts of
$48 at June 30, 1997 and $44 at June 30, 1996 943 968
Deferred income taxes 413 352
Prepaid expenses and other 341 310
- ------------------------------------------------------------------------------------------------
Total current assets 2,867 3,282
- ------------------------------------------------------------------------------------------------
PROPERTY AND EQUIPMENT:
Flight equipment 9,619 8,202
Less: Accumulated depreciation 3,510 3,235
- ------------------------------------------------------------------------------------------------
6,109 4,967
- ------------------------------------------------------------------------------------------------
Flight equipment under capital leases 523 515
Less: Accumulated amortization 176 127
- ------------------------------------------------------------------------------------------------
347 388
- ------------------------------------------------------------------------------------------------
Ground property and equipment 3,032 2,697
Less: Accumulated depreciation 1,758 1,532
- ------------------------------------------------------------------------------------------------
1,274 1,165
- ------------------------------------------------------------------------------------------------
Advance payments for equipment 312 275
- ------------------------------------------------------------------------------------------------
Total property and equipment 8,042 6,795
- ------------------------------------------------------------------------------------------------
OTHER ASSETS:
Marketable equity securities 432 473
Deferred income taxes 103 415
Investments in associated companies 317 266
Cost in excess of net assets acquired, net of accumulated amortization of
$92 at June 30, 1997 and $84 at June 30, 1996 257 265
Leasehold and operating rights, net of accumulated amortization of
$199 at June 30, 1997 and $183 at June 30, 1996 134 140
Other 589 590
- ------------------------------------------------------------------------------------------------
Total other assets 1,832 2,149
- ------------------------------------------------------------------------------------------------
Total assets $12,741 $12,226
================================================================================================
</TABLE>
-28-
<PAGE> 12
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(In Millions, Except Share Data)
CURRENT LIABILITIES:
Current maturities of long-term debt $ 236 $ 40
Current obligations under capital leases 62 58
Accounts payable and miscellaneous accrued liabilities 1,691 1,540
Air traffic liability 1,418 1,414
Accrued rent 213 201
Accrued salaries and vacation pay 463 385
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 4,083 3,638
- ------------------------------------------------------------------------------------------------------------------------
NONCURRENT LIABILITIES:
Long-term debt 1,475 1,799
Postretirement benefits 1,839 1,796
Accrued rent 602 616
Capital leases 322 376
Other 406 425
- ------------------------------------------------------------------------------------------------------------------------
Total noncurrent liabilities 4,644 5,012
- ------------------------------------------------------------------------------------------------------------------------
DEFERRED CREDITS:
Deferred gain on sale and leaseback transactions 746 802
Manufacturers' and other credits 105 96
- ------------------------------------------------------------------------------------------------------------------------
851 898
- ------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (NOTES 7, 8, 9 AND 12)
EMPLOYEE STOCK OWNERSHIP PLAN PREFERRED STOCK:
Series B ESOP Convertible Preferred Stock, $1.00 par value, $72.00 stated
and liquidation value; issued and outstanding 6,668,248 shares at June 30,
1997 and 6,738,740 shares at June 30, 1996 480 485
Unearned compensation under employee stock ownership plan (324) (347)
- ------------------------------------------------------------------------------------------------------------------------
156 138
- ------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY:
Series C Convertible Preferred Stock, $1.00 par value, $50,000 liquidation
preference; issued and outstanding 13,978 shares at June 30, 1996 - -
Common Stock, $3.00 par value; authorized 150,000,000 shares; issued
83,645,047 shares at June 30, 1997 and 72,265,994 shares at June 30, 1996 251 217
Additional paid-in capital 2,645 2,627
Retained earnings (accumulated deficit) 711 (119)
Net unrealized gain on noncurrent marketable equity securities 101 126
Treasury stock at cost, 9,949,060 shares at June 30, 1997 and
4,487,888 shares at June 30, 1996 (701) (311)
- ------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 3,007 2,540
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 12,741 $ 12,226
========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these Consolidated Balance
Sheets.
29
<PAGE> 13
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
DELTA AIR LINES, INC.
<TABLE>
<CAPTION>
(In Millions, Except Per Share Data) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING REVENUES:
Passenger $12,505 $11,616 $11,319
Cargo 554 521 565
Other, net 531 318 310
- ------------------------------------------------------------------------------------------------------------------------
Total operating revenues 13,590 12,455 12,194
- ------------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Salaries and related costs 4,444 4,206 4,354
Aircraft fuel 1,723 1,464 1,370
Passenger commissions 1,016 1,042 1,195
Contracted services 751 704 556
Depreciation and amortization 710 634 622
Other selling expenses 677 594 618
Aircraft rent 547 555 671
Aircraft maintenance materials and outside repairs 434 376 430
Passenger service 389 368 443
Facilities and other rent 386 379 436
Landing fees 256 248 266
Restructuring and other non-recurring charges 52 829 -
Other 675 593 572
- ------------------------------------------------------------------------------------------------------------------------
Total operating expenses 12,060 11,992 11,533
- ------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 1,530 463 661
OTHER INCOME (EXPENSE):
Interest expense (207) (269) (292)
Interest capitalized 33 26 30
Interest income 61 86 95
Miscellaneous expense, net (2) (30) -
- ------------------------------------------------------------------------------------------------------------------------
(115) (187) (167)
- ------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE 1,415 276 494
INCOME TAXES PROVIDED, NET (561) (120) (200)
- ------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 854 156 294
CUMULATIVE EFFECT OF ACCOUNTING CHANGE, NET OF TAX - - 114
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME 854 156 408
PREFERRED STOCK DIVIDENDS (9) (82) (88)
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE TO COMMON SHAREHOLDERS $ 845 $ 74 $ 320
========================================================================================================================
PRIMARY INCOME PER COMMON SHARE:
Before cumulative effect of accounting change $ 11.30 $ 1.42 $ 4.07
Cumulative effect of accounting change - - 2.25
- ------------------------------------------------------------------------------------------------------------------------
$ 11.30 $ 1.42 $ 6.32
========================================================================================================================
Fully Diluted Income Per Common Share:
Before cumulative effect of accounting change $ 11.01 $ 1.42 $ 4.01
Cumulative effect of accounting change - - 1.42
- ------------------------------------------------------------------------------------------------------------------------
$ 11.01 $ 1.42 $ 5.43
========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
30
<PAGE> 14
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
DELTA AIR LINES, INC.
<TABLE>
<CAPTION>
(In Millions) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 854 $ 156 $ 408
Adjustments to reconcile net income to cash provided by operating activities:
Cumulative effect of accounting change - - (114)
Restructuring and other non-recurring charges 52 829 -
Depreciation and amortization 710 634 622
Deferred income taxes 240 (57) 96
Rental expense less than rent payments (58) (32) (9)
Pension, postretirement and postemployment expense in excess
of (less than) payments 92 (67) -
Changes in certain current assets and liabilities:
Decrease (increase) in accounts receivable 25 (213) 131
Decrease (increase) in prepaid expenses and other current assets (31) (47) 28
Increase (decrease) in air traffic liability 4 271 (104)
Increase (decrease) in other payables and accrued expenses 186 (91) (20)
Other, net (35) 8 76
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,039 1,391 1,114
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions:
Flight equipment, including advance payments (1,598) (639) (458)
Ground property and equipment (350) (297) (168)
Decrease (increase) in short-term investments, net (1) 22 (121)
Proceeds from sale of flight equipment 8 26 137
Debtor-in-possession loan repayment - - 115
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,941) (888) (495)
- ------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (196) (440) (572)
Cash dividends (44) (120) (120)
Issuance of Common Stock 38 35 4
Repurchase of Common Stock (379) (66) -
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (581) (591) (688)
- ------------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (483) (88) (69)
Cash and cash equivalents at beginning of fiscal year 1,145 1,233 1,302
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of fiscal year $ 662 $1,145 $1,233
========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
31
<PAGE> 15
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1997, 1996 AND 1995
DELTA AIR LINES, INC.
<TABLE>
<CAPTION>
Unrealized
Additional Retained Gain (Loss)
Common Paid-In Earnings on Equity Treasury
(In Millions, Except Share Data) Stock Capital (Deficit) Securities Stock Total
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT JUNE 30, 1994 $163 $2,013 $(490) $ 53 $(272) $1,467
Fiscal Year 1995:
Net income - - 408 - - 408
Dividends on Series C Convertible Preferred Stock - - (80) - - (80)
Dividends on Common Stock ($0.20 per share) - - (10) - - (10)
Dividends on Series B ESOP Convertible
Preferred Stock allocated shares - - (8) - - (8)
Issuance of 67,612 shares of Common Stock under
dividend reinvestment and stock purchase plan,
stock options and Series C Preferred Stock
conversions ($56.13 per share) 1 3 - - - 4
Transfer of 295,126 net shares of Common Stock
from treasury under ESOP and stock incentive
plan ($67.75 per share) - - (4) - 20 16
Net unrealized gain on marketable equity securities - - - 30 - 30
- ------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1995 164 2,016 (184) 83 (252) 1,827
- ------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1996:
Net income - - 156 - - 156
Dividends on Series C Convertible Preferred Stock - - (74) - - (74)
Dividends on Common Stock ($0.20 per share) - - (10) - - (10)
Dividends on Series B ESOP Convertible
Preferred Stock allocated shares - - (8) - - (8)
Issuance of 719,562 shares of Common Stock under
dividend reinvestment and stock purchase plan
and stock options ($58.15 per share) 2 40 - - (5) 37
Issuance of 6,861,377 shares of Common Stock on
conversions of Series C Preferred Stock
($64.37 per share) 21 (21) - - - -
Issuance of 10,147,952 shares of Common Stock on
conversions of 3.23% Convertible
Subordinated Notes ($61.17 per share) 30 592 - - - 622
Transfer of 176,794 net shares of Common Stock
from treasury under ESOP and stock incentive
plan ($67.77 per share) - - 1 - 12 13
Repurchase of 821,300 common shares
($80.00 per share) - - - - (66) (66)
Net unrealized gain on marketable equity securities
and other - - - 43 - 43
- ------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1996 217 2,627 (119) 126 (311) 2,540
- ------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1997:
Net income - - 854 - - 854
Dividends on Common Stock ($0.20 per share) - - (15) - - (15)
Dividends on Series B ESOP Convertible
Preferred Stock allocated shares - - (9) - - (9)
Issuance of 748,492 shares of Common Stock under
dividend reinvestment and stock purchase plan
and stock options ($65.22 per share) 2 47 - - (7) 42
Issuance of 10,629,465 shares of Common Stock on
conversions of Series C Preferred Stock
($64.38 per share) 32 (32) - - - -
Repurchase of 5,378,700 common shares ($70.53 per share) - - - - (379) (379)
Net unrealized loss on marketable equity securities
and other - 3 - (25) (4) (26)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT JUNE 30, 1997 $251 $2,645 $ 711 $101 $(701) $3,007
===========================================================================================================================
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
32
<PAGE> 16
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997, 1996 AND 1995
DELTA AIR LINES, INC.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS - Delta Air Lines, Inc. (a Delaware corporation) is a major
air carrier providing scheduled air transportation for passengers, freight and
mail over a network of routes throughout the United States and abroad. At
August 15, 1997, Delta served 149 domestic cities in 42 states, the District of
Columbia, Puerto Rico and the U.S. Virgin Islands, as well as 41 cities in 25
foreign countries.
BASIS OF PRESENTATION - The consolidated financial statements include the
accounts of Delta Air Lines, Inc. and its wholly owned subsidiaries (Delta or
the Company). All significant intercompany accounts and transactions have been
eliminated. Certain prior year amounts have been reclassified to conform with
the current year financial statement presentation.
USE OF ESTIMATES - The Company follows generally accepted accounting principles
(GAAP). The preparation of financial statements in conformity with GAAP
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes.
Actual results could differ from those estimates.
INVESTMENTS IN ASSOCIATED COMPANIES - The Company's investments in the
following companies are accounted for under the equity method: WORLDSPAN, L.P.
(WORLDSPAN), a computer reservations system partnership; ASA Holdings, Inc.
(ASA), the parent of Atlantic Southeast Airlines, Inc.; Comair Holdings, Inc.
(Comair), the parent of Comair, Inc.; and SkyWest, Inc. (SkyWest), the parent
of SkyWest Airlines, Inc. Atlantic Southeast Airlines, Inc., Comair, Inc., and
SkyWest Airlines, Inc. are participants in the Delta Connection program. (See
Note 3.)
ACCOUNTING CHANGES - During fiscal 1997, the Company adopted the disclosure
requirements of Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (SFAS 123). (See Note 14.) During
fiscal 1996, the Company adopted Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of " (SFAS 121). (See Note 16.) During fiscal 1995, the
Company adopted Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits" (SFAS 112). (See Note 10.)
CASH AND CASH EQUIVALENTS - Investments with an original maturity of three
months or less are classified as cash and cash equivalents. These investments
are stated at cost, which approximates fair value.
SHORT-TERM INVESTMENTS - Cash in excess of operating requirements is invested
in short-term, highly liquid investments. These investments are classified as
available-for-sale under Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" (SFAS 115),
and are stated at fair value. (See Note 2.)
COST IN EXCESS OF NET ASSETS ACQUIRED - The cost in excess of net assets
acquired (goodwill), which is being amortized over 40 years, is related to the
Company's acquisition of Western Air Lines, Inc. in December 1986. The Company
periodically reviews the value assigned to goodwill to determine whether there
exists any impairment, as defined by SFAS 121. Management believes that
goodwill is appropriately valued.
LEASEHOLD AND OPERATING RIGHTS - Costs assigned to the purchase of leasehold
rights and landing slots are amortized over the lives of the respective leases
at the associated airports. Purchased international route authorities are
amortized over the lives of the authorities as determined by their expiration
dates. Permanent route authorities with no stated expiration dates are
amortized over 40 years. The Company periodically reviews the value assigned to
leasehold rights, landing slots and route authorities to determine if there
exists any impairment, as defined by SFAS 121. Management believes that
leasehold rights, landing slots and route authorities are appropriately valued.
DEFERRED GAINS ON SALE AND LEASEBACK TRANSACTIONS - Gains on the sale and
leaseback of property and equipment under operating leases are deferred and
amortized over the lives of the respective leases as a reduction in rent
expense. Gains on the sale and leaseback of property under capital leases are
credited directly to the carrying value of the related asset.
33
<PAGE> 17
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
JUNE 30, 1997, 1996 AND 1995
DELTA AIR LINES, INC.
MANUFACTURERS' CREDITS - In connection with the acquisition of certain aircraft
and engines, the Company receives certain credits. These credits are deferred
until the aircraft and engines are delivered, at which time the credits are
applied on a pro rata basis as a reduction of the acquisition cost of the
related flight equipment.
FREQUENT FLYER PROGRAM - The Company accrues the estimated incremental cost of
providing free travel awards earned under its SkyMiles(R) frequent flyer
program when free travel award levels are achieved. The accrued incremental
cost is included in accounts payable and miscellaneous accrued liabilities in
the Company's Consolidated Balance Sheets.
The Company also sells mileage credits to participating partners in the
SkyMiles(R) program such as hotels, car rental agencies and credit card
companies. The resulting revenue is recorded as other operating revenue in the
Company's Consolidated Statements of Operations during the period in which the
credits are sold.
PASSENGER AND CARGO REVENUES - Passenger ticket sales are recorded as air
traffic liability in the Company's Consolidated Balance Sheets. Passenger and
cargo revenues are recognized when the transportation is provided, reducing the
air traffic liability. Due to interline agreements throughout the industry,
certain amounts are recognized in revenue using estimates regarding the amount
of revenue to be recognized and the timing of recognition. Actual results could
differ from those estimates.
Delta is a party to code-sharing agreements with certain foreign airlines.
Under these agreements, the Company purchases seats from and sells seats to
these airlines, with each airline separately marketing its respective seats.
The revenue from Delta's sale of code-sharing seats purchased from and flown by
other airlines is reported in the Company's Consolidated Statements of
Operations as other operating revenue, offset by the cost of acquiring these
code-sharing seats and other direct costs incurred in operating the
code-sharing flights. The revenue generated from Delta's sale of code-sharing
seats to other airlines is reported as passenger revenue in the Company's
Consolidated Statements of Operations.
DEPRECIATION AND AMORTIZATION - Flight equipment is depreciated on a
straight-line basis to residual values (5% of cost) over a 20-year period from
the dates placed in service (unless earlier retirement of the aircraft is
planned). Flight equipment under capital leases is amortized on a straight-line
basis over the term of the respective leases, which range from 4 to 11 years.
Ground property and equipment are depreciated on a straight-line basis over
their estimated service lives, which range from 3 to 30 years. Due to the
Company's decision to accelerate the replacement of its L-1011 fleet (see Note
16), the remaining depreciable lives of these aircraft have been adjusted.
INTEREST CAPITALIZED - Interest attributable to funds used to finance the
acquisition of new aircraft and construction of major ground facilities is
capitalized as an additional cost of the related asset. Interest is capitalized
at the Company's weighted average interest rate on long-term debt or, where
applicable, the interest rate related to specific borrowings. Capitalization of
interest ceases when the property or equipment is placed in service.
INCOME PER SHARE - Primary income per common share is computed by dividing net
income available to common shareholders by the weighted average number of
shares of Delta Common Stock (Common Stock) and, if dilutive, Common Stock
equivalents outstanding during the year. Common Stock equivalents consist of
the shares issuable upon exercise of outstanding stock options less the number
of shares deemed to be repurchased under application of the treasury stock
method. The weighted average number of shares of Common Stock and dilutive
Common Stock equivalents outstanding used to compute primary income per common
share was 74,786,517 for fiscal 1997; 52,101,152 for fiscal 1996; and
50,657,613 for fiscal 1995.
Fully diluted income per common share is computed by dividing net income
available to common shareholders (adjusted for conversion of any Convertible
Preferred Stock and convertible debt instruments outstanding during the year)
by the weighted average number of shares of Common Stock, Common Stock
equivalents outstanding during the year (if dilutive) and Common Stock that
would be issued upon the conversion of any Convertible Preferred Stock and
convertible debt instruments outstanding during the year. The weighted average
number of shares of Common Stock used to compute fully diluted income per
common share was 77,087,619 for fiscal 1997; 52,101,152 for fiscal 1996; and
80,118,720 for fiscal 1995. (See Notes 11, 13, 14 and 15.)
34
<PAGE> 18
FOREIGN CURRENCY TRANSLATION - Assets and liabilities denominated in foreign
currencies are translated generally at exchange rates in effect at the balance
sheet date, except fixed assets which are translated at exchange rates in
effect when these assets are acquired. The resulting foreign exchange gains and
losses are recognized as a component of miscellaneous income (expense).
Revenues and expenses of foreign operations are translated at average monthly
exchange rates prevailing during the year, except depreciation and amortization
charges are translated at the exchange rates in effect when the related assets
were acquired.
STOCK-BASED COMPENSATION - The Company accounts for its stock-based
compensation plans in accordance with Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25). Under APB 25, no
compensation expense is recognized for a stock option grant if the exercise
price of the stock option at measurement date is equal to or greater than the
fair market value of the Common Stock on the date of grant. (See Note 14.)
ADVERTISING COSTS - Advertising costs are expensed when incurred and are
included as a component of other selling expense. Advertising expense for
fiscal 1997, 1996 and 1995 was $121 million, $109 million and $178 million,
respectively.
2. INVESTMENTS IN DEBT AND EQUITY SECURITIES
The Company's investments in Singapore Airlines Limited (Singapore Airlines)
and Swissair, Swiss Air Transport Company Ltd. (Swissair), which are accounted
for under the cost method, are classified as available-for-sale under SFAS 115,
and are recorded at aggregate market value. At June 30, 1997 and 1996, the
gross unrealized gain on the Company's investment in Singapore Airlines was
$134 million and $190 million, respectively, and the gross unrealized gain on
the Company's investment in Swissair was $32 million and $16 million,
respectively. The $101 million and $126 million unrealized gains, net of the
related deferred tax provision, on these combined investments at June 30, 1997
and 1996, respectively, are reflected in shareholders' equity. Delta's right to
vote, to transfer or to acquire additional shares of the stock of Singapore
Airlines and Swissair is subject to certain restrictions.
Delta's other investments in available-for-sale securities are recorded as
short-term investments in the Company's Consolidated Balance Sheets. At June
30, 1997, these investments consisted of government agency debt (23%) and
corporate debt securities (77%) with average stated maturities of 4 months and
6 months, respectively.
During fiscal 1997, 1996 and 1995, the proceeds from sales of
available-for-sale securities were $610 million, $626 million and $926 million,
respectively, which resulted in a realized gain of less than $1 million for
fiscal 1997, and realized losses of $1 million and $4 million for fiscal 1996
and 1995, respectively. The unrealized losses on these investments were less
than $1 million and were reflected in shareholders' equity at June 30, 1997 and
1996, respectively. Interest income was $27 million, $33 million and $31
million from these investments for fiscal 1997, 1996 and 1995, respectively.
3. INVESTMENTS IN ASSOCIATED COMPANIES
The Company's percentage ownership and quoted market value (where applicable)
of its investment in associated companies at June 30, 1997, and equity earnings
(losses) for fiscal 1997, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
Quoted Equity Earnings
Percentage Market (Losses)
------------------
Investment Ownership Value 1997 1996 1995
- ---------------------------------------------------------
(In Millions) (In Millions)
<S> <C> <C> <C> <C> <C>
WORLDSPAN 38% N/A $23 $ (5) $ (4)
ASA 27 $229 15 13 12
Comair 21 259 16 13 6
SkyWest 15 24 2 1 2
</TABLE>
WORLDSPAN provides certain computer reservations services to Delta. Delta
provides certain communications, information processing and administrative
services to WORLDSPAN.
On June 26, 1996, Delta and NCR Corporation (formerly AT&T Global
Information Solutions Company) announced an agreement to discontinue the
TransQuest partnership. Effective July 1, 1996, the partnership ended and
TransQuest, Inc. was formed as a wholly owned subsidiary of Delta. TransQuest,
Inc. provides information technology services to Delta. Delta's equity losses
related to its 50% ownership in the TransQuest partnership were $8 million for
fiscal 1996 and $3 million for fiscal 1995.
35
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
JUNE 30, 1997, 1996 AND 1995
DELTA AIR LINES, INC.
4. FINANCIAL INSTRUMENTS AND OFF-BALANCE-SHEET RISK:
BALANCE SHEET FINANCIAL INSTRUMENTS: FAIR VALUES - The carrying amounts
reported in the Company's Consolidated Balance Sheets for cash and cash
equivalents and accounts receivable, net approximate fair values at June 30,
1997 and 1996. Short-term investments classified as available-for-sale are
recorded at fair value in accordance with SFAS 115. (See Note 2.)
The fair values and carrying values of long-term debt, including current
maturities, at June 30, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
(In Billions) 1997 1996
- ----------------------------------------------------------
<S> <C> <C>
Fair value $1.8 $2.0
Carrying value 1.7 1.8
</TABLE>
These values are based on quoted market prices, where available, or
discounted cash flow analyses. The carrying values of all other financial
instruments approximate their fair values.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS: RISKS AND FAIR VALUES - FUEL PRICE
RISK MANAGEMENT - Under its fuel hedging program, the Company may enter into
certain contracts with counterparties, not to exceed one year in duration, to
manage the Company's exposure to jet fuel price volatility. Gains and losses
resulting from fuel hedging transactions are recognized as a component of fuel
expense when the underlying fuel being hedged is used. Any premiums paid to
enter into hedging contracts are recorded as a prepaid expense and amortized to
fuel expense over the respective contract periods. At June 30, 1997, Delta had
contracted for approximately 441 million gallons of its projected fiscal 1998
fuel requirements. At June 30, 1997, the fair value of option contracts used
for purchases of jet fuel at fixed average prices was immaterial. The Company
is exposed to fuel hedging transaction losses in the event of non-performance
by counterparties, but management does not expect any counterparty to fail to
meet its obligations.
FOREIGN EXCHANGE RISK MANAGEMENT - The Company has entered into certain foreign
exchange forward contracts, all with maturities of less than two months, to
manage risks associated with foreign currency exchange rate and interest rate
volatility. The aggregate face amount of such contracts was approximately $29
million at June 30, 1997. Gains and losses resulting from foreign exchange
forward contracts are recognized as a component of miscellaneous income
(expense), offsetting the foreign currency gains and losses resulting from
translation of the Company's assets and liabilities denominated in foreign
currencies.
CREDIT RISKS - To manage credit risk associated with its fuel price risk and
foreign exchange risk management programs, the Company selects counterparties
based on their credit ratings, limits its exposure to any one counterparty
under defined guidelines, and monitors the market position of the program and
its relative market position with each counterparty.
FINANCIAL GUARANTEES - Certain municipalities and airport authorities have
issued special facility revenue bonds to build or improve airport terminal and
maintenance facilities that Delta leases under operating leases. Under these
lease agreements, the Company is required to make rental payments sufficient to
pay principal and interest on the bonds as they become due. (See Note 8.)
CONCENTRATION OF CREDIT RISK - Delta's accounts receivable are generated
primarily from airline ticket and cargo services sales to individuals and
various commercial enterprises that are economically and geographically
dispersed, and the accounts receivable are generally short-term in duration.
Accordingly, Delta does not believe it is subject to any significant
concentration of credit risk.
5. MISCELLANEOUS EXPENSE, NET
Miscellaneous expense, net for fiscal 1997, 1996 and 1995 consisted of:
<TABLE>
<CAPTION>
(In Millions) 1997 1996 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
Equity earnings from
associated companies $ 56 $ 14 $ 13
Foreign exchange gains (losses) (7) (15) 12
Losses on repurchase of debt (8) (18) (4)
Travel agency litigation settlement (20) - -
Other (23) (11) (21)
- ---------------------------------------------------------
Total miscellaneous
expense, net $ (2) $(30) $ -
=========================================================
</TABLE>
36
<PAGE> 20
6. INCOME TAXES
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets and liabilities as of June 30, 1997 and
1996 are a result of temporary differences related to the items described
below:
<TABLE>
<CAPTION>
(In Millions) 1997 1996
- ------------------------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Postretirement benefits $ 741 $ 724
Alternative minimum tax credit carryforwards 216 354
Gains on sale and leaseback transactions (net) 302 336
Other employee benefits 261 232
Rent expense 212 202
Spare parts repair expense 122 114
Tax accruals 56 43
Frequent flyer expense 48 40
Accrued compensation expense 67 36
Other 108 98
- -----------------------------------------------------------------------
Total Deferred Tax Assets $2,133 $2,179
=======================================================================
Deferred Tax Liabilities:
Depreciation and amortization $1,239 $1,083
Postemployment benefits 80 82
Marketable equity securities 65 81
Software development costs 62 58
Employee Stock Ownership Plan 39 73
Other 132 35
- -----------------------------------------------------------------------
Total Deferred Tax Liabilities $1,617 $1,412
=======================================================================
</TABLE>
The alternative minimum tax credit carryforwards do not expire.
Based on the Company's earnings history, expectations of future taxable
income, the extended period over which postretirement benefits will be
recognized, and the fact that AMT credits do not expire, management believes
that it is more likely than not that future taxable income will be sufficient
to fully utilize the deferred tax assets which existed at June 30, 1997.
Income taxes provided in fiscal 1997, 1996 and 1995 consisted of:
<TABLE>
<CAPTION>
(In Millions) 1997 1996 1995
- ---------------------------------------------------------
<S> <C> <C> <C>
Current taxes $(321) $(177) $(104)
Deferred taxes (244) 54 (99)
Tax benefit of dividends on
allocated Series B ESOP
Convertible Preferred Stock 4 3 3
- ---------------------------------------------------------
Income taxes provided $(561) $(120) $(200)
=========================================================
</TABLE>
The income tax provisions generated for fiscal 1997, 1996 and 1995 differ
from amounts which would result from applying the federal statutory tax rate to
pretax income, as follows:
<TABLE>
<CAPTION>
(In Millions) 1997 1996 1995
- -----------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes $1,415 $ 276 $ 494
Items not deductible for tax purposes:
Meals and entertainment 36 36 41
Amortization 9 9 9
Other, net (14) (8) 3
- -----------------------------------------------------------------
Adjusted pretax income 1,446 313 547
Federal statutory tax rate 35% 35% 35%
- -----------------------------------------------------------------
Income tax provision at statutory rate (506) (110) (191)
State and other income taxes, net
of federal income tax provision (55) (10) (9)
- -----------------------------------------------------------------
Income taxes provided $ (561) $(120) $(200)
=================================================================
</TABLE>
The Company made income tax payments, net of income tax refunds, of $336
million in fiscal 1997, $192 million in fiscal 1996 and $25 million in fiscal
1995.
37
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
JUNE 30, 1997, 1996 AND 1995
DELTA AIR LINES, INC.
7. LONG-TERM DEBT
At June 30, 1997 and 1996, the Company's long-term debt (including current
maturities) was as follows:
<TABLE>
<CAPTION>
(In Millions) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
9 7/8% Notes, unsecured, due January 1, 1998 $ 207 $ 220
Medium-Term Notes, Series A and B, unsecured, interest rates ranging from
7.55% to 9.15% and with maturities ranging from 1998 to 2007 157 196
9 7/8% Notes, unsecured, due May 15, 2000 142 142
8 1/2% Notes, unsecured, due March 15, 2002 71 71
8.10% Series C Guaranteed Serial ESOP Notes, unsecured, payable in installments between 2002 and 2009 290 290
Development Authority of Fulton County, unsecured loan agreement, repayable $10 million on November 1, 2007
and $20 million on November 1, 2012. Interest ranges from 6.85% to 6.95% over the life of the loan 30 30
10 1/8% Debentures, unsecured, due May 15, 2010 113 113
10 3/8% Debentures, unsecured, due February 1, 2011 176 176
9% Debentures, unsecured, due May 15, 2016 102 126
Development Authority of Clayton County, 7 5/8% unsecured loan agreement, repayable on January 1, 2020 45 45
9 3/4% Debentures, unsecured, due May 15, 2021 251 251
9 1/4% Debentures, unsecured, due March 15, 2022 64 116
10 3/8% Debentures, unsecured, due December 15, 2022 66 66
Other, net (3) (3)
- ----------------------------------------------------------------------------------------------------------------------------------
Total 1,711 1,839
Less: Current maturities 236 40
- ----------------------------------------------------------------------------------------------------------------------------------
Total long-term debt $1,475 $1,799
==================================================================================================================================
</TABLE>
During fiscal 1997 and 1996, respectively, the Company voluntarily
repurchased and retired $88 million and $224 million principal amount of its
long-term debt. As a result of these transactions, the Company recognized net
pretax losses of $8 million and $18 million, respectively, which are included
in miscellaneous expense, net in the Company's Consolidated Statements of
Operations.
On May 2, 1997, the Company and a group of banks entered into the 1997
Bank Credit Agreement and terminated the 1995 Bank Credit Agreement. The 1997
Bank Credit Agreement provides for unsecured borrowings by the Company of up to
$1.25 billion on a revolving basis until May 1, 2002. Up to $700 million of
this facility may be used for the issuance of letters of credit. The interest
rate under this facility is, at the Company's option, the LIBOR or the prime
rate, in each case plus a margin which is subject to adjustment based on
certain changes in the credit ratings of the Company's long-term senior
unsecured debt. The Company also has the option to obtain loans through a
competitive bid procedure. The 1997 Bank Credit Agreement contains certain
negative covenants that restrict the Company's ability to grant liens, incur or
guarantee debt and enter into flight equipment leases. It also provides that if
there is a change of control (as defined) of the Company, the banks' obligation
to extend credit terminates, any amounts outstanding become immediately due and
payable and the Company will immediately deposit cash collateral with the banks
in an amount equal to all outstanding letters of credit. At August 15, 1997, no
borrowings or letters of credit were outstanding under the 1997 Bank Credit
Agreement.
At June 30, 1997, there were outstanding $290 million principal amount of
the Delta Family-Care Savings Plan's Series C Guaranteed Serial ESOP Notes
(Series C ESOP Notes), which are guaranteed by Delta. The Series C ESOP Notes,
which were issued pursuant to certain note purchase agreements, are payable in
installments between July 1, 2002 and January 1, 2009. The note purchase
agreements require Delta to purchase the Series C ESOP Notes at the option of
the holders thereof (Noteholders) if the credit rating of Delta's long-term
senior unsecured debt falls below Baa3 by Moody's and BBB- by Standard & Poor's
(Purchase Event), provided that Delta has no obligation to purchase the Series
C ESOP Notes under the note purchase agreements so long as it obtains, within
127 days of a Purchase Event, certain credit enhancements (Approved Credit
Enhancement) that result in the Series C ESOP Notes being rated A3 or
38
<PAGE> 22
higher by Moody's and A- or higher by Standard & Poor's (Required Ratings). If
Delta is required to purchase the Series C ESOP Notes because of the occurrence
of a Purchase Event, such purchase would be made at a price (Purchase Price)
equal to the outstanding principal amount of the Series C ESOP Notes being
purchased, together with accrued interest and a Make Whole Premium Amount. The
Make Whole Premium Amount is based on, among other factors, the yield to
maturity of U.S. Treasury notes having maturities equal to the remaining
average life to maturity of the Series C ESOP Notes as of the date Delta
purchases the Series C ESOP Notes.
As a result of Moody's rating action on May 11, 1993, a Purchase Event
occurred, and Delta became obligated to purchase on September 15, 1993 any
Series C ESOP Notes properly tendered to it. Prior to September 15, 1993, Delta
obtained an Approved Credit Enhancement in the form of a letter of credit to
credit enhance the Series C ESOP Notes. This letter of credit was issued in
favor of Wilmington Trust Company, as trustee (Trustee), under Delta's then
existing Bank Credit Agreement. Due to the issuance of this letter of credit,
the Series C ESOP Notes received the Required Ratings, and Delta no longer had
an obligation to purchase the Series C ESOP Notes as a result of the Purchase
Event that occurred on May 11, 1993.
On June 6, 1996, the Company entered into a Credit Agreement with ABN AMRO
Bank, N.V. and a group of banks (Letter of Credit Facility) which, as amended,
provides for the issuance of letters of credit for up to $500 million in stated
amount to credit enhance the Series C ESOP Notes. The Letter of Credit Facility
contains negative covenants and a change of control provision that are
substantially similar to those contained in the 1997 Bank Credit Agreement. In
the event of any drawing under the Letter of Credit Facility, Delta is
required, at its election, (1) to immediately repay the amount drawn or (2) to
convert its reimbursement obligation to a loan for a period not to exceed one
year at varying rates of interest. On June 6, 1996, Delta obtained a letter of
credit under the Letter of Credit Facility to replace the letter of credit
issued under its then existing Bank Credit Agreement to credit enhance the
Series C ESOP Notes. The Letter of Credit Facility expires June 6, 2000.
At August 15, 1997, the face amount of the letter of credit issued under
the Letter of Credit Facility was $450 million. It covers the $290 million
outstanding principal amount of the Series C ESOP Notes, up to $128 million of
Make Whole Premium Amount and approximately one year of interest on the Series
C ESOP Notes.
An Indenture of Trust, dated August 1, 1993 (Indenture), among Delta, the
Trustee, and Fidelity Management Trust Company, as ESOP trustee, contains
certain terms and conditions relating to any letter of credit used to credit
enhance the Series C ESOP Notes. The Indenture requires the Trustee to draw
under the letter of credit to make regularly scheduled payments of principal
and interest on the Series C ESOP Notes. The Indenture also requires the
Trustee to draw under the letter of credit to purchase the Series C ESOP Notes
in certain circumstances in which Delta would not be required to purchase the
Series C ESOP Notes under the note purchase agreements. Subject to certain
conditions, the Indenture requires the Trustee to purchase the Series C ESOP
Notes at the Purchase Price at the option of the Noteholders in the event that
(1) the Required Ratings on the Series C ESOP Notes are not maintained; (2) the
letter of credit is not extended 20 days before its scheduled expiration date;
(3) Delta elects to terminate the letter of credit; or (4) the Trustee receives
notice there has occurred an event of default under the credit agreement
relating to the letter of credit; unless, generally within 10 days of any such
event, the Series C ESOP Notes receive the Required Ratings due to Delta's
obtaining a substitute credit enhancement or otherwise.
The Required Ratings on the Series C ESOP Notes are subject to
reconsideration at any time, and to annual confirmation, by Moody's and
Standard & Poor's. Circumstances that might cause either rating agency to lower
or fail to confirm its rating include, without limitation, a downgrading of the
deposits of the letter of credit issuer below A3 by Moody's or A- by Standard &
Poor's, or a determination that the Make Whole Premium Amount covered by the
letter of credit is insufficient.
Subject to certain conditions, the Indenture does not permit the Trustee
to purchase the Series C ESOP Notes at the option of the Noteholders if the
Series C ESOP Notes receive the Required Ratings without the benefit of a
credit enhancement. The Series C ESOP Notes are not likely to receive the
Required Ratings absent a credit enhancement unless Delta's long-term senior
unsecured debt is rated at least A3 by Moody's and A- by Standard & Poor's. On
August 15, 1997, Delta's long-term senior unsecured debt was rated Baa3 by
Moody's and BB+ by Standard & Poor's.
39
<PAGE> 23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
JUNE 30, 1997, 1996 AND 1995
DELTA AIR LINES, INC.
At June 30, 1997, the annual scheduled maturities of long-term debt during
the next five fiscal years were as follows:
<TABLE>
<CAPTION>
Years Ending June 30 Amount
- -------------------------------------------
(In Millions)
<S> <C>
1998 $236
1999 67
2000 142
2001 -
2002 75
</TABLE>
The Company's debt agreements contain certain restrictive covenants, but
do not limit the payment of dividends on the Company's capital stock. The terms
of the Series B ESOP Convertible Preferred Stock limit the Company's ability to
pay cash dividends on the Common Stock in certain circumstances. (See Note 13.)
Cash payments of interest, including interest on the Series C ESOP Notes
and net of interest capitalized, totaled $171 million in fiscal 1997; $232
million in fiscal 1996; and $238 million in fiscal 1995.
8. LEASE OBLIGATIONS
The Company leases certain aircraft, airport terminal and maintenance
facilities, ticket offices and other property and equipment. Rent expense is
generally recorded on a straight-line basis over the lease term. Amounts
charged to rental expense for operating leases were $0.9 billion in fiscal 1997
and fiscal 1996 and $1.1 billion in fiscal 1995.
At June 30, 1997, the Company's minimum rental commitments under capital
leases and noncancelable operating leases with initial or remaining terms of
more than one year were as follows:
<TABLE>
<CAPTION>
Capital Operating
Years Ending June 30 Leases Leases
- ----------------------------------------------------------
(In Millions)
<S> <C> <C>
1998 $101 $ 860
1999 100 860
2000 68 840
2001 57 830
2002 57 850
After 2002 118 9,780
- ---------------------------------------------------------
Total minimum lease payments 501 $14,020
=======
Less: Amounts representing interest 117
- ---------------------------------------------
Present value of future minimum
capital lease payments 384
Less: Current obligations under
capital leases 62
- ---------------------------------------------
Long-term capital lease obligations $ 322
=============================================
</TABLE>
9. PURCHASE COMMITMENTS
Future expenditures for aircraft, engines and engine hushkits on firm order
as of June 30, 1997 are estimated to be $1.6 billion, as follows:
<TABLE>
<CAPTION>
Years Ending June 30 Amount
- ---------------------------------------------------------
(In Millions)
<S> <C>
1998 $ 790
1999 320
2000 230
2001 200
2002 60
After 2002 -
- --------------------------------------------------------
Total $1,600
========================================================
</TABLE>
During the March 1997 quarter, Delta and The Boeing Company (Boeing)
reached an understanding which provides for Delta placing orders to purchase,
and obtaining options (which have scheduled delivery slots) and rolling options
(which replace options and are assigned delivery slots as options expire or are
exercised) to purchase, the following aircraft types:
<TABLE>
<CAPTION>
Orders
(Scheduled Fiscal Rolling
Aircraft Type Years of Delivery) Options Options
- ----------------------------------------------------------
<S> <C> <C> <C>
B-737-600/700/800 70 60 280
(1999-2007)
B-757-200 5 20 90
(1999)
B-767-300ER 10 10 19
(1998-1999)
B-767-400 21 24 25
(2000-2001)
B-777-200 - 10 -
</TABLE>
The understanding is subject to certain conditions, including the
negotiation of mutually acceptable definitive purchase agreements between Delta
and Boeing. The understanding provides, subject to certain conditions, that
Boeing will be the provider of new aircraft for Delta for 20 years, and that
Delta may switch orders among these aircraft types and defer firm orders. The
understanding would also accelerate the delivery dates for certain of Delta's
existing orders, terminate all of Delta's existing options and cancel Delta's
remaining MD-90 orders.
40
<PAGE> 24
Future expenditures for aircraft, engines and engine hushkits on firm
order as of June 30, 1997 (as modified by the accelerated delivery dates for,
and cancellation of, certain of these orders as provided for under Delta's
understanding with Boeing), and the aircraft orders provided for under Delta's
understanding with Boeing, are estimated to be approximately $5.9 billion, as
follows:
<TABLE>
<CAPTION>
Years Ending June 30 Amount
- -----------------------------------------
(In Millions)
<S> <C>
1998 $1,179
1999 1,031
2000 278
2001 1,224
2002 295
After 2002 1,850
- ----------------------------------------
Total $5,857
========================================
</TABLE>
In addition, at August 15, 1997, the Company had authorized capital
expenditures of approximately $345 million for fiscal 1998 for improvement of
airport and office facilities, various ground equipment and other assets.
The Company expects to finance its aircraft, engine and engine hushkit
commitments, as well as other authorized capital expenditures, using available
cash, short-term investments and internally generated funds, supplemented as
necessary by debt financings and proceeds from sale and leaseback transactions.
The Company has entered into code-sharing agreements under which it has
agreed to purchase seats at established prices from specific foreign airlines,
subject to certain conditions. None of these agreements has noncancelable terms
in excess of one year.
10. EMPLOYEE BENEFIT PLANS
The Company sponsors various pension plans, medical plans and disability and
survivorship plans for employees who meet certain service and other
requirements. In addition, the Company sponsors the Savings Plan (See Note 11)
in which employees who meet certain service and other requirements may elect to
participate.
During fiscal 1997, the Company changed the annual measurement date for
its employee benefit plan assets and liabilities from June 30 to March 31. This
change in measurement date has been accounted for as a change in accounting
principle. The change in measurement date had no material cumulative effect on
employee benefit expense for prior years.
DEFINED BENEFIT PENSION PLANS - The Company's primary retirement plans consist
of defined benefit pension plans. The Company has reserved the right to modify
these plans to the extent permitted by the Internal Revenue Code and the
Employee Retirement Income Security Act of 1974 (ERISA). The qualified defined
benefit plans are funded, on a current basis, to meet the minimum funding
requirements of ERISA.
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7.75% and 4.7%, respectively, at March 31,
1997 and June 30, 1996. The expected long-term rate of return on assets was
10.0% at March 31, 1997 and June 30, 1996.
The following table sets forth the defined benefit pension plans' funded
status and amounts recognized for fiscal 1997 and 1996:
<TABLE>
<CAPTION>
(In Millions) 1997 1996
- ----------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation (1) $6,122 $6,134
======================================================================
Projected benefit obligation $7,517 $7,368
Plan assets at fair value 7,447 7,170
- ----------------------------------------------------------------------
Projected benefit obligation in
excess of plan assets 70 198
Unrecognized net gain 326 195
Unrecognized transition obligation (63) (64)
Unrecognized prior service cost (29) (31)
Contributions made between
April 1, 1997 and June 30, 1997 (18) -
- ----------------------------------------------------------------------
Accrued pension cost recognized in
the Consolidated Balance Sheets $ 286 $ 298
======================================================================
</TABLE>
(1) Substantially all of the accumulated benefit obligation is vested.
Plan assets were invested at June 30, 1997, approximately as follows: cash
equivalents (7%), government and corporate bonds and notes (18%), Common Stock
and other equity-oriented investments (71%) and real estate and other
investments (4%).
41
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
JUNE 30, 1997, 1996 AND 1995
DELTA AIR LINES, INC.
Net periodic defined benefit pension cost for fiscal 1997, 1996 and 1995
included the following components:
<TABLE>
<CAPTION>
(In Millions) 1997 1996 1995
- ----------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the year $ 188 $ 225 $ 221
Interest cost on projected
benefit obligation 564 526 489
Actual return on plan assets (731) (1,194) (795)
Net amortization and deferral 89 612 266
- ---------------------------------------------------------
Net periodic pension cost $ 110 $ 169 $ 181
=========================================================
</TABLE>
The restructuring charges described in Note 16 include an aggregate charge
for fiscal 1996 of $298 million for costs primarily associated with special
termination benefits and curtailment losses related to the defined benefit
pension plans due to workforce reductions.
DEFINED CONTRIBUTION PENSION PLANS - In addition to the Savings Plan described
in Note 11, the Company sponsors the Delta Pilots Money Purchase Pension Plan
(MPPP) to which the Company contributes 5% of covered pay for each eligible
pilot. The MPPP is a continuation of the Delta Pilots Target Benefit Plan and
is related to the Delta Pilots Retirement Plan through a floor-offset
arrangement whereby the defined benefit pension payable to a pilot is subject
to reduction by the actuarial equivalent of the accumulated account balance in
the MPPP. The Company's contributions to this plan were $49 million and $2
million for fiscal 1997 and 1996, respectively.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS - Delta's medical plans provide
medical and dental benefits to substantially all retirees and their eligible
dependents. Benefits are funded from general assets on a current basis,
although amounts sufficient to pay claims incurred but not yet paid are held in
trust. Plan benefits are subject to co-payments, deductibles and certain other
limits described in the plans and are reduced once a retiree is eligible for
Medicare. The Company has reserved the right to modify or terminate the medical
plans for both current and future retirees.
Net periodic postretirement benefit cost for fiscal 1997, 1996 and 1995
included the following components:
<TABLE>
<CAPTION>
(In Millions) 1997 1996 1995
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the year $ 25 $ 32 $ 32
Interest cost on accumulated
postretirement benefit obligation 115 118 118
Amortization of prior service cost (38) (31) (29)
Amortization of accumulated losses 1 4 4
- -----------------------------------------------------------------------
Net periodic postretirement
benefit cost $ 103 $ 123 $ 125
=======================================================================
</TABLE>
The accumulated postretirement benefit obligation (APBO) for fiscal 1997
and 1996 consisted of the following components:
<TABLE>
<CAPTION>
(In Millions) 1997 1996
- ---------------------------------------------------------
<S> <C> <C>
Retirees and dependents $ 936 $ 928
Fully eligible participants 348 323
Other active participants 281 254
- ---------------------------------------------------------
Total accumulated postretirement
benefit obligation 1,565 1,505
Unamortized prior service cost
(from plan changes) 426 464
Unrecognized net loss (76) (112)
Contributions made between
April 1, 1997 and June 30, 1997 (14) -
- ---------------------------------------------------------
Accrued postretirement benefit cost
in the Consolidated Balance Sheets $ 1,901 $ 1,857
=========================================================
</TABLE>
The weighted average discount rate used to estimate the APBO was 7.75% at
March 31, 1997 and at June 30, 1996. The assumed health care cost trend rate
used in measuring the APBO was 8.0% in fiscal 1997 and fiscal 1996, declining
gradually to 4.25% by March 31, 2003, and remaining level thereafter.
Increasing the assumed health care cost trend rate annually by 1% for all
future years would increase the APBO as of March 31, 1997 by approximately $142
million, and the net periodic postretirement benefit cost by $13 million for
fiscal 1997.
The restructuring charges described in Note 16 include aggregate charges
for fiscal 1996 of $32 million for costs primarily associated with special
termination benefits and curtailment losses related to postretirement benefits
other than pensions due to workforce reductions.
42
<PAGE> 26
POSTEMPLOYMENT BENEFITS - The Company provides certain welfare benefits to its
former or inactive employees after employment but before retirement. Such
benefits primarily include those related to disability and survivorship plans.
The Company has reserved the right to modify or terminate these plans at any
time for all participants.
Effective July 1, 1994, Delta adopted SFAS 112, which requires recognition
of the liability for postemployment benefits during the period of employment.
The adoption of SFAS 112 resulted in a cumulative after-tax transition benefit
of $114 million in fiscal 1995, primarily due to the net overfunded status of
the Company's disability and survivorship plans. The Company's postemployment
benefit expense for fiscal years 1997, 1996 and 1995 was $71 million, $78
million and $85 million, respectively. The amount funded in excess of the
liability is included in other noncurrent assets in the Company's Consolidated
Balance Sheets. Future period expenses will vary based on actual claims
experience and the return on plan assets.
Gains and losses that occur because actual experience differs from that
assumed will be amortized over the average future service period of employees.
Amounts allocable to prior service for amendments to retiree and inactive
insurance plans are amortized in a similar manner.
The Company continues to evaluate ways in which it can better manage
employee benefits and control costs. Any changes in the plan or revisions to
assumptions that affect the amount of expected future benefits may have a
significant effect on the amount of the reported obligation and future annual
expense.
11. EMPLOYEE STOCK OWNERSHIP PLAN
The Company sponsors the Savings Plan, a qualified defined contribution pension
plan under which eligible Delta personnel may contribute a portion of their
earnings. The Savings Plan includes an employee stock ownership plan (ESOP)
feature. Subject to certain conditions, the Company contributes 50% of a
participant's contributions to the Savings Plan, up to a maximum employer
contribution of 2% of a participant's earnings. The Company's contributions are
made quarterly through the allocation of Series B ESOP Convertible Preferred
Stock, Common Stock or cash, and are recorded as salaries and related costs in
the Company's Consolidated Statements of Operations. Delta's total
contributions to the Savings Plan were $45 million in fiscal 1997 and fiscal
1996, and $47 million in fiscal 1995.
In connection with the adoption of the ESOP, the Company sold 6,944,450
shares of ESOP Preferred Stock to the Savings Plan for approximately $500
million. The Company has recorded unearned compensation to reflect the value of
ESOP Preferred Stock sold to the ESOP but not yet allocated to participants'
accounts. As shares of the ESOP Preferred Stock are allocated to participants'
accounts, compensation expense equal to the fair value of the ESOP Preferred
Stock is recorded and unearned compensation is reduced. Dividends on
unallocated shares of ESOP Preferred Stock are used by the ESOP for debt
service on the Series C ESOP Notes and are not considered dividends for
financial reporting purposes. Dividends on allocated shares of ESOP Preferred
Stock are credited to participants and considered dividends for financial
reporting purposes. For purposes of computing primary and fully diluted income
per common share, allocated shares of ESOP Preferred Stock are considered
outstanding, but unallocated shares of ESOP Preferred Stock are not.
12. CONTINGENCIES
The Company is a defendant in certain legal actions relating to alleged
employment discrimination practices, antitrust matters, environmental issues
and other matters concerning the Company's business. Although the ultimate
outcome of these matters cannot be predicted with certainty and could have a
material adverse effect on Delta's consolidated financial condition, results of
operations or liquidity, management presently believes that the resolution of
these actions is not likely to have a material adverse effect on Delta's
consolidated financial condition, results of operations or liquidity.
Delta's captive insurance subsidiary has agreed to reimburse the primary
insurers for losses under the Company's aircraft hull and general liability
insurance policies (Policies) in an amount not to exceed $100 million per
occurrence and in the aggregate for the Policy year. The obligations of the
primary insurers to the insureds under the Policies are not limited or reduced
in any way by this reimbursement obligation.
The reimbursement obligation of Delta's captive insurance subsidiary to
the primary insurers is supported by letters of credit. The letters of credit
have an aggregate stated amount equal to the maximum reimbursement obligation.
To the extent the primary insurers make a draw under a letter of credit, Delta
is required to reimburse the issuer of the letter of credit. Delta accrues
amounts estimated to be payable for probable losses under the reimbursement
agreements with the primary insurers, as incurred. The methods of making such
estimates and establishing the resulting accrued liabilities are periodically
reviewed and adjusted as required.
43
<PAGE> 27
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
JUNE 30, 1997, 1996 AND 1995
DELTA AIR LINES, INC.
13. COMMON AND PREFERRED STOCK
At June 30, 1997, 24,700,000 shares of Common Stock were reserved for issuance
under the Company's broad-based employee stock option plans; 4,383,406 shares
of Common Stock were reserved for issuance under the 1989 Stock Incentive Plan;
5,720,023 shares of Common Stock were reserved for conversion of the Series B
ESOP Convertible Preferred Stock; and 248,998 shares of Common Stock were
reserved for issuance under the Non-Employee Directors' Stock Plan. In
addition, 1,500,000 shares of preferred stock have been reserved for issuance
under the Shareholder Rights Plan.
On May 15, 1996, the Company gave notice that it elected to redeem
effective June 15, 1996 its 3.23% Convertible Subordinated Notes due June 15,
2003 (Notes). Substantially all outstanding Notes were then converted by the
holders thereof into approximately 10 million shares of Common Stock, and the
Company redeemed the remaining outstanding Notes. As a result of the conversion
of substantially all the Notes, long-term debt declined by $626 million and
shareholders' equity increased by approximately the same amount in the
Company's Consolidated Balance Sheets. This transaction was treated as a
noncash transaction in the Company's Consolidated Statement of Cash Flows for
the year ended June 30, 1996.
On October 24, 1996, Delta's Board of Directors adopted a new Shareholder
Rights Plan (Rights Plan) to replace the rights plan that expired on November
4, 1996. The new Rights Plan is designed to enhance the Board's ability to
protect shareholders against unsolicited attempts to acquire Delta that do not
offer an adequate price to all shareholders or are otherwise not in the best
interests of the Company and its shareholders. Under the new Rights Plan, each
outstanding share of Common Stock is accompanied by a preferred stock purchase
right which entitles the holder to purchase from the Company 1/100 of a share
of Series D Junior Participating Preferred Stock for $300, subject to
adjustment in certain circumstances (Purchase Price). The rights become
exercisable only after a person or group acquires beneficial ownership of 15%
or more of the Common Stock or commences a tender or exchange offer that would
result in such person or group beneficially owning 15% or more of the Common
Stock. The rights expire on November 4, 2006, and may be redeemed by Delta for
$0.01 per right until 10 business days following the announcement that a person
or group beneficially owns 15% or more of the Common Stock. Subject to certain
conditions, if a person or group becomes the beneficial owner of 15% or more of
the Common Stock, each right will entitle its holder (other than certain
acquiring persons) to purchase, for the Purchase Price, Common Stock having a
market value of twice the Purchase Price. In addition, subject to certain
conditions, if Delta is involved in a merger or certain other business
combination transactions, or the Company sells or otherwise transfers more than
50% of its assets or earning power, each right will entitle its holder to
purchase, for the Purchase Price, Common Stock of the other party having a
market value of twice the Purchase Price.
Each share of Series B ESOP Convertible Preferred Stock (ESOP Preferred
Stock) has a stated value of $72; bears an annual cumulative cash dividend of
6%, or $4.32; is convertible into 0.8578 shares of Common Stock (a conversion
price of $83.94), subject to adjustment in certain circumstances; has a
liquidation preference of $72, plus any accrued and unpaid dividends; generally
votes together as a single class with the Common Stock on matters upon which
the Common Stock is entitled to vote; and has one vote, subject to adjustment
in certain circumstances. The ESOP Preferred Stock is redeemable at Delta's
option at specified redemption prices payable, at Delta's election, in cash or
Common Stock. If full cumulative dividends on the ESOP Preferred Stock have not
been paid when due, Delta may not pay cash dividends on the Common Stock.
14. STOCK OPTIONS AND AWARDS
Under its 1989 Stock Incentive Plan and a predecessor plan, the Company has
granted non-qualified stock options and, prior to fiscal 1993, tandem stock
appreciation rights (SARs) to officers and other key employees. The exercise
price for all stock options, and the base price upon which the SARs are
measured, is the fair market value of Common Stock on the date of grant. Awards
exercised as SARs are payable in a combination of cash and Common Stock. The
Company recognized compensation expense (included in salary and related costs)
related to SARs in fiscal 1997, 1996 and 1995 of $3 million, $14 million and $9
million, respectively. Stock options awarded will generally be exercisable
beginning one year, and ending 10 years, after their grant date.
44
<PAGE> 28
On October 24, 1996, the Company's shareholders approved two plans
providing for the issuance of non-qualified stock options to substantially all
of Delta's non-officer personnel in their individual capacity to purchase a
total of 24.7 million shares of Common Stock. One plan is for eligible Delta
personnel who are not pilots (Nonpilot Plan); the other plan covers the
Company's pilots (Pilot Plan).
The Nonpilot and Pilot Plans involve non-qualified stock options to
purchase 14.7 million and 10 million shares of Common Stock, respectively. The
plans provide for grants in three equal annual installments at an exercise
price equal to the opening price of the Common Stock on the New York Stock
Exchange on the grant date. Stock options awarded under the plans are generally
exercisable beginning one year and ending 10 years after their grant dates, and
are not transferable other than upon the death of the person granted the stock
options. On October 30, 1996, Delta granted eligible personnel non-qualified
stock options to purchase a total of 8.2 million shares of Common Stock at an
exercise price of $69 per share. The second and third grant dates under the
Nonpilot and Pilot Plans are scheduled to occur on October 30, 1997 and 1998,
respectively.
Transactions involving stock options and SARs during fiscal 1997, 1996 and
1995 were as follows:
<TABLE>
<CAPTION>
Fiscal 1997 Fiscal 1996 Fiscal 1995
- ---------------------------------------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Stock Options Shares Price Shares Price Shares Price
- ---------------------------------------------------------------------------------------------------------------------------
(000) (000) (000)
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of fiscal year 2,332 $65 3,386 $63 3,015 $65
Granted 8,932 70 644 71 719 52
Exercised (1,279) 67 (1,654) 63 (79) 56
Expired - - - - (258) 67
Forfeited (84) 75 (44) 65 (11) 66
------ ------ -----
Outstanding at end of fiscal year 9,901 69 2,332 65 3,386 63
====== ====== =====
Stock options exercisable at fiscal year end 1,049 $63 1,698 $63 2,668 $66
Weighted average grant-date fair value of
options granted during the fiscal year $ 17 $ 24 $ 22
</TABLE>
The following table summarizes information about stock options outstanding
at June 30, 1997:
<TABLE>
<CAPTION>
Stock Options Outstanding Stock Options Exercisable
- ------------------------------------------------------------------------- ---------------------------------------
Range of Number Weighted Weighted Number Weighted
Exercise Outstanding at Average Average Exercisable at Average
Prices June 30, 1997 Remaining Life Exercise Price June 30, 1997 Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------
(000) (Years) (000)
<S> <C> <C> <C> <C> <C>
$52-68 530 7 $55 530 $55
$69-82 9,371 9 $70 519 $72
</TABLE>
The Company accounts for its stock-based compensation plans in accordance
with APB 25. During fiscal 1996, the Financial Accounting Standards Board
issued SFAS 123. SFAS 123 encourages, but does not require, the use of a fair
value based method of accounting for stock-based compensation plans under which
the fair value of stock options is determined on the date of grant and expensed
over the vesting period of the stock options. While the Company has elected to
continue to apply the provisions of APB 25, SFAS 123 requires pro forma
disclosure of net income and income per common share as if the fair value based
method under SFAS 123 had been adopted.
45
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
JUNE 30, 1997, 1996 AND 1995
DELTA AIR LINES, INC.
The pro forma net income and income per common share amounts below have
been derived using the Black-Scholes stock option pricing model with the
following assumptions for each stock option grant during the respective fiscal
year:
<TABLE>
<CAPTION>
Stock Options
Granted in Fiscal Year
------------------------
Assumptions 1997 1996
- ---------------------------------------------------------------
<S> <C> <C>
Risk-free interest rate 6.0% 5.4%
Expected life of stock option (Years) 2.7 5.1
Expected volatility of
Common Stock 26.4% 26.5%
Expected annual dividends on
Common Stock $0.20 $0.20
</TABLE>
<TABLE>
<CAPTION>
Fiscal Year Ended
------------------------
June 30, June 30,
1997 1996
- ----------------------------------------------------------------
<S> <C> <C>
Net income (In Millions):
As reported $ 854 $ 156
Pro forma 791 152
Primary income per common share:
As reported $11.30 $1.42
Pro forma 10.46 1.35
Fully diluted income per common share:
As reported $11.01 $1.42
Pro forma 10.18 1.35
</TABLE>
Under SFAS 123, stock options granted prior to fiscal year 1996 are not
required to be included as compensation in determining pro forma net income.
Therefore, the pro forma effects on net income and income per common share for
fiscal 1997 and 1996 may not be representative of the pro forma effects SFAS
123 may have in future years.
15. STOCK REPURCHASE AUTHORIZATION
Delta's Board of Directors has authorized the Company to repurchase up to 24.7
million shares of Common Stock and Common Stock equivalents. Under this
authorization, the Company may repurchase up to 6.2 million of these shares
before October 30, 1997 - the date the initial stock option grants under the
Nonpilot and Pilot Plans become exercisable - and repurchase the remaining
shares as Delta personnel exercise their stock options under those plans.
Repurchases are subject to market conditions and may be made on the open market
or in privately negotiated transactions. Under this authorization, the Company
repurchased 5,378,700 shares of Common Stock for $379 million during fiscal
1997, and 821,300 shares of Common Stock for $66 million during fiscal 1996.
16. RESTRUCTURING AND OTHER NON-RECURRING CHARGES
During fiscal 1997 and 1996, the Company recorded pretax restructuring and
other non-recurring charges of $52 million and $829 million, respectively.
These charges are summarized in the table below:
<TABLE>
<CAPTION>
1997 1996 Total
- ------------------------------------------------------------------
<S> <C> <C> <C>
Leadership 7.5 $ - $104 $104
Pilot special early retirement program - 273 273
L-1011 fleet early retirement - 452 452
Transatlantic and European Realignment 52 - 52
- ------------------------------------------------------------------
Totals $ 52 $829 $881
==================================================================
</TABLE>
FISCAL 1996 - The $829 million pretax charge for restructuring and other
non-recurring charges recorded in fiscal 1996 included a $452 million writedown
of Delta's L-1011 fleet and related assets to their fair market value in
accordance with SFAS 121. The charge also included $273 million related to the
special early retirement program for approximately 500 pilots all of whom
retired during fiscal 1997 and $65 million (net of reversals of $36 million
related to the Company's $526 million restructuring charge recorded in fiscal
1994) for previously announced non-pilot workforce reductions. Payments
associated with curtailment losses and special termination benefits will be
paid as required for funding appropriate pension and other postretirement plans
in future years.
The remaining $39 million of the $829 million charge for fiscal 1996
included $29 million (net of reversals of $14 million related to the Company's
$526 million restructuring charge recorded in fiscal 1994) for lease
termination costs related to abandoned facilities and $10 million noncash costs
related to discontinued routes.
FISCAL 1997 - During the March 1997 quarter, Delta recorded pretax
restructuring and other non-recurring charges totaling $52 million related to
the realignment of its transatlantic and European operations. Of this amount,
$45 million relates to personnel severance costs (for approximately 680
employees); $5 million relates to the reorganization of the Frankfurt
operation; and $2 million relates to abandoned facilities in Frankfurt and
other European locations.
46
<PAGE> 30
The following table reflects the activity in the restructuring accrual
balances (excluding accruals for pension and other postretirement curtailment
losses and special termination benefits discussed above) during fiscal 1997.
All reductions in reserves represent payments of liabilities.
<TABLE>
<CAPTION>
Balance at Balance at
(Amounts in Millions) June 30, 1996 Additions Reductions June 30, 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Leadership 7.5
Workforce Reductions $ 7 $ - $ 3 $ 4
Abandoned Facilities 41 - 3 38
Pilot special early retirement program 21 - 21 -
Transatlantic and European Realignment
Workforce Reductions - 45 6 39
Abandoned Facilities - 2 - 2
Other - 5 - 5
- -------------------------------------------------------------------------------------------------------------------
Totals $69 $52 $33 $88
===================================================================================================================
</TABLE>
Actual costs incurred for certain amounts accrued, realization on the
sales of excess inventories, and costs associated with lease terminations and
abandoned facilities may vary from current estimates. The appropriate accrued
liability will be adjusted upon completion of these activities.
17. SEGMENT INFORMATION
Delta provides scheduled air transportation for passengers, freight and mail
over a network of routes throughout the United States and abroad. Delta's
unconsolidated operating revenue and operating income by geographic region, as
reported to the U.S. Department of Transportation (which differs from operating
revenue and operating income (loss) reported under GAAP), are as follows:
<TABLE>
<CAPTION>
(In Millions) 1997 1996 1995
===========================================================================================================================
Operating Operating
Operating Operating Operating Income Operating Income
Entity Revenue Income Revenue (Loss) Revenue (Loss)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Domestic $11,096 $1,242 $10,067 $ 879 $ 9,619 $733
Atlantic 2,223 195 2,175 (392) 2,164 (43)
Latin 278 48 214 12 223 9
Pacific 341 40 354 (40) 398 (40)
- ---------------------------------------------------------------------------------------------------------------------------
Total $13,938 $1,525 $12,810 $ 459 $ 12,404 $659
===========================================================================================================================
</TABLE>
47
<PAGE> 31
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
JUNE 30, 1997, 1996 AND 1995
DELTA AIR LINES, INC.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
fiscal 1997 and 1996 (in millions, except per share data):
<TABLE>
<CAPTION>
Three Months Ended
- ---------------------------------------------------------------------------------------------------------------------------
Sept. 30 Dec. 31 Mar. 31 June 30
- ---------------------------------------------------------------------------------------------------------------------------
Fiscal 1997
<S> <C> <C> <C> <C>
Operating revenues $3,432 $3,197 $3,420 $3,541
- ---------------------------------------------------------------------------------------------------------------------------
Operating income $ 438 $ 227 $ 346 $ 519
- ---------------------------------------------------------------------------------------------------------------------------
Net income $ 238 $ 125 $ 189 $ 302
- ---------------------------------------------------------------------------------------------------------------------------
Primary income per common share $ 3.09 $ 1.66 $ 2.52 $ 3.98
- ---------------------------------------------------------------------------------------------------------------------------
Fully diluted income per common share $ 2.98 $ 1.63 $ 2.47 $ 3.90
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Fiscal 1996
<S> <C> <C> <C> <C>
Operating revenues $ 3,188 $ 2,944 $ 2,964 $ 3,359
- ---------------------------------------------------------------------------------------------------------------------------
Operating income (loss) $ 386 $ 169 $ (387) $ 295
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 201 $ 70 $ (276) $ 161
- ---------------------------------------------------------------------------------------------------------------------------
Primary income (loss) per common share $ 3.47 $ 0.93 $ (5.77) $ 2.69
- ---------------------------------------------------------------------------------------------------------------------------
Fully diluted income (loss) per common share $ 2.57 $ 0.93 $ (5.77) $ 2.08
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Operating expenses for the March 1997 quarter include $52 million pretax
restructuring and other non-recurring charges related to the realignment of the
Company's transatlantic and European operations. (See Note 16.)
Operating expenses for the March 1996 quarter include $556 million pretax
restructuring and other non-recurring charges related to the writedown of the
Company's L-1011 fleet and related assets, and the continuation of the
Company's Leadership 7.5 cost reduction program. Operating expenses for the
June 1996 quarter include a $273 million pretax restructuring and other
non-recurring charge for costs associated with a special early retirement
program under which approximately 500 pilots retired during fiscal 1997. (See
Note 16.)
48
<PAGE> 32
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the
Board of Directors of Delta Air Lines, Inc.:
We have audited the accompanying consolidated balance sheets of Delta Air
Lines, Inc. (a Delaware corporation) and subsidiaries as of June 30, 1997 and
1996, and the related consolidated statements of operations, cash flows and
shareholders' equity for each of the three years in the period ended June 30,
1997. 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 financial position of Delta Air Lines, Inc. and
subsidiaries as of June 30, 1997 and 1996, and the results of their operations
and their cash flows for each of the three years in the period ended June 30,
1997, in conformity with generally accepted accounting principles.
As discussed in Note 10 of Notes to Consolidated Financial Statements,
effective July 1, 1994, the Company changed its method of accounting for
postemployment benefits.
/s/ Arthur Andersen LLP
- -----------------------
Atlanta, Georgia
August 15, 1997
REPORT OF MANAGEMENT
The integrity and objectivity of the information presented in this Annual
Report are the responsibility of Delta management. The financial statements
contained in this report have been audited by Arthur Andersen LLP, independent
public accountants, whose report appears on this page.
Delta maintains a system of internal financial controls which are
independently assessed on an ongoing basis through a program of internal
audits. These controls include the selection and training of the Company's
managers, organizational arrangements that provide a division of
responsibilities, and communication programs explaining the Company's policies
and standards. We believe that this system provides reasonable assurance that
transactions are executed in accordance with management's authorization; that
transactions are appropriately recorded to permit preparation of financial
statements that, in all material respects, are presented in conformity with
generally accepted accounting principles; and that assets are properly
accounted for and safeguarded against loss from unauthorized use.
The Board of Directors pursues its responsibilities for these financial
statements through its Audit Committee, which consists solely of directors who
are neither officers nor employees of the Company. The Audit Committee meets
periodically with the independent public accountants, the internal auditors and
representatives of management to discuss internal accounting control, auditing
and financial reporting matters.
/s/ Tom Roeck /s/ Leo Mullin
- ------------------------------- ----------------------------
Thomas J. Roeck, Jr. Leo F. Mullin
Senior Vice President - Finance President and
and Chief Financial Officer Chief Executive Officer
49
<PAGE> 33
<TABLE>
<CAPTION>
CONSOLIDATED SUMMARY OF OPERATIONS
For the fiscal years ended June 30
- -------------------------------------------------------------------------------------------------------------------
(In Millions, Except Per Share Data) 1997(1) 1996(2) 1995(3) 1994(4) 1993(5)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Operating revenues $ 13,590 $ 12,455 $ 12,194 $ 12,077 $ 11,657
Operating expenses 12,060 11,992 11,533 12,524 12,232
- -------------------------------------------------------------------------------------------------------------------
Operating income (loss) 1,530 463 661 (447) (575)
Interest expense, net (174) (243) (262) (271) (177)
Gain (loss) on disposition of flight equipment -- 2 -- 2 65
Miscellaneous income, net(6) 59 54 95 56 36
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 1,415 276 494 (660) (651)
Income tax benefit (provision) (561) (120) (200) 250 233
Amortization of investment tax credits -- -- -- 1 3
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) 854 156 294 (409) (415)
Preferred stock dividends (9) (82) (88) (110) (110)
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to common shareholders $ 845 $ 74 $ 206 $ (519) $ (525)
===================================================================================================================
Net income (loss) per common share:
Primary $ 11.30 $ 1.42 $ 4.07 $ (10.32) $ (10.54)
===================================================================================================================
Fully diluted $ 11.01 $ 1.42 $ 4.01 $ (10.32) $ (10.54)
===================================================================================================================
Dividends declared on Common Stock $ 15 $ 10 $ 10 $ 10 $ 35
Dividends declared per common share $ 0.20 $ 0.20 $ 0.20 $ 0.20 $ 0.70
</TABLE>
<TABLE>
<CAPTION>
For the fiscal years ended June 30
- -------------------------------------------------------------------------------------------------------------------------
(In Millions, Except Per Share Data) 1992 1991 1990 1989 1988 1987
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $ 10,837 $ 9,171 $ 8,583 $ 8,089 $ 6,915 $ 5,318
Operating expenses 11,512 9,621 8,163 7,411 6,418 4,913
- -------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (675) (450) 420 678 497 405
Interest expense, net (151) (97) (27) (39) (65) (62)
Gain (loss) on disposition of flight equipment 35 17 18 17 (1) 96
Miscellaneous income, net(6) 5 30 57 55 25 8
- -------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (786) (500) 468 711 456 447
Income tax benefit (provision) 271 163 (187) (279) (181) (219)
Amortization of investment tax credits 9 13 22 29 32 36
- -------------------------------------------------------------------------------------------------------------------------
Net income (loss) (506) (324) 303 461 307 264
Preferred stock dividends (19) (19) (18) -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to common shareholders $ (525) $ (343) $ 285 $ 461 $ 307 $ 264
=========================================================================================================================
Net income (loss) per common share:
Primary $ (10.60) $ (7.73) $ 5.79 $ 9.37 $ 6.30 $ 5.90
=========================================================================================================================
Fully diluted $ (10.60) $ (7.73) $ 5.28 $ 9.37 $ 6.30 $ 5.90
=========================================================================================================================
Dividends declared on Common Stock $ 59 $ 54 $ 85 $ 59 $ 59 $ 44
Dividends declared per common share $ 1.20 $ 1.20 $ 1.70 $ 1.20 $ 1.20 $ 1.00
</TABLE>
<TABLE>
<CAPTION>
OTHER FINANCIAL AND STATISTICAL DATA
For the fiscal years ended June 30
-------------------------------------------------------------------------------------------
(In Millions, Except Share Data) 1997(1) 1996(2) 1995(3) 1994(4) 1993(5)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total assets $ 12,741 $ 12,226 $ 12,143 $ 11,896 $ 11,871
Long-term debt and capital leases
(excluding current maturities) $ 1,797 $ 2,175 $ 3,121 $ 3,228 $ 3,716
Shareholders' equity $ 3,007 $ 2,540 $ 1,827 $ 1,467 $ 1,913
Shares of Common Stock outstanding
at year end 73,695,987 67,778,106 50,816,010 50,453,272 50,063,841
Revenue passengers enplaned (Thousands) 101,147 91,341 88,893 87,399 85,085
Available seat miles (Millions) 136,821 130,751 130,645 131,906 132,282
Revenue passenger miles (Millions) 97,758 88,673 86,417 85,268 82,406
Operating revenue per available seat mile 9.93(cent) 9.53(cent) 9.33(cent) 9.16(cent) 8.81(cent)
Passenger mile yield 12.79(cent) 13.10(cent) 13.10(cent) 13.23(cent) 13.23(cent)
Operating cost per available seat mile 8.81(cent) 9.17(cent) 8.83(cent) 9.49(cent) 9.25(cent)
Passenger load factor 71.45% 67.82% 66.15% 64.64% 62.30%
Breakeven passenger load factor 62.71% 65.12% 62.28% 67.21% 65.58%
Available ton miles (Millions) 18,984 18,084 18,150 18,302 18,182
Revenue ton miles (Millions) 11,308 10,235 10,142 9,911 9,503
Operating cost per available ton mile 63.53(cent) 66.31(cent) 63.55(cent) 68.43(cent) 67.27(cent)
</TABLE>
<TABLE>
<CAPTION>
OTHER FINANCIAL AND STATISTICAL DATA
For the fiscal years ended June 30
(In Millions, Except Share Data) 1992 1991 1990
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets $ 10,162 $ 8,411 $ 7,227
Long-term debt and capital leases
(excluding current maturities) $ 2,833 $ 2,059 $ 1,315
Shareholders' equity $ 1,894 $ 2,457 $ 2,596
Shares of Common Stock outstanding
at year end 49,699,098 49,401,779 46,086,110
Revenue passengers enplaned (Thousands) 77,038 69,127 67,240
Available seat miles (Millions) 123,102 104,328 96,463
Revenue passenger miles (Millions) 72,693 62,086 58,987
Operating revenue per available seat mile 8.80(cent) 8.79(cent) 8.90(cent)
Passenger mile yield 13.91(cent) 13.80(cent) 13.63(cent)
Operating cost per available seat mile 9.35(cent) 9.22(cent) 8.46(cent)
Passenger load factor 59.05% 59.51% 61.15%
Breakeven passenger load factor 62.99% 62.64% 57.96%
Available ton miles (Millions) 16,625 13,825 12,500
Revenue ton miles (Millions) 8,361 7,104 6,694
Operating cost per available ton mile 69.24(cent) 69.59(cent) 65.30(cent)
</TABLE>
<TABLE>
<CAPTION>
OTHER FINANCIAL AND STATISTICAL DATA
For the fiscal years ended June 30
-------------------------------------------------------
(In Millions, Except Share Data) 1989 1988 1987
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets $ 6,484 $ 5,748 $ 5,342
Long-term debt and capital leases
(excluding current maturities) $ 703 $ 729 $ 1,018
Shareholders' equity $ 2,620 $ 2,209 $ 1,938
Shares of Common Stock outstanding
at year end 49,265,884 49,101,271 48,639,469
Revenue passengers enplaned (Thousands) 64,242 58,565 48,173
Available seat miles (Millions) 90,742 85,834 69,014
Revenue passenger miles (Millions) 55,904 49,009 38,415
Operating revenue per available seat mile 8.91(cent) 8.06(cent) 7.71(cent)
Passenger mile yield 13.56(cent) 13.15(cent) 12.81(cent)
Operating cost per available seat mile 8.17(cent) 7.48(cent) 7.12(cent)
Passenger load factor 61.61% 57.10% 55.66%
Breakeven passenger load factor 56.09% 52.69% 51.09%
Available ton miles (Millions) 11,725 11,250 9,000
Revenue ton miles (Millions) 6,338 5,557 4,327
Operating cost per available ton mile 63.21(cent) 57.05(cent) 54.60(cent)
</TABLE>
(1) Summary of operations and other financial and statistical data includes $52
million in pretax restructuring and other non-recurring charges ($0.42 primary
and $0.41 fully diluted after-tax income per common share).
(2) Summary of operations and other financial and statistical data includes
$829 million in pretax restructuring and other non-recurring charges ($9.71
after-tax per common share).
(3) Summary of operations and other financial and statistical data excludes
$114 million after-tax cumulative effect of change in accounting standards
($2.25 primary and $1.42 fully diluted income per common share).
(4) Summary of operations and other financial and statistical data includes
$526 million in pretax restructuring charges ($6.59 after-tax per common
share).
(5) Summary of operations and other financial and statistical data includes $82
million pretax restructuring charge ($1.05 after-tax per common share). Summary
of operations excludes $587 million after-tax cumulative effect of changes in
accounting standards ($11.78 after-tax per common share).
(6)Includes interest income.
50-51
<PAGE> 34
COMMON STOCK
Listed on the New York Stock Exchange under the ticker symbol DAL.
NUMBER OF SHAREHOLDERS
As of August 15, 1997, there were 22,880 registered holders of Common Stock.
MARKET PRICES AND DIVIDENDS
<TABLE>
<CAPTION>
Closing Price of Cash
Common Stock on Dividends Per
Fiscal Year 1997 New York Stock Exchange Common Share
- ----------------------------------------------------------
Quarter Ended: High Low
<S> <C> <C> <C>
September 30 $82 7/8 $66 7/8 $0.05
December 31 77 1/2 67 3/4 0.05
March 31 87 3/4 69 1/4 0.05
June 30 98 1/8 82 5/8 0.05
<CAPTION>
Fiscal Year 1996
- ---------------------------------------------------------
Quarter Ended: High Low
<S> <C> <C> <C>
September 30 $80 1/2 $66 1/4 $0.05
December 31 79 5/8 64 0.05
March 31 82 67 3/8 0.05
June 30 86 77 1/4 0.05
</TABLE>
52
<PAGE> 1
EXHIBIT 18
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
September 25, 1997
Delta Air Lines, Inc.
Post Office Box 20533
Atlanta, Georgia 30320-2533
Re: Form 10-K Report for the Year Ended June 30, 1997
Ladies and Gentlemen:
This letter is written to meet the requirements of Regulation S-K calling for a
letter from a registrant's independent accountants whenever there has been a
change in accounting principle or practice.
As of March 31, 1997, the Company changed the date for measuring its benefit
plan assets and liabilities from June 30 to March 31 as permitted by Statements
of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions,
No. 106, "Employers' Accounting for Postretirement Benefits Other than
Pensions," and No. 112, "Employers' Accounting for Postemployment Benefits."
According to the management of the Company, this change was made in order to
obtain information necessary for the preparation of the financial statements on
a more timely basis.
A complete coordinated set of financial and reporting standards for determining
the preferability of accounting principles among acceptable alternative
principles has not been established by the accounting profession. Thus, we
cannot make an objective determination of whether the change in accounting
described in the preceding paragraph is to a preferable method. However, we have
reviewed the pertinent factors, including those related to financial reporting,
in this particular case on a subjective basis, and our opinion stated below is
based on our determination made in this manner.
We are of the opinion that the Company's change in method of accounting is to an
acceptable alternative method of accounting, which, based upon the reasons
stated for the change and our discussions with you, is also preferable under the
circumstances in this particular case. In arriving at this opinion, we have
relied on the business judgment and business planning of your management.
Very truly yours,
/S/ ARTHUR ANDERSEN LLP
<PAGE> 1
EXHIBIT 23
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated August 15, 1997 included or incorporated by
reference in Delta Air Lines, Inc.'s Annual Report on Form 10-K for the year
ending June 30, 1997 into the Company's previously filed Registration Statement
File Nos. 2-94541, 33-30454, 33-50175, 33-52045, 33-65391, and 333-16471.
/S/ Arthur Andersen LLP
Atlanta, Georgia
September 25, 1997
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Thomas J. Roeck, Jr.
and Robert S. Harkey, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1997, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of
August, 1997.
/s/ Edwin L. Artzt
---------------------------------
Edwin L. Artzt
Director
Delta Air Lines, Inc.
<PAGE> 2
EXHIBIT 24
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Thomas J. Roeck, Jr.
and Robert S. Harkey, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1997, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of
August, 1997.
/s/ Henry A. Biedenharn, III
---------------------------------
A. Biedenharn, III
Director
Delta Air Lines, Inc.
<PAGE> 3
EXHIBIT 24
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Thomas J. Roeck, Jr.
and Robert S. Harkey, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1997, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of
August, 1997.
/s/ James L. Broadhead
---------------------------------
James L. Broadhead
Director
Delta Air Lines, Inc.
<PAGE> 4
EXHIBIT 24
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Thomas J. Roeck, Jr.
and Robert S. Harkey, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1997, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of
August, 1997.
/s/ Edward H. Budd
---------------------------------
Edward H. Budd
Director
Delta Air Lines, Inc.
<PAGE> 5
EXHIBIT 24
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Thomas J. Roeck, Jr.
and Robert S. Harkey, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1997, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of
August, 1997.
/s/ George D. Busbee
---------------------------------
George D. Busbee
Director
Delta Air Lines, Inc.
<PAGE> 6
EXHIBIT 24
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Thomas J. Roeck, Jr.
and Robert S. Harkey, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1997, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of
August, 1997.
/s/ R. Eugene Cartledge
---------------------------------
R. Eugene Cartledge
Director
Delta Air Lines, Inc.
<PAGE> 7
EXHIBIT 24
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Thomas J. Roeck, Jr.
and Robert S. Harkey, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1997, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of
August, 1997.
/s/ Mary Johnston Evans
---------------------------------
Mary Johnston Evans
Director
Delta Air Lines, Inc.
<PAGE> 8
EXHIBIT 24
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Thomas J. Roeck, Jr.
and Robert S. Harkey, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1997, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of
August, 1997.
/s/ Gerald Grinstein
---------------------------------
Gerald Grinstein
Director
Delta Air Lines, Inc.
<PAGE> 9
EXHIBIT 24
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Thomas J. Roeck, Jr.
and Robert S. Harkey, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1997, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of
August, 1997.
/s/ Jesse Hill, Jr.
---------------------------------
Jesse Hill, Jr.
Director
Delta Air Lines, Inc.
<PAGE> 10
EXHIBIT 24
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Thomas J. Roeck, Jr.
and Robert S. Harkey, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1997, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of
August, 1997.
/s/ Peter D. Sutherland
---------------------------------
Peter D. Sutherland
Director
Delta Air Lines, Inc.
<PAGE> 11
EXHIBIT 24
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Thomas J. Roeck, Jr.
and Robert S. Harkey, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1997, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of
August, 1997.
/s/ Andrew J. Young
---------------------------------
Andrew J. Young
Director
Delta Air Lines, Inc.
<PAGE> 12
EXHIBIT 24
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Thomas J. Roeck, Jr.
and Robert S. Harkey, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1997, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of
August, 1997.
/s/ Thomas J. Roeck, Jr.
---------------------------------
Thomas J. Roeck, Jr.
Senior Vice President - Finance
and Chief Financial Officer
<PAGE> 13
EXHIBIT 24
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Thomas J. Roeck, Jr.
and Robert S. Harkey, and each of them separately, as my true and lawful
attorneys-in-fact and agents, with full power of substitution, for me and in my
name, in any and all capacities, to sign on my behalf the Annual Report on Form
10-K of Delta Air Lines, Inc. for the fiscal year ended June 30, 1997, and any
amendment or supplement thereto; and to file such Annual Report on Form 10-K
with the Securities and Exchange Commission, the New York Stock Exchange, and
any other appropriate agency pursuant to applicable laws and regulations.
IN WITNESS WHEREOF, I have hereunto set my hand this 14th day of
August, 1997.
/s/ Leo F. Mullin
-------------------------------------
Leo F. Mullin
President and Chief Executive Officer
and Director
Delta Air Lines, Inc.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DELTA AIR
LINES, INC. FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1997 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE RELATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 662
<SECURITIES> 508
<RECEIVABLES> 991
<ALLOWANCES> 48
<INVENTORY> 94
<CURRENT-ASSETS> 2,867
<PP&E> 13,486
<DEPRECIATION> 5,444
<TOTAL-ASSETS> 12,741
<CURRENT-LIABILITIES> 4,083
<BONDS> 2,095
0
0
<COMMON> 251
<OTHER-SE> 2,756
<TOTAL-LIABILITY-AND-EQUITY> 12,741
<SALES> 0
<TOTAL-REVENUES> 13,590
<CGS> 0
<TOTAL-COSTS> 12,060
<OTHER-EXPENSES> (92)
<LOSS-PROVISION> 30
<INTEREST-EXPENSE> 207
<INCOME-PRETAX> 1,415
<INCOME-TAX> 561
<INCOME-CONTINUING> 854
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 854
<EPS-PRIMARY> 11.30
<EPS-DILUTED> 11.01
</TABLE>
