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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-5424
DELTA AIR LINES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C>
DELAWARE 58-0218548
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
HARTSFIELD ATLANTA INTERNATIONAL AIRPORT
POST OFFICE BOX 20706 30320
ATLANTA, GEORGIA
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER,
INCLUDING AREA CODE: (404) 715-2600
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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<CAPTION>
NAME OF EACH EXCHANGE ON
TITLE OF EACH CLASS WHICH REGISTERED
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<S> <C>
Common Stock, par value $3.00 per share New York Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
</TABLE>
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 31, 1998, was approximately
$7,719,665,000. As of August 31, 1998, 73,482,933 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 1998 Annual Report to Shareowners. Part III of
this Form 10-K incorporates by reference certain information from the
registrant's definitive Proxy Statement dated September 16, 1998, for its Annual
Meeting of Shareowners to be held on October 22, 1998.
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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
1997 data, the Company is the largest United States airline in terms of 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 1, 1998, the Company provided scheduled air service to 148 domestic
cities in 42 states, the District of Columbia, Puerto Rico and the United States
Virgin Islands, as well as to 46 cities in 30 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 Asia,
Europe, Latin America and North America. Operating revenues from the Company's
international operations were approximately $2.64 billion, $2.57 billion, and
$2.44 billion in the years ended June 30, 1998, 1997 and 1996, respectively.
For the year ended June 30, 1998, 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.
On April 6, 1998, the DOT published a proposed statement of enforcement
policy to address DOT concerns that major carriers are taking actions designed
to exclude new entrants in certain airline markets, particularly at hub
airports. Information on this subject is set forth under "Governmental Matters"
on page 32 of Delta's 1998 Annual Report to Shareowners, and is incorporated
herein by reference.
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.
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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.
Delta's system passenger mile yield was virtually unchanged in fiscal 1998
compared to fiscal 1997. The Company's domestic passenger mile yield increased
1% due to a domestic fare increase implemented during the September 1997
quarter, largely offset by the full-year impact of the U.S. transportation
excise tax and increased low-fare competition. Delta's international passenger
mile yield decreased 3% mainly due to overall capacity growth in the Atlantic
market.
Delta expects that low-fare competition will continue in domestic and
international markets. If fare 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.
Certain major U.S. airlines have recently announced plans to establish
marketing alliances with each other. These include the alliances between
Continental Airlines, Inc. and Northwest Airlines, Inc., and between American
Airlines, Inc. and US Airways, Inc. Information concerning Delta's marketing
alliance with United Air Lines, Inc. is set forth under "Alliance Agreement" on
page 31 of Delta's 1998 Annual Report to Shareowners, and is incorporated herein
by reference.
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
and European 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.
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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 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.
As a result of the recent completion of a new aviation agreement between the
United States and Japan, Delta began nonstop service between Atlanta and Tokyo
in June 1998, and has announced plans to begin service between Portland, Oregon,
and Fukuoka and Osaka; to expand its present service between Los Angeles and
Tokyo; and to begin service between Honolulu and Tokyo.
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
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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,
1998, Delta had code-sharing agreements with ten 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,
Ronald Reagan National Airport in Washington, D. C., and O'Hare International
Airport in Chicago. Delta's operations at those four airports require slot
allocations. 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
Delta Express is the Company's low-fare, leisure-oriented operation which
provides service from certain cities in the Northeast and Midwest to Orlando and
other Florida destinations. On October 1, 1996, Delta Express initiated service,
operating a dedicated fleet of 12 B-737-200 aircraft with 62 daily departures to
13 cities. Since that time, Delta Express has expanded its operations. By
December 1, 1998, Delta Express plans to operate a dedicated fleet of 37
B-737-200 aircraft with 170 daily departures to 22 cities.
THE DELTA CONNECTION PROGRAM
Delta has marketing agreements with five 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; SkyWest Airlines, Inc. ("SkyWest") serves California
and operates in other western states through Salt Lake City; and Trans States
Airlines operates in the Northeast through New York. 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, 1998, 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 13%,
respectively.
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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 Corporation),
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 Galileo International, Inc. in market share among travel agents
in the United States.
FUEL
Delta's operations are significantly affected by the availability and price
of jet fuel. The following table shows Delta's jet fuel consumption and costs
for fiscal years 1994-1998.
<TABLE>
<CAPTION>
GALLONS PERCENT OF
FISCAL CONSUMED COST AVERAGE PRICE OPERATING
YEAR (MILLIONS) (MILLIONS) PER GALLON EXPENSES*
- ------------------------------ ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
1994.......................... 2,550 $1,411 55.34 CENTS 12%
1995.......................... 2,533 1,370 54.09 12
1996.......................... 2,500 1,464 58.53 13
1997.......................... 2,599 1,722 66.23 14
1998.......................... 2,664 1,507 56.54 12
</TABLE>
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* Excludes restructuring and other non-recurring charges.
Aircraft fuel expense decreased 12% in fiscal 1998 compared to fiscal 1997,
as the average fuel price per gallon declined 15% to 56.54 CENTS, and fuel
gallons consumed increased 3%.
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
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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 under "Commodity Price Risk" on page 33, and in Note 4 of
the Notes to Consolidated Financial Statements on page 41, of Delta's 1998
Annual Report to Shareowners, 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.
PERSONNEL
At June 30, 1998, Delta employed 70,846 full-time equivalent personnel,
compared to 65,383 full-time equivalent personnel at June 30, 1997.
The following table presents certain information concerning Delta's domestic
collective bargaining agreements.
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APPROXIMATE
NUMBER OF CONTRACT
PERSONNEL AMENDABLE
PERSONNEL GROUP REPRESENTED UNION DATE
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<S> <C> <C> <C>
Pilots................................. 8,800 Air Line Pilots Association, May 2, 2000
International
Flight Superintendents................. 190 Professional Airline Flight Control January 1, 1999
Association
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In June 1998, the Company and the Air Line Pilots Association, International
reached an agreement, subject to the approval of Delta's pilots, regarding the
pay rates for certain B-
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737 aircraft types. Additional information on this subject is set forth under
"Personnel Matters" on pages 31-32 of Delta's 1998 Annual Report to Shareowners,
and is incorporated herein by reference.
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.
Certain labor unions are currently seeking to become the collective
bargaining representative of various groups of Delta employees who are not
represented by a union. None of these labor unions has filed an application with
the NMB alleging a representation dispute. The outcome of the unions' efforts
cannot presently be determined.
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. 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 June 30, 1998, Delta operated 459 Stage 3 aircraft, constituting 81% 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
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Company's operations could be adversely impacted if locally-imposed 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.
Federal and state laws impose certain requirements for the upgrading of
underground storage tanks by December 22, 1998. Several years ago, Delta
implemented a program to remove or upgrade its underground storage tanks, and to
remediate contamination from those tanks. Delta expects to be in compliance with
these requirements prior to the regulatory deadline.
Delta has been identified by the EPA as a potentially responsible party (a
"PRP") with respect to certain Superfund Sites, and has entered into consent
decrees regarding some of these sites. Delta's alleged disposal volume at each
of these sites is small when compared to the total contributions of all PRPs at
each site. Delta is aware of soil and/or ground water contamination present on
its current or former leaseholds at several domestic airports; to address this
contamination, the Company has a program in place to investigate and, if
appropriate, remediate these sites. Management believes that the resolution of
these matters is not likely to have a material adverse effect on the Company's
consolidated financial statements.
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.
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 and United Air Lines, Inc. ("United") recently introduced a reciprocal
frequent flyer program. Effective September 1, 1998, each carrier's frequent
flyer members are
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able to accrue miles in either carrier's program when they fly on Delta or
United operated domestic flights. Members will be able to redeem frequent flyer
awards on domestic flights operated by either carrier beginning October 15,
1998.
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
other direct passenger costs. 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 record a liability for the expected redemption of
miles for non-travel awards since the cost of these awards to Delta is
negligible.
Delta estimated the potential number of round-trip flight awards outstanding
to be 8.6 million at June 30, 1996, 9.1 million at June 30, 1997 and 9.6 million
at June 30, 1998. Of these earned awards, Delta expected that approximately 5.7
million, 6.0 million and 7.2 million, respectively, would be redeemed. At June
30, 1996, 1997 and 1998, Delta had recorded a liability for these awards of $103
million, $122 million and $140 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
or (2) be redeemed for something other than a free trip.
Frequent flyer program participants flew 1.7 million, 1.7 million and 1.9
million free roundtrips in fiscal years 1996, 1997 and 1998, respectively. These
roundtrips accounted for approximately 8%, 6% and 7% 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, 1998 and ending September 30, 1999, up to 22 of its international
range aircraft for use by the United States military under certain stages of
readiness related to national emergencies.
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ITEM 2. PROPERTIES
FLIGHT EQUIPMENT
During fiscal 1998, Delta and The Boeing Company ("Boeing") entered into
definitive agreements under which Delta placed orders to purchase, and obtained
options and rolling options to purchase, B-737-600/700/800, B-757-200,
B-767-300ER, B-767-400 and B-777-200 aircraft. These agreements provide that,
subject to certain conditions, Delta may switch orders among these aircraft
types and defer the delivery of aircraft. The agreements also provide that
Boeing will be the sole supplier of new aircraft to Delta for 20 years, subject
to certain exceptions, but that this provision is not enforceable by Boeing
until the European Commission permits such enforcement.
Additional information relating to Delta's aircraft fleet is set forth in
the charts titled "Aircraft Fleet at June 30, 1998" and "Aircraft Delivery
Schedules at August 14, 1998" on page 21, and in Notes 7 and 8 of the Notes to
Consolidated Financial Statements on page 45, of Delta's 1998 Annual Report to
Shareowners, 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. The Company plans to retire its
remaining L-1011 aircraft by August 2001, and its B-727 fleet by June 2005.
L-1011 and B-727 aircraft will be replaced primarily by B-767 and B-737
aircraft, respectively.
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 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 7 and 8
of the Notes to
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Consolidated Financial Statements on page 45 of Delta's 1998 Annual Report to
Shareowners, 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
Delta is a defendant in certain legal actions relating to alleged employment
discrimination practices, antitrust matters, environmental issues and other
matters concerning Delta's business. Although the ultimate outcome of these
matters cannot be predicted with certainty, management believes that the
resolution of these actions is not likely to have a material adverse effect on
Delta's consolidated financial statements.
For a discussion of certain environmental matters, see "ITEM 1.
Business--Environmental Matters" on pages 8-9 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.
<TABLE>
<S> <C>
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 55.
</TABLE>
12
<PAGE>
<TABLE>
<S> <C>
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. Age 58.
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 60.
Vicki B. Escarra Executive Vice President--Customer Service, July 1998 to date;
Senior Vice President--Airport Customer Service, November 1996
through June 1998; Vice President--Airport Customer Service,
August 1996 through October 1996; Vice President--Reservation
Sales and Distribution Planning, May 1996 through July 1996; Vice
President--Reservation Sales, November 1994 to May 1996;
Director--Reservations Sales, October 1994 to November 1994;
Director--In-Flight Service Operations, May 1992 to October 1994.
Age 46.
Warren C. Jenson Mr. Jenson has been Executive Vice President and Chief Financial
Officer of Delta since April 20, 1998. He was Senior Vice
President and Chief Financial Officer of the National
Broadcasting Company from 1992 to April 1998. Age 41.
Frederick W. Reid Mr. Reid has been Executive Vice President and Chief Marketing
Officer of Delta since July 1, 1998. Mr. Reid was an executive of
Lufthansa German Airlines from 1991 to 1998, serving as that
company's President and Chief Operating Officer from April 1997
to June 1998, as Executive Vice President from 1996 to March
1997, and as Senior Vice President, The Americas, from 1991 to
1996. Age 48.
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
</TABLE>
13
<PAGE>
<TABLE>
<S> <C>
President--General Counsel, November 1988 through October 1990.
Age 57.
Paul G. Matsen Senior Vice President--Alliance Strategy and Development, August
1998 to date; Senior Vice President--Corporate Planning, October
1996 through July 1998; Vice President--Corporate Planning, May
1996 through September 1996; Vice President--Consumer Marketing,
March 1994 through April 1996; Senior Vice President--Account
Management at Young and Rubicam, 1986 to February 1994. Age 39.
</TABLE>
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 Shareowners" and "Market Prices and Dividends" on page 56 of Delta's 1998
Annual Report to Shareowners, 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 certain of the 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 that a participating director may select is a fund
invested primarily in Delta's common stock ("Delta Common Stock Fund"). During
the quarter ended June 30, 1998, a participant in the Plan deferred $15,125 in
the Delta Common Stock Fund investment return choice (equivalent to 126 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 54-55 of Delta's
1998 Annual Report to Shareowners, 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 25-33 of Delta's
1998 Annual Report to Shareowners, and is incorporated herein by reference.
14
<PAGE>
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 33, and in Note 4 of the Notes to
Consolidated Financial Statements on page 41, of Delta's 1998 Annual Report to
Shareowners, and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Information required by this item is set forth on pages 34-52, and in
"Report of Independent Public Accountants" on page 53, of Delta's 1998 Annual
Report to Shareowners, and is incorporated herein by reference.
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 8-10, and under
"Other Matters Involving Directors and Executive Officers -Section 16(a)
Beneficial Ownership Reporting Compliance" on page 26, of Delta's Proxy
Statement dated September 16, 1998, 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 under "General
Information--Compensation of Directors" on pages 6-7, under "General
Information--Charitable Award Program" on page 7, and on pages 19-26, of Delta's
Proxy Statement dated September 16, 1998, and is incorporated herein by
reference.
15
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by this item is set forth under "Beneficial Ownership
of Securities" on pages 11-13 of Delta's Proxy Statement dated September 16,
1998, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Additional information required by this item is set forth on pages 24-26 of
Delta's Proxy Statement dated September 16, 1998, and is incorporated herein by
reference.
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 24-27 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 Exhibits 10.6 to 10.20 in the Exhibit Index.
(b). During the quarter ended June 30, 1998, Delta did not file any Current
Reports on Form 8-K.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 25th day of
September, 1998.
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 25th day of September, 1998 by the following
persons on behalf of the registrant and in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ ------------------------------
<C> <S>
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
R. EUGENE CARTLEDGE* Director
- ------------------------------
R. Eugene Cartledge
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE
- ------------------------------ ------------------------------
<C> <S>
MARY JOHNSTON EVANS* Director
- ------------------------------
Mary Johnston Evans
GERALD GRINSTEIN* Non-executive Chairman of the
- ------------------------------ Board
Gerald Grinstein
JESSE HILL, JR.* Director
- ------------------------------
Jesse Hill, Jr.
Executive Vice President
/s/ WARREN C. JENSON and Chief Financial Officer
- ------------------------------ (Principal Financial Officer
Warren C. Jenson and Principal Accounting
Officer)
President and Chief Executive
/s/ LEO F. MULLIN Officer and a Director
- ------------------------------ (Principal Executive
Leo F. Mullin Officer)
ANDREW J. YOUNG* Director
- ------------------------------
Andrew J. Young
</TABLE>
<TABLE>
<S> <C> <C>
*By: /s/ WARREN C. JENSON
------------------------------ Attorney-In-Fact
Warren C. Jenson
</TABLE>
18
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS--Incorporated herein by reference to
"Report of Independent Public Accountants" on page 53 of Delta's 1998 Annual
Report to Shareowners.
FINANCIAL STATEMENTS--All of which are incorporated herein by reference to
Delta's 1998 Annual Report to Shareowners.
Consolidated Balance Sheets--June 30, 1998 and 1997
Consolidated Statements of Operations for the years ended June 30, 1998,
1997 and 1996
Consolidated Statements of Cash Flows for the years ended June 30, 1998,
1997 and 1996
Consolidated Statements of Shareowners' Equity for the years ended June
30, 1998, 1997 and 1996
Notes to Consolidated Financial Statements--June 30, 1998, 1997 and 1996
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, 1998, 1997 and 1996
</TABLE>
All other schedules have been omitted as not applicable.
19
<PAGE>
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 shareowners incorporated by reference in this Form 10-K and have
issued our report thereon dated August 14, 1998. Our audits were 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 audits
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 14, 1998
20
<PAGE>
SCHEDULE II
DELTA AIR LINES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED JUNE 30, 1998
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN C
--------------------------------------
COLUMN B ADDITIONS COLUMN E
------------- -------------------------------------- COLUMN D -----------
COLUMN A BALANCE AT CHARGED TO 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:........................... $ 48 $ 23 -- $ 35(a) $ 36
Allowance for unrealized gains on
marketable equity securities:......... $ (166) -- -- $ 22(b) $ (144)
Reserve for restructuring and other
non-recurring charges:................ $ 88 -- -- $ 52(c) $ 36
</TABLE>
- ------------------------
(a) Represents write-off of accounts considered to be uncollectible, less
collections.
(b) Represents decrease in unrealized gain resulting from changes in market
values.
(c) Represents payments made against restructuring reserves.
21
<PAGE>
SCHEDULE II
DELTA AIR LINES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED JUNE 30, 1997
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN C
------------------------------------
COLUMN B ADDITIONS COLUMN E
------------- ------------------------------------ COLUMN D -----------
COLUMN A BALANCE AT CHARGED TO CHARGED TO ------------- BALANCE AT
- --------------------------------------------- BEGINNING OF COSTS AND OTHER 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)
Reserve for restructuring and other
non-recurring charges:..................... $ 69 $ 52 -- $ 33(c) $ 88
</TABLE>
- ------------------------
(a) Represents write-off of accounts considered to be uncollectible, less
collections.
(b) Represents decrease in unrealized gain resulting from changes in market
values.
(c) Represents payments against restructuring reserves.
22
<PAGE>
SCHEDULE II
DELTA AIR LINES, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
(AMOUNTS IN MILLIONS)
<TABLE>
<CAPTION>
COLUMN C
-------------------------------
COLUMN B ADDITIONS COLUMN E
------------- ------------------------------- COLUMN D -----------
COLUMN A BALANCE AT CHARGED TO 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)
Reserve for restructuring and other
non-recurring charges:................... $ 66 $ 829 -- $ 826(b) $ 69
</TABLE>
- ------------------------
(a) Represents increase in unrealized gain resulting from changes in market
values.
(b) Represents $452 million related to write-down of Lockheed L-1011 aircraft
fleet; $252 million related to special early retirement program; $72 million
of payments made against restructuring reserves; and $50 million relating to
the reversal of prior restructuring charges.
23
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBITS
- -----------
<C> <S> <C>
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.
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,
as 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 Third Supplemental Indenture dated as of August 10, 1998, between Delta and The Bank of New
York, as successor trustee, to the Indenture, dated as of March 1, 1983, as supplemented,
between Delta and The Citizens and Southern National Bank of Florida, as predecessor trustee.
4.6 Indenture dated as of April 30, 1990, between Delta and The Citizens and Southern National Bank
of Florida, as trustee (Filed as Exhibit 4(a) to Amendment No. 1 to Delta's Registration
Statement on Form S-3 (Registration No. 33-34523)). *
4.7 First Supplemental Indenture dated as of August 10, 1998, between Delta and The Bank of New
York, as successor trustee, to the Indenture dated as of April 30, 1990, between Delta and The
Citizens and Southern National Bank of Florida, as predecessor trustee.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- -----------
<C> <S> <C>
4.8 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)). *
4.9 Credit Agreement dated as of May 2, 1997, by and among Delta, Certain Banks and NationsBank,
N.A. (South), as Agent Bank (Filed as Exhibit 4.7 to Delta's Annual Report on Form 10-K for
the year ended June 30, 1997). *
4.10 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). *
4.11 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). *
</TABLE>
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.
<TABLE>
<C> <S> <C>
10.1 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). *
10.2 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). *
10.3 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). *
10.4 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). *
10.5 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). *
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- -----------
<C> <S> <C> <S> <C>
10.6 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). *
10.7 Agreement dated as of July 31, 1997 between Delta and Mr. Ronald W. Allen (Filed as Exhibit 10.8
to Delta's Annual Report on Form 10-K for the year ended June 30, 1997). *
10.8 Delta's Incentive Compensation Plan, as amended (Filed as Exhibit 10.1 to Delta's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1997). *
10.9 Delta's 1989 Stock Incentive Plan, as amended (Filed as Appendix A to Delta's Proxy Statement
dated September 15, 1997). *
10.10 Delta's Executive Deferred Compensation Plan, as amended (Filed as Exhibit 10.2
to Delta's Quarterly Report on Form 10-Q for the quarter ended September 30,
1997). *
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 10.3 to Delta's Quarterly Report on Form
10-Q for the quarter ended September 30, 1997). *
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 (Filed as Exhibit 10.16
of Delta's Annual Report on Form 10-K for the year ended June 30, 1997). *
10.17 Form of Senior Officer Excess Benefit Plan Agreement.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- -----------
<C> <S> <C> <S> <C>
10.18 Employment Agreement dated as of August 14, 1997 between Delta and Leo F. Mullin (Filed as
Exhibit 10.1 to Delta's Quarterly Report on Form 10-Q for the quarter ended December 31,
1997). *
10.19 Employment Agreement dated March 23, 1998 between Delta and Warren C. Jenson.
10.20 Employment Agreement dated June 5, 1998 between Delta and Frederick W. Reid.
10.21 Purchase Agreement No. 2022 between The Boeing Company and Delta relating to Boeing Model
737-632/-732/-832 Aircraft (Filed as Exhibit 10.3 to Delta's Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998). */**
10.22 Purchase Agreement No. 2025 between The Boeing Company and Delta relating to Boeing Model
767-432ER Aircraft (Filed as Exhibit 10.4 to Delta's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998). */**
10.23 Letter Agreements related to Purchase Agreements No. 2022 and/or No. 2025 between The Boeing
Company and Delta (Filed as Exhibit 10.5 to Delta's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1998). */**
10.24 Aircraft General Terms Agreement AGTA-DAL between The Boeing Company and Delta (Filed as Exhibit
10.6 to Delta's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998). */**
10.25 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.)*
12. Statement regarding computation of ratio of earnings to fixed charges for the years ended June
30, 1998, 1997, 1996, 1995 and 1994.
13. Portions of Delta's 1998 Annual Report to Shareowners.
23. Consent of Arthur Andersen LLP.
24. Powers of Attorney.
27. Financial Data Schedule.
</TABLE>
- ------------------------
* Incorporated herein by reference.
** Portions of this exhibit have been omitted and filed separately with the
Commission pursuant to Delta's request for confidential treatment.
27
<PAGE>
DELTA AIR LINES, INC.
BY-LAWS
As Amended
Through
July 23, 1998
Incorporated
Under the Laws of
Delaware
<PAGE>
TABLE OF CONTENTS
BY-LAWS
<TABLE>
<CAPTION>
Article Section Subject Page
- --------------- ------- ----
<S> <C> <C>
I Name, Incorporation and Location of Offices.. 3
1.1 Name and Incorporation....................... 3
1.2 Location of Registered Agent and Offices..... 3
II Capital Stock................................ 3
2.1 Amount and Class Authorized.................. 3
2.2 Stock Certificates........................... 3
2.3 Transfer Agents and Registrars............... 4
2.4 Transfers of Stock........................... 4
2.5 Lost or Destroyed Certificates............... 4
2.6 No Preemptive Rights......................... 5
III Meetings of Stockholders..................... 5
3.1 Annual Meeting............................... 5
3.2 Special Meetings............................. 5
3.3 Notices of Meetings.......................... 6
3.4 Record Date.................................. 6
3.5 Quorum and Adjournment....................... 6
3.6 Voting Rights and Proxies.................... 7
3.7 Presiding Officer............................ 7
3.8 List of Stockholders Entitled To Vote........ 7
IV Board of Directors........................... 7
4.1 Power and Authority.......................... 7
4.2 Number, Nomination and Election of Directors. 8
4.2.1 Eligibility, Tenure and Vacancies............ 8
4.3 Regular Meetings of the Board of Directors... 9
4.4 Special Meetings............................. 10
4.5 Committees Appointed by the Board............ 10
4.6 Meetings of Committees Appointed by the Board 10
4.7 Quorum and Voting............................ 11
4.8 Meeting by Conference Telephone.............. 11
4.9 Action Without Meeting....................... 11
4.10 Compensation................................. 11
V Officers..................................... 11
5.1 Election, Qualification, Tenure and
Compensation................................. 11
5.2 Chief Executive Officer...................... 12
5.3 Chairman of the Board........................ 12
5.4 President.................................... 12
5.5 Vice Chairman of the Board................... 13
5.6 Absence or Disability of Chairman and 13
President....................................
5.7 Secretary.................................... 13
5.8 Assistant Secretaries........................ 13
</TABLE>
1
<PAGE>
<TABLE>
<CAPTION>
Article Section Subject Page
- --------------- ------- ----
<S> <C> <C>
5.9 Comptroller................................. 13
5.10 Treasurer................................... 14
5.11 Assistant Treasurers........................ 14
5.12 Bonds....................................... 14
VI 6.1 Corporate Seal.............................. 14
VII 7.1 Fiscal Year................................. 14
VIII Dividends................................... 14
8.1 $3 Par Value Common Stock................... 15
8.2 Record Date for Payment of Dividends........ 15
IX Financial Transactions and Execution of
Instruments in Writing...................... 15
9.1 Depositories................................ 15
9.2 Withdrawals and Payments.................... 15
9.3 Evidence of Indebtedness and Instruments
under 16
Seal........................................
X Books and Records........................... 16
10.1 Location.................................... 16
10.2 Inspection.................................. 16
XI Transactions with Officers and Directors.... 16
11.1 Validation.................................. 16
XII 12.1 Amendment, Repeal or Alteration............. 17
EMERGENCY BY-LAWS............................................ 17
</TABLE>
2
<PAGE>
BY-LAWS OF
DELTA AIR LINES, INC.
ARTICLE I.
NAME, INCORPORATION AND LOCATION OF OFFICES
SECTION 1.1 Name and Incorporation.
The name of this corporation is DELTA AIR LINES, INC. It is incorporated
under the laws of Delaware in perpetuity.
SECTION 1.2 Location of Registered Agent and Offices.
The name of the registered agent of the corporation is the Corporation
Trust Co., and its address and the address of the corporation's principal
office in Delaware is No. 100 West 10th Street, Wilmington, Delaware 19801.
Said registered agent and office may be changed as provided by the General
Corporation law of Delaware, as now or hereafter in effect.
The corporation may also have an office in Atlanta, Georgia, and may have
offices at such other places as the business of the corporation may require.
ARTICLE II.
CAPITAL STOCK
SECTION 2.1 Amount and Class Authorized.
Until otherwise provided by amendment to its Certificate of Incorporation,
the authorized capital stock of the corporation shall consist of 170,000,000
shares, of which 150,000,000 shall be common stock of the par value of $3.00 per
share and 20,000,000 shall be preferred stock of the par value of $1.00 per
share. Shares of such authorized $3.00 par value common stock, in addition to
the shares now outstanding, up to the authorized maximum of 150,000,000 shares,
may be issued at such times, and from time to time, and may be sold for such
considerations, not less than the par value thereof, as shall be fixed and
determined by the board of directors. Shares of such authorized preferred stock
up to the authorized maximum of 20,000,000 shares may be issued at such times,
and from time to time, in such series and with such rights, including voting
rights, preferences, and limitations, and may be sold for such considerations,
not less than the par value thereof, as shall be fixed and determined by the
board of directors.
SECTION 2.2 Stock Certificates.
Certificates evidencing the stock of the corporation shall be in such forms
as shall be authorized and approved by the board of directors. Such certificates
shall be signed by the chairman of the board, the president or a vice president
and by the secretary or an assistant secretary of the corporation, and the seal
of the corporation shall be affixed thereto. The seal of the corporation and any
or
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all the signatures on such certificate may be facsimile engraved, stamped or
printed.
If any officer, transfer agent or registrar who has signed, or whose
facsimile signature has been used on, a certificate has ceased to be an officer,
transfer agent or registrar or if any officer who has signed has had a change in
title before the certificate is delivered, such certificate may nevertheless be
issued and delivered by the corporation as though the officer, transfer agent or
registrar who signed or whose facsimile signature shall have been used had not
ceased to be such officer, transfer agent or registrar or such officer had not
had such change in title.
SECTION 2.3 Transfer Agents and Registrars.
The board of directors may appoint transfer agents and co-transfer agents
and registrars and co-registrars for the stock of the corporation and, if it so
elects, may appoint a single agency to serve as both transfer agent and
registrar, and may require all certificates evidencing stock to bear the
signature or signatures of any of them.
SECTION 2.4 Transfers of Stock.
Transfers of stock of the corporation shall be made only on the books of
the corporation by the registered holder thereof in person or by attorney
thereunto duly authorized in writing. Powers of attorney to transfer stock of
the corporation shall be filed with the duly authorized transfer agent of the
corporation, when appointed, and the certificates evidencing the stock to be
transferred shall be surrendered to such transfer agent for cancellation, and
shall be cancelled by it at the time of transfer.
Until transfer shall have been made as provided above, possession of a
certificate evidencing stock of the corporation shall not vest any ownership of
such certificate, or of the stock evidenced thereby, in any person other than
the person in whose name said stock stands registered on the books of the
corporation and the corporation shall be entitled to treat the holder of record
of any share or shares of stock as the holder thereof in fact and shall not be
bound to recognize any equitable or other claim to or interest in any such share
or shares on the part of any other person, whether or not it shall have express
or other notice thereof. Notwithstanding the foregoing, the corporation shall
have the power and is authorized to effect through the duly authorized transfer
agent and registrar or otherwise transfers of stock of the corporation to
various states or appropriate state authorities when applicable state laws of
escheat or abandonment so require.
SECTION 2.5 Lost or Destroyed Certificates.
In case of the loss or destruction of an outstanding certificate of stock,
another certificate for a like number of shares may be issued in place of the
lost or destroyed certificate upon proof satisfactory to the board of directors
or its delegate, and upon payment of the expenses, if any, incident to the
issuance of such new certificate; provided, however, that the board of directors
or its delegate, if it sees fit, may require that such lost or destroyed
certificate be established as by the laws of Delaware in such cases made and
provided, and further provided that, any provision of law to the contrary
notwithstanding, the board of directors or its delegate may require the owner of
such lost or destroyed certificate, or the legal representative of such owner,
to give the corporation a bond sufficient, in the opinion of the board of
directors or its delegate, to indemnify the corporation against and hold it
harmless from any and all loss, damage, liability and claims (whether or not
such claims be meritorious) on account of and with respect to such lost or
destroyed certificate and the stock evidenced thereby and the issuance or
establishment of such new certificate.
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SECTION 2.6 No Preemptive Rights.
No holder of any stock of the corporation which shall at any time be
outstanding shall have any preemptive rights to subscribe for or purchase
additional shares of stock of the corporation of any class which at any time may
be authorized or issued.
ARTICLE III.
MEETINGS OF STOCKHOLDERS
SECTION 3.1 Annual Meeting.
The annual meeting of stockholders shall be held on the fourth Thursday in
October of each year or at such other time as the board of directors shall
specify, at such place, either within or without the State of Delaware, as may
be designated by the board of directors from time to time, for the purpose of
electing directors and for the transaction of only such other business as is
properly brought before the meeting in accordance with these By-Laws.
To be properly brought before the meeting, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the board, (b) otherwise properly brought before the meeting by
or at the direction of the board, or (c) otherwise properly brought before the
meeting by a stockholder. In addition to any other applicable requirements, for
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the secretary of
the corporation. To be timely, a stockholder's notice shall be delivered to or
mailed and received at the principal executive offices of the corporation not
less than 90 days nor more than 120 days prior to the anniversary date of the
immediately preceding annual meeting of stockholders; provided that if the board
calls the annual meeting for a date that is not within 30 days before or after
such anniversary date, notice by the stockholder to be timely must be so
delivered or mailed and received not later than the close of business on the
10th business day following the day on which the board gave such notice or made
such public disclosure of the date of the annual meeting, whichever first
occurs. Such stockholder's notice to the secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and record address of the stockholder proposing such business, (iii) the class
and number of shares of capital stock of the corporation which are beneficially
owned by the stockholder, and (iv) any material interest of the stockholder in
such business.
Notwithstanding anything in the By-Laws to the contrary, no business shall
be conducted at the annual meeting except in accordance with the procedures set
forth in this Article III, provided, that nothing in this Article III shall be
deemed to preclude discussion by any stockholder of any business properly
brought before the annual meeting.
If business is not properly brought before the meeting in accordance with
the provisions of this Article III, the Presiding Officer at an annual meeting
shall so declare to the meeting and any such business not properly brought
before the meeting shall not be transacted.
SECTION 3.2 Special Meetings.
Special meetings of the stockholders shall be held at such times, and at
such places, either within or without the State of Delaware, as shall be
designated in the notice of call of the meeting, and may be called by the
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chairman of the board or the president at any time and must be called by the
chairman of the board or the president whenever requested in writing by a
majority of the board of directors.
SECTION 3.3 Notices of Meetings.
Written or printed notices of every annual or special meeting of the
stockholders shall be mailed to each stockholder of record at the close of
business on the record date hereinafter provided for, at the address shown on
the stock book of the corporation or its transfer agents, not less than ten nor
more than sixty days prior to the date of such meeting. Notices of special
meetings shall briefly state or summarize the purpose or purposes of such
meetings, and no business except that specified in the notice shall be
transacted at any special meeting. It shall not be necessary that notices of
annual meetings specify the business to be transacted at such annual meetings,
and any business of the corporation may be transacted at any annual meeting of
the stockholders to the extent not prohibited by applicable law, the Certificate
of Incorporation or these By-Laws.
SECTION 3.4 Record Date.
It shall not be necessary to close the stock transfer books of the
corporation for the purpose of determining the stockholders entitled to notice
of and to participate in and vote at any meeting of the stockholders. In lieu of
closing the stock transfer books of the corporation, and for all purposes that
might be served by closing the stock transfer books, the board of directors may
fix and declare a date not less than ten days nor more than sixty days prior to
the date of any annual or special meeting as the record date for the
determination of stockholders entitled to notice of and to participate in and
vote at such meeting of the stockholders and any adjournment thereof; and the
corporation and its transfer agents may continue to receive and record transfers
of stock after any record date as so provided. In any such case, such
stockholders, and only such stockholders as shall have been stockholders of
record at the close of business on the record date shall be entitled to notice
and to participate in and vote at any such meeting of the stockholders,
notwithstanding any transfers of stock which may have been made on the books of
the corporation or its transfer agents after such record date.
SECTION 3.5 Quorum and Adjournment.
Except as otherwise provided or required by law, by the Certificate of
Incorporation or by these By-Laws, a quorum at any meeting of the stockholders
shall consist of the holders of shares representing a majority of the number of
votes entitled to be cast by the holders of all shares of stock then outstanding
and entitled to vote, present in person or by proxy. If a quorum is not present
at any duly called meeting, the Presiding Officer or the holders of a majority
of the votes present may adjourn the meeting from day to day, or to a fixed
date, without notice other than announcement at the meeting, but no other
business may be transacted until a quorum is present; provided, however, that
any meeting at which directors are to be elected shall be adjourned only from
day to day until such directors have been elected, and further provided that
those who attend the second of such adjourned meetings, although less than a
quorum as fixed hereinabove, shall nevertheless constitute a quorum for the
purpose of electing directors.
The stockholders present at a duly organized meeting at which a quorum is
present at the outset may continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders to result in less than a
quorum or the refusal of any stockholder present to vote.
The Presiding Officer may in his discretion defer voting on any proposed
action and adjourn any meeting of the stockholders until a later date, provided
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such actions are otherwise permitted by law and are not inconsistent with the
Certificate of Incorporation or other provisions of these By-Laws.
SECTION 3.6 Voting Rights and Proxies.
At all meetings of stockholders, whether annual or special, the holder of
each share of common stock which is then outstanding and entitled to vote shall
be entitled to one vote for each share held and the holder of each share of any
series of preferred stock which is then outstanding shall be entitled to such
voting rights, if any, and such number of votes, as shall be specified in the
resolution or resolutions of the board of directors providing for the issuance
of such series. Stockholders may vote at all such meetings in person or by proxy
duly authorized in writing or by a transmission permitted by law filed in
accordance with the procedures established for the meeting. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this section may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission. Except as otherwise specifically
provided by law, by the Certificate of Incorporation or by these By-Laws, a
majority of the valid votes present shall be necessary and sufficient to decide
any question which shall come before any meeting of the stockholders. In case of
any challenge of the right of a given stockholder to vote in person or by proxy,
the Presiding Officer hereinafter provided for shall be authorized to make the
appropriate determination, and his decision shall be final.
SECTION 3.7 Presiding Officer.
All meetings of the stockholders shall be presided over by the chairman of
the board or, in the absence or disability of the chairman, by the president, or
in his absence or disability, by the vice chairman, if any, or, in his absence
or disability, by the senior director (in terms of length of service on the
board of directors) present.
SECTION 3.8 List of Stockholders Entitled to Vote.
A complete list of the stockholders entitled to vote, arranged in
alphabetical order and indicating the number of shares held by each, shall be
prepared by the secretary and shall be available at the place where any
stockholders' meeting is being held, and shall be open to the examination of any
stockholder for any proper purpose during the whole of such meeting.
ARTICLE IV.
BOARD OF DIRECTORS
SECTION 4.1 Power and Authority.
All of the corporate powers of this corporation shall be vested in and the
business, property and affairs of the corporation shall be managed by, or under
the direction of, the board of directors; and the board of directors shall be,
and hereby is, fully authorized and empowered to exercise all of the powers of
the corporation and to do, and to authorize, direct and regulate the doing of,
any and all things which the corporation has the lawful right to do which are
not by statute, the Certificate of Incorporation or these By-Laws expressly
directed or required to be exercised or done by the stockholders.
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SECTION 4.2 Number, Nomination and Election of Directors.
The board of directors shall consist of not less than five nor
more than nineteen directors who shall be stockholders of the corporation. The
members of the board of directors shall be elected by the stockholders at the
annual meeting of stockholders, or at a duly convened adjournment thereof or at
a special meeting of stockholders duly called and convened for that purpose,
provided, however, that only persons who are nominated in accordance with the
following procedures shall be eligible for election as directors. Nominations of
persons for election to the board of the corporation at the annual meeting or a
duly convened adjournment thereof may be made by or at the direction of the
board of directors, by any nominating committee or person appointed by the
board, or by any stockholder of the corporation entitled to vote for the
election of directors at the meeting or a duly convened adjournment thereof who
complies with the notice procedures set forth in this Article IV. Such
nominations, other than those made by or at the direction of the board, or by
any nominating committee or person appointed by the board, shall be made
pursuant to timely notice in writing to the secretary of the corporation. To be
timely, a stockholder's notice shall be delivered to or mailed and received at
the principal executive offices of the corporation not less than 90 days nor
more than 120 days prior to the anniversary date of the immediately preceding
annual meeting of stockholders; provided that if the board calls the annual
meeting for a date that is not within 30 days before or after such anniversary
date, notice by the stockholder to be timely must be so delivered or mailed and
received not later than the close of business on the 10th business day following
the day on which the board gave such notice or made such public disclosure of
the date of the meeting, whichever first occurs. Such stockholder's notice to
the secretary shall set forth (a) as to each person whom the stockholder
proposes to nominate for election or re-election as a director, (i) the name,
age, business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares of
capital stock of the corporation which are beneficially owned by the person and
(iv) any other information relating to the person that is required to be
disclosed in solicitations for proxies for election of directors pursuant to
Rule 14a under the Securities Exchange Act of 1934, as amended; and (b) as to
the stockholder giving the notice, (i) the name and record address of the
stockholder and (ii) the class and number of shares of capital stock of the
corporation which are beneficially owned by the stockholder. The corporation may
require any proposed nominee to furnish such other information as may reasonably
be required by the corporation to determine the qualifications of such proposed
nominee to serve as director of the corporation. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth herein.
If a nomination is made that is not in accordance with the foregoing
procedure, the Presiding Officer at an annual meeting shall so declare to the
meeting and the defective nomination shall be disregarded.
SECTION 4.2.1 Eligibility, Tenure and Vacancies.
A nomination to serve as a director shall be accepted and votes cast for a
nominee shall be counted only if the secretary has received, at least thirty
days before the annual or a special meeting of stockholders, a statement signed
by the nominee advising that he or she consents to being a nominee and, if
elected, intends to serve as a director, and further provided that:
(a) Directors who are full-time employees of the company shall resign from
the board coincident with their retirement from full-time employment.
(b) The age limit for directors not covered by subparagraph (a), above, or
who, after resigning from the board upon retirement from full-time
employment are re-elected to the board, shall be seventy-two, and such
directors shall retire from the board as of the date and time of the annual
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meeting of stockholders which next follows their attainment of age
seventy-two; provided, however, that such directors originally elected to
the board after November 1, 1981, shall retire from the board as of the
date and time of the annual meeting of stockholders which next follows
their attainment of age seventy.
(c) The board may extend the retirement date for one year for any director
who is serving as chairman of a committee of the board who will have
occupied such chairmanship less than two years at the time of his or her
normal retirement date, but this subparagraph (c) shall be effective only
through October 22, 1992 and no extension shall be valid beyond that date.
Each member of the board of directors shall hold office from the time of his
election and qualification until the next annual meeting of the stockholders and
until his successor shall have been elected and qualified; provided, however,
that any member of the board of directors may be removed from such office by the
stockholders at any time, with or without cause, at any meeting of the
stockholders, duly called for such purpose, in which event a successor may be
elected by the stockholders at such meeting or at any subsequent meeting of the
stockholders duly called for such purpose.
The number of members of the board of directors may be increased or
decreased at any time and from time to time to not less than five nor more than
nineteen members by resolution adopted by the board of directors and in such
event, and in the event any vacancy on the board of directors shall occur by
death, resignation, retirement, disqualification or otherwise, additional or
successor members of the board of directors may be elected by majority vote of
the remaining members of the board of directors present in person at any duly
convened meeting of said board.
Any director may resign at any time upon written notice to the corporation.
SECTION 4.3 Regular Meetings of the Board of Directors.
The first organizational meeting of each newly-elected board
shall be held at such time and place, either within or without the State of
Delaware, as shall be fixed by the outgoing board of directors at or before its
last regular meeting preceding the annual meeting of the stockholders, and no
notice of such meeting shall be necessary to the newly-elected directors in
order to constitute the meeting legally, provided that a majority of the whole
board shall be present, and further provided that such newly-elected board may
meet at such other place and time as shall be fixed by the consent in writing of
all of the said directors.
At such organizational meeting the board, by a vote of a majority of all of
the members thereof, shall elect a chairman from among its members. The chairman
shall preside over all meetings of the board of directors, if present, and shall
have such other powers and perform such other duties as may be assigned to him
by the board from time to time. In his capacity as chairman of the board he
shall not necessarily be an officer of the corporation but he shall be eligible
to serve, in addition, as an officer pursuant to Section 5.1 of these By-Laws.
All meetings of the directors shall be presided over by the chairman of the
board or, in his absence or disability, by the chief executive officer of the
corporation if he is a member of the Board or, in his absence or disability, by
the president if he is a member of the Board or, in his absence or disability,
by the vice chairman, if any, or, in his absence or disability, by the senior
director (in terms of length of service on the board of directors) present.
Regular meetings of the board of directors shall be held during the months
of January, April, June, July and September, on such dates and at such places as
the board by resolution or, failing such resolution, as the chairman of the
board or, during his absence or disability, the president or the secretary of
the corporation may determine, and if not previously specified in a board
resolution, each director shall be advised in writing of the date, place and
time of each such meeting at least two days in advance, unless such notice be
waived in writing.
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SECTION 4.4 Special Meetings.
Special meetings of the board of directors shall be held at such time and
place, within or without the State of Delaware, as shall be designated in the
call and notice of the meeting; and may be called by the chairman of the board,
or in his absence or disability by the president or the secretary of the
company, at any time, and must be called by the chairman, or in his absence or
disability by the president or the secretary of the corporation, whenever so
requested in writing by three or more members of the board. Notices of special
meetings shall be given to each member of the board not less than twenty-four
hours before the time at which each such meeting is to convene. Such notices may
be given by telephone or by any other form of written or verbal communication.
It shall not be necessary that notices of special meetings state the purposes or
the objects of the meetings, and any business which may come before any duly
called and convened special meeting of the board may be transacted at such
meeting.
The members of the board of directors, before or after any meeting of the
board, may waive notice thereof and, if all members of the board be present in
person at any meeting or waive notice of the meeting, the fact that proper
notice of the meeting was not given shall not in any way affect the validity of
the meeting or the business transacted at the meeting.
SECTION 4.5 Committees Appointed by the Board.
A majority of the whole board may from time to time appoint (a) committees
of the board, the membership of which shall consist entirely of board members
and (b) other committees, the membership of which may be either a mixture of
board and non-board members or entirely non-members of the board. All committees
so appointed shall elect a chairman and keep regular minutes of their meetings
and transactions and such minutes shall be accessible to all members of the
board at all reasonable times.
No such committee shall have the power or authority to amend the
Certificate of Incorporation (except that a committee may, to the extent
authorized in a resolution of the board of directors providing for the issuance
of shares of stock, fix the designations and any of the preferences or rights of
such shares relating to dividends, redemption, dissolution, any distribution of
assets of the corporation or the conversion into, or the exchange of such shares
for, shares of any other class or classes or any other series of the same or any
other class or classes of stock of the corporation or fix the number of shares
of any series of stock or authorize the increase or decrease of the shares of
any series); to adopt an agreement of merger or consolidation; to recommend to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets; to recommend to the stockholders a
dissolution of the corporation or a revocation of a dissolution; to amend the
By-Laws of the corporation; or, unless a resolution of the board of directors,
the By-Laws or the Certificate of Incorporation expressly so provides, to
declare a dividend or authorize the issuance of stock.
SECTION 4.6 Meetings of Committees Appointed by the Board.
Meetings of any committee appointed by the Board shall be called
by the secretary or any assistant secretary of the corporation (or, in the case
of committees appointed by the board whose membership does not consist
exclusively of board members, by such employee of the corporation as has been
designated pursuant to By-Law 5.7 to record the votes and the minutes of such
committee) upon the request of the chairman of the committee, the chairman of
the Board, the chief executive officer of the corporation, or any two members of
the committee. Notice of each such meeting shall be given in the same manner
specified in Section 4.4 for special meetings of the board of directors.
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SECTION 4.7 Quorum and Voting.
A majority of the members of the board of directors or of any committee
appointed by the board shall be present at any meeting of the board or such
committee in order to constitute a quorum, and a majority of the members present
at any duly constituted meeting of the board or such committee may decide any
question which properly may come before the meeting, unless a different vote is
specifically required by these By-Laws, the Certificate of Incorporation or
applicable law.
SECTION 4.8 Meeting by Conference Telephone.
Members of the board of directors or any committee appointed by the board
may participate in a meeting by means of conference telephone or similar
communications equipment whereby all persons participating in the meeting can
hear each other, and participation in such meeting in such manner shall
constitute presence in person at such meeting.
Notwithstanding the notice provisions of Sections 4.3, 4.4 and 4.6 above,
participation in a meeting by means of conference telephone by a member of the
board of directors or a committee appointed by the board shall constitute waiver
of notice of the meeting by such director.
SECTION 4.9 Action Without Meeting.
Any action required or permitted to be taken at any meeting of the board of
directors or any committee appointed by the board may be taken without a meeting
if all of the directors or all of the members of such a committee, as the case
may be, consent thereto in writing and the writing or writings are filed with
the minutes of proceedings of the board of directors or of such committee.
SECTION 4.10 Compensation.
A director shall receive such reasonable compensation for his services as a
director or as a member of a committee appointed by the board of directors
(including service as chairman of the board or as chairman of a committee of the
board) as may be fixed from time to time by the board of directors and shall be
reimbursed for his reasonable expenses, if any, in attending any meeting of the
board of directors or such a committee. A director shall not be barred from also
serving the corporation in any other capacity and receiving reasonable
compensation therefor.
ARTICLE V.
OFFICERS
SECTION 5.1 Election, Qualification, Tenure and Compensation.
The officers of the corporation shall be elected by the board of
directors and shall include a president, one or more vice presidents (one or
more of whom may be designated as an executive vice president or senior vice
president), a secretary, a comptroller, a treasurer and such other officers,
including a vice chairman, as from time to time the board of directors shall
deem necessary or desirable. At the discretion of the board, the chairman of the
board may also be elected under the same title as an officer of the corporation.
The chairman of the board and president (and the vice chairman, if any)
shall be, and the other officers may be but need not be, members of the board of
directors and stockholders.
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Unless otherwise provided by the board of directors, each officer shall
hold office from the time of his election until his successor shall have been
elected and qualified, provided, however (except as otherwise provided in a
contract duly authorized by the board of directors), any officer may be removed
from office by the board of directors at any time, with or without cause, and
any officer may resign at any time upon written notice to the corporation. Any
two offices may be united in any one person, provided that no person shall act
in more than one capacity in any one transaction.
The compensation of all officers shall be fixed and determined by the board
of directors or pursuant to its delegated authority.
From time to time the board of directors, or its delegates, may appoint
such other agents, for such terms and with such rights, powers and authorities,
on such conditions, subject to such limitations and restrictions and at such
compensation as shall seem right and proper to it or them, and any such agent
may be removed from office by the board of directors or its delegates at any
time, with or without cause.
SECTION 5.2 Chief Executive Officer.
From time to time the board of directors shall designate by resolution
either the chairman of the board, if elected as an officer of the corporation,
or the president to act as the chief executive officer of the corporation. The
chief executive officer shall have responsibility for the active and general
management of the corporation and such authorities and duties as are usually
incident to the office of chief executive officer and as from time to time shall
be specified by the board of directors. He shall prescribe the duties of all
subordinate officers, agents and employees of the company to the extent not
otherwise prescribed by the Certificate of Incorporation, the By-Laws or the
board of directors. Such designation shall continue in full force and effect
until modified or rescinded by further resolution of the board.
SECTION 5.3 Chairman of the Board.
The chairman of the board shall preside over all meetings of the board of
directors and the stockholders of the corporation. He shall have such other
authorities and duties as are usually incident to the office of chairman of the
board and as from time to time shall be specifically directed by the board of
directors. Except where by law the signature of the president is required, the
chairman of the board shall possess the same power as the president to sign all
certificates, contracts and other instruments of the corporation which may be
authorized by the board of directors. During the absence or disability of the
president, if the chairman has been elected as an officer of the corporation he
shall exercise all of the powers and discharge all of the duties of the
president. If the chairman has not been elected as an officer of the
corporation, then the provisions of Section 5.6 shall apply.
SECTION 5.4 President.
Subject to the powers and duties hereinbefore delegated to the chairman of
the board, and to the powers and duties hereinbefore delegated to the chief
executive officer if the chairman of the board is designated by the board of
directors to act as chief executive officer, the president shall direct the
operations of the company. He shall have such other authorities and duties as
are usually incident to the office of president and as, from time to time, shall
be specifically directed by the board of directors. During the absence or
disability of the chairman, the president shall exercise all of the powers and
discharge all of the duties of the chairman.
12
<PAGE>
SECTION 5.5 Vice Chairman of the Board.
The vice chairman of the board, if any, who shall be an officer of the
corporation, shall have such specific powers, duties and authority, and shall
perform such administrative and executive duties as, from time to time, may be
assigned by the board of directors, or the chief executive officer.
SECTION 5.6 Absence or Disability of Chairman and President.
In the absence or disability of both the chairman of the board if
he has been elected an officer of the corporation, and the president, or in the
absence or disability of the president if the chairman has not been elected as
an officer of the corporation, the vice chairman, if any, or if there is no vice
chairman, an officer previously designated in writing by the chief executive
officer or, in the absence of such designation, an officer designated by the
board of directors, shall exercise all of the powers and discharge all of the
duties of the said officer or officers until one or both return to active duty
or until the board of directors authorizes another person or persons to act in
their capacities.
SECTION 5.7 Secretary.
The secretary or an assistant secretary shall record the votes and the
minutes, in books to be kept for that purpose, of all meetings of the
stockholders, of the board of directors, and of those committees of the board of
directors whose membership is confined to members of the board, provided,
however, that in the absence of the secretary and the assistant secretaries the
chairman of any such meeting may designate another officer of the company to act
as secretary of that meeting. Any employee of the corporation may be designated
by committees which are appointed by the board, but whose membership is not
confined to members of the board, to record the votes and minutes of the
proceedings of such committees in books to be kept for that purpose. The
secretary or an assistant secretary shall give or cause to be given, notice of
all meetings of the stockholders, the board of directors and committees of the
board of directors. The secretary and assistant secretaries shall keep in safe
custody the seal of the corporation and shall affix the same to any instrument
requiring it and, when required, it shall be attested by his signature or by the
signature of an assistant secretary. In the absence or disability of the
secretary and all assistant secretaries, the seal may be affixed and the
instrument attested by any vice president. The secretary also shall perform such
other duties as may be assigned to him by the board of directors, or the chief
executive officer.
SECTION 5.8 Assistant Secretaries.
In the absence or disability of the secretary, an assistant secretary, if
specifically designated and directed by the chairman of the board or the
president, shall perform the prescribed duties and functions of the secretary.
The assistant secretaries also shall have such specific powers and authorities
and shall perform such other duties and functions as from time to time may be
assigned by the board of directors, or the chief executive officer.
SECTION 5.9 Comptroller.
The comptroller shall cause to be kept full and accurate books and accounts
of all assets, liabilities and transactions of the corporation. The comptroller
shall establish and administer an adequate plan for the control of operations,
including systems and procedures required to properly maintain internal controls
on all financial transactions of the corporation. The comptroller shall prepare,
or cause to be prepared, statements of the financial condition of the
13
<PAGE>
corporation and proper profit and loss statements covering the operations of the
corporation and such other and additional financial statements, if any, as the
chief executive officer or the board of directors from time to time shall
require. The comptroller also shall perform such other duties as may be assigned
to him by the board of directors, or the chief executive officer.
SECTION 5.10 Treasurer.
The treasurer shall be responsible for the custody and care of all the
funds and securities of the corporation and shall cause to be kept full and
accurate books and records of account of all receipts and disbursements of the
corporation. The treasurer shall cause all money and other valuable effects of
the corporation to be deposited in the name and to the credit of the corporation
in such depositories as shall be designated from time to time by the board of
directors. He shall disburse the funds of the corporation as may be ordered by
the board of directors, or the chief executive officer. The treasurer also shall
perform such other duties as may be assigned to him by the board of directors,
or the chief executive officer.
SECTION 5.11 Assistant Treasurers.
In the absence or disability of the treasurer, an assistant treasurer, if
any, or any other officer of the corporation, if specifically designated and
directed by the chairman of the board or the president, shall perform the
prescribed duties and functions of the treasurer. Any such assistant treasurer
also shall have such specific powers and authorities and shall perform such
other duties and functions as from time to time shall be assigned by the board
of directors, or the chief executive officer of the corporation.
SECTION 5.12 Bonds.
Any officer or agent of the corporation shall furnish to the corporation
such bond or bonds, with security for the faithful performance of his duties, as
from time to time may be required by the board of directors.
ARTICLE VI.
CORPORATE SEAL
SECTION 6.1 Corporate Seal.
The corporate seal shall have inscribed thereon the name of the
corporation, the word "SEAL" and the word "Delaware". Said seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
ARTICLE VII.
FISCAL YEAR
SECTION 7.1 Fiscal Year.
The fiscal year of the corporation shall commence on the first day of July
of each year and shall end on the thirtieth day of June of the next following
year.
14
<PAGE>
ARTICLE VIII.
DIVIDENDS
SECTION 8.1 $3 Par Value Common Stock.
Dividends may be paid on the $3 par value common stock of the corporation
in such amounts and at such times as the board of directors shall
determine.
SECTION 8.2 Record Date for Payment of Dividends.
It shall not be necessary to close the stock transfer books of the
corporation for the purpose of determining the stockholders entitled to receive
payment of any dividend on the stock of the corporation; but in lieu of closing
the stock transfer books, and for all purposes that might be served by closing
the stock transfer books, the board of directors, in declaring any dividend on
the common stock, shall fix either the date on which the dividend is declared or
a date between that date and the date on which the dividend is to be paid as the
record date for determining stockholders entitled to receive payment of said
dividend; and the corporation and its transfer agents may continue to receive
and record transfers of stock after the record date so fixed and determined but,
in any such case, such stockholders and only such stockholders as shall have
been stockholders of record at the close of business on the record date so fixed
and determined by the board of directors shall be entitled to receive payment of
said dividend, notwithstanding any transfer of any stock which may have been
made on the books of the corporation or its transfer agents after said record
date.
ARTICLE IX.
FINANCIAL TRANSACTIONS AND EXECUTION OF
INSTRUMENTS IN WRITING
SECTION 9.1 Depositories.
The funds and securities of the corporation shall be deposited, in the name
of and to the credit of the corporation, in such banks, trust companies and
other financial institutions as shall from time to time be determined and
designated by the board of directors or its delegate.
SECTION 9.2 Withdrawals and Payments.
All checks and orders for the withdrawal or payment of funds of the
corporation, shall be signed in the name of the corporation in such manner and
form and by such officer, officers or other employees as from time to time may
be authorized and provided by the board of directors or its delegate. Facsimile
signatures may be used when authorized by the board or its delegate.
It shall be the duty of the secretary, an assistant secretary or the
corporation's official in charge of internal auditing to certify to the
designated depositories of the funds and securities of the corporation the names
and signatures of the officers and other employees of the corporation who, from
time to time, are authorized to sign checks, drafts or orders for the withdrawal
of funds and/or securities. No check, drafts or order for the withdrawal or
payment of funds of the corporation shall be signed in blank.
15
<PAGE>
SECTION 9.3 Evidence of Indebtedness and Instruments Under Seal.
Unless otherwise authorized by the board of directors, all notes,
bonds, and other evidences of indebtedness of the corporation, and all deeds,
indentures, contracts and other instruments in writing required to be executed
under the seal of the corporation, shall be signed in the name and on behalf of
the corporation by the chairman of the board, the president, the vice chairman,
if any, or a vice president of the corporation and shall be attested by the
secretary or an assistant secretary.
ARTICLE X.
BOOKS AND RECORDS
SECTION 10.1 Location.
The books, accounts and records of the corporation, except as may be
otherwise required by the laws of the State of Delaware, may be kept outside of
the State of Delaware, at such place or places as the board of directors may
from time to time appoint.
SECTION 10.2 Inspection.
Except as otherwise required by law, the board of directors or its delegate
shall determine whether and to what extent the books, accounts and records of
the corporation, or any of them other than the stock books, shall be open to the
inspection of the stockholders.
ARTICLE XI.
TRANSACTIONS WITH OFFICERS AND DIRECTORS
SECTION 11.1 Validation.
Contracts and all other transactions, including but not limited to
purchases and sales, by and between this corporation and one or more of its
officers or directors, or by and between this corporation and any firm,
partnership, association or corporation of which one or more of the officers or
directors of this corporation shall be members, partners, officers or directors
or in which one or more of the officers or directors of this corporation shall
be interested, shall be valid, binding and enforceable, and shall not be
voidable by this corporation or its stockholders notwithstanding the
participation of any such interested director in any meeting of the board of
directors of this corporation at which such contract or other transaction shall
be considered, acted upon or authorized, and notwithstanding the participation
of any such interested officer or director in the making or performance of such
contract or transaction, if the material facts of such interest shall be
disclosed to or be known by the members of the board of directors of this
corporation who shall be present at the meeting of said board at which such
contract or transaction, and such participation therein, shall be authorized or
approved and if the board in good faith authorizes the contract or transaction
by the affirmative votes of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum.
16
<PAGE>
ARTICLE XII.
AMENDMENT, REPEAL OR ALTERATION
SECTION 12.1 Amendment, Repeal or Alteration.
These By-Laws may be amended, repealed or altered, in whole or in part, by
a majority of the valid votes cast at any duly convened regular annual meeting
of the stockholders or at any duly convened special meeting of stockholders when
such object shall have been announced in the call and notice of the meeting.
These By-Laws also may be amended, repealed or altered by vote of a majority of
the whole board of directors at any duly convened meeting of the board of
directors; provided, however, that any such action of the board of directors may
be repealed by the stockholders. The repeal of any such action of the board of
directors by the stockholders, however, shall not invalidate or in anywise
affect the validity of any act or thing done in reliance upon said action of the
board of directors.
EMERGENCY BY-LAWS
Adopted October 27, 1967
Subject to repeal or change by the stockholders, and notwithstanding any
different provision contained in the Delaware Corporation Law or in the
Certificate of Incorporation or By-Laws of this corporation, the following
emergency by-laws shall be operative in any emergency arising from an attack on
the United States or on a locality in which the corporation conducts its
business or customarily holds meetings of its board of directors or
stockholders, or during any atomic or nuclear disaster or during the existence
of any catastrophe or other similar emergency condition as a result of which a
quorum of the board of directors cannot readily be convened for action.
1. In the event of emergency or disaster as described above, an
emergency board of directors shall forthwith assume direction and control
of the affairs of the corporation.
2. Such emergency board of directors shall consist of all living
directors, and meetings of the emergency board may be called by the
chairman of the board, the president, the vice chairman or the secretary
or, in the event of the death or inability of any of the four to act, by
any surviving director with the capacity and ability to act.
3. To the extent possible, notice of emergency board meetings shall be
given in each instance to each known living member of the board at his last
known business address, either orally or in writing delivered personally or
by mail, telegraph, telephone or radio, or by publication; provided
however, that if notice by such means is impossible insofar as specific
individual directors are concerned, then the person calling the meeting
shall give such directors such notice as is reasonably possible under the
circumstances.
4. At any properly called meeting of the emergency board a quorum shall
not be necessary, and the acts of a majority of the members of the
emergency board present shall be and shall constitute the acts of the
emergency board.
5. During its existence, the emergency board shall have the following
powers:
(a) To appoint officers and agents of the corporation and to determine
their compensation and duties;
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(b) To borrow money and to issue bonds, notes or other obligations and
evidence of indebtedness therefor;
(c) To determine questions of general policy with respect to the business
of the corporation;
(d) To call stockholders' meetings; and
(e) To take all actions and to do all things necessary to preserve the
corporation as an operating entity, and to direct and control its affairs
and operations, until the regular board of directors has been
reconstituted, either by the passage of time, by action of the
stockholders, or otherwise in accordance with law.
6. No officer, director or employee acting in accordance with these
emergency by-laws shall be liable to the corporation or its stockholders
with respect to action taken under power granted herein except for willful
misconduct.
7. As soon as reasonably possible following the creation of an
emergency board of directors, if it appears clear that such action is
required because of the number of directors killed or indefinitely
incapacitated, the emergency board shall call a regular or special meeting
of the stockholders of the corporation for the election of a new board of
directors, or otherwise to reconstitute the board, and upon the election
and qualification or reconstitution of such board, the emergency board
established pursuant to these emergency by-laws shall cease and terminate
and the direction and control of the affairs of the corporation shall vest
in such new or reconstituted board of directors.
8. To the extent not inconsistent with these emergency by-laws, the
regular by-laws of the corporation shall remain in effect during the
emergency.
18
<PAGE>
Exhibit 4.5
DELTA AIR LINES, INC.,
Company
and
THE BANK OF NEW YORK,
Trustee
THIRD SUPPLEMENTAL INDENTURE
Dated as of August 10 , 1998
<PAGE>
THIS THIRD SUPPLEMENTAL INDENTURE (the "Supplemental Indenture"), is
made as of August 10, 1998 between Delta Air Lines, Inc., a Delaware corporation
(the "Company"), and The Bank of New York, a New York banking organization, as
successor trustee (the "Trustee") to The Citizens and Southern National Bank of
Florida.
RECITALS
WHEREAS, the Company executed and delivered an Indenture dated as of
March 1, 1983, supplemented as of January 27, 1986 and further supplemented as
of May 26, 1989 (the "Indenture") by and between the Company and The Citizens
and Southern National Bank of Florida, as predecessor trustee to the Trustee,
under which are issued $102,455,000 aggregate principal amount of 9% Debentures
due May 15, 2016 (the "Securities");
WHEREAS, the Company desires to execute and deliver a further amendment
to the Indenture for the purpose of eliminating certain of the restrictive
covenants contained in the Indenture;
WHEREAS, Section 902 of the Indenture provides that the Indenture may
be amended, subject to certain exceptions specified in such Section 902, with
the consent of the holders of two-thirds in aggregate principal amount of the
Securities at the time outstanding (the "Requisite Consents");
WHEREAS, the Company has obtained and delivered to the Trustee the
Requisite Consents to amend the Indenture as set forth in Article 1 of this
Supplemental Indenture (the "Proposed Amendment");
WHEREAS, all other conditions and requirements necessary to make this
Supplemental Indenture a valid and binding instrument in accordance with its
terms and the terms of the Indenture have been satisfied.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the Company and the Trustee hereby covenant and
agree, for the equal and proportionate benefit of all holders from time to time
of the Securities as follows:
All capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Indenture.
ARTICLE 1
AMENDMENTS TO CERTAIN PROVISIONS OF INDENTURE
SECTION 1.1. Amendment of Certain Provisions of the Indenture. The
<PAGE>
Indenture is hereby amended in the following respects:
The Section headings and the text of each of Sections 1007 and 1008,
and all references thereto, are hereby deleted in their entirety and replaced
with the following:
"[Intentionally Deleted by Amendment]".
ARTICLE 2
SUNDRY PROVISIONS
SECTION 2.1. Effect of Supplemental Indenture. Upon the execution and
delivery of this Supplemental Indenture by the Company and the Trustee, the
Indenture shall be modified in accordance herewith, and this Supplemental
Indenture shall form a part of the Indenture for all purposes; and every Holder
of Securities heretofore or hereafter authenticated and delivered under the
Indenture shall be bound thereby. Upon the execution of this Supplemental
Indenture, the Proposed Amendment shall automatically take effect without the
requirement of any further action by or notice to the Company.
SECTION 2.2. Indenture Remains in Full Force and Effect. Except as
supplemented hereby, all provisions in the Indenture shall remain in full force
and effect.
SECTION 2.3. Indenture and Supplemental Indenture Construed Together.
This Supplemental Indenture is an indenture supplemental to and in
implementation of the Indenture, and the Indenture and this Supplemental
Indenture shall henceforth be read and construed together.
SECTION 2.4. Confirmation and Preservation of Indenture. The Indenture
as supplemented by this Supplemental Indenture is in all respects confirmed and
preserved.
SECTION 2.5. Conflict with Trust Indenture Act. If any provision of
this Supplemental Indenture limits, qualifies or conflicts with another
provision hereof which is required to be included in this Supplemental Indenture
by any of the provisions of the Trust Indenture Act, such required provision
shall control.
SECTION 2.6. Certain Duties and Responsibilities of the Trustee. In
entering into this Supplemental Indenture, the Trustee shall be entitled to the
benefit of every provision of the Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee, whether or not
elsewhere herein
2
<PAGE>
so provided. The Trustee, for itself and its successor or successors, accepts
the terms of the Indenture as amended by this Supplemental Indenture, and agrees
to perform the same, but only upon the terms and conditions set forth in the
Indenture, including the terms and provisions defining and limiting the
liabilities and responsibilities of the Trustee, which terms and provisions
shall in like manner define and limit its liabilities and responsibilities in
the performance of the trust created by the Indenture. The Trustee makes no
representations as to the validity or sufficiency of this Supplemental Indenture
other than as to the validity of its execution and delivery by the Trustee.
SECTION 2.7. Effect of Headings. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
SECTION 2.8. Successors and Assigns. All covenants and agreements in
this Supplemental Indenture by the Company shall bind its successors and
assigns, whether so expressed or not.
SECTION 2.9. Separability Clause. In case any provision in this
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 2.10. Benefits of Supplemental Indenture. Nothing in this
Supplemental Indenture, the Indenture or the Securities, express or implied,
shall give to any Person, other than the parties hereto and their successors
hereunder and the Holders, any benefit or any legal or equitable right, remedy
or claim under this Supplemental Indenture.
SECTION 2.11. Governing Law. This Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of New York.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
DELTA AIR LINES, INC.
By: /s/ Edward H. West
---------------------------------------
Name: Edward H. West
Title: Vice President - Financial
Planning & Analysis
THE BANK OF NEW YORK
as Trustee
By: /s/ Heidi Van Horn-Bash
---------------------------------------
Name: Heidi Van Horn-Bash
Title: Agent
4
<PAGE>
Exhibit 4.7
DELTA AIR LINES, INC.,
Company
and
THE BANK OF NEW YORK,
Trustee
FIRST SUPPLEMENTAL INDENTURE
Dated as of August 10 , 1998
<PAGE>
THIS FIRST SUPPLEMENTAL INDENTURE (the "Supplemental Indenture"), is
made as of August 10, 1998 between Delta Air Lines, Inc., a Delaware corporation
(the "Company"), and The Bank of New York, a New York banking organization, as
successor trustee (the "Trustee") to The Citizens and Southern National Bank of
Florida.
RECITALS
WHEREAS, the Company executed and delivered an Indenture dated as of
April 30, 1990 (the "Indenture") by and between the Company and The Citizens and
Southern National Bank of Florida, as predecessor trustee to the Trustee, under
which are issued $142,205,000 aggregate principal amount of 9 7/8% Notes due May
15, 2000, $113,000,000 aggregate principal amount of 10 1/8% Debentures due May
15, 2010, and $175,564,000 aggregate principal amount of 10 3/8% Debentures due
February 1, 2011 (the "Securities");
WHEREAS, the Company desires to execute and deliver an amendment to the
Indenture for the purpose of eliminating certain of the restrictive covenants
contained in the Indenture;
WHEREAS, Section 9.2 of the Indenture provides that the Indenture may
be amended, subject to certain exceptions specified in such Section 9.2, with
the consent of the holders of a majority in aggregate principal amount of the
Securities at the time outstanding (the "Requisite Consents");
WHEREAS, the Company has obtained and delivered to the Trustee the
Requisite Consents to amend the Indenture as set forth in Article 1 of this
Supplemental Indenture (the "Proposed Amendment");
WHEREAS, all other conditions and requirements necessary to make this
Supplemental Indenture a valid and binding instrument in accordance with its
terms and the terms of the Indenture have been satisfied.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the Company and the Trustee hereby covenant and
agree, for the equal and proportionate benefit of all holders from time to time
of the Securities as follows:
All capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Indenture.
<PAGE>
ARTICLE 1
AMENDMENTS TO CERTAIN PROVISIONS OF INDENTURE
SECTION 1.1. Amendment of Certain Provisions of the Indenture. The
Indenture is hereby amended in the following respects:
The Section headings and the text of each of Sections 10.5 and 10.6,
and all references thereto, are hereby deleted in their entirety and replaced
with the following:
"[Intentionally Deleted by Amendment]".
ARTICLE 2
SUNDRY PROVISIONS
SECTION 2.1. Effect of Supplemental Indenture. Upon the execution and
delivery of this Supplemental Indenture by the Company and the Trustee, the
Indenture shall be modified in accordance herewith, and this Supplemental
Indenture shall form a part of the Indenture for all purposes; and every Holder
of Securities heretofore or hereafter authenticated and delivered under the
Indenture and any coupons appertaining thereto shall be bound thereby. Upon the
execution of this Supplemental Indenture, the Proposed Amendment shall
automatically take effect without the requirement of any further action by or
notice to the Company.
SECTION 2.2. Indenture Remains in Full Force and Effect. Except as
supplemented hereby, all provisions in the Indenture shall remain in full force
and effect.
SECTION 2.3. Indenture and Supplemental Indenture Construed Together.
This Supplemental Indenture is an indenture supplemental to and in
implementation of the Indenture, and the Indenture and this Supplemental
Indenture shall henceforth be read and construed together.
SECTION 2.4. Confirmation and Preservation of Indenture. The Indenture
as supplemented by this Supplemental Indenture is in all respects confirmed and
preserved.
SECTION 2.5. Conflict with Trust Indenture Act. If any provision of
this Supplemental Indenture limits, qualifies or conflicts with another
provision hereof which is required to be included in this Supplemental Indenture
by any of the
2
<PAGE>
provisions of the Trust Indenture Act, such required provision shall control.
SECTION 2.6. Certain Duties and Responsibilities of the Trustee. In
entering into this Supplemental Indenture, the Trustee shall be entitled to the
benefit of every provision of the Indenture relating to the conduct or affecting
the liability of or affording protection to the Trustee, whether or not
elsewhere herein so provided. The Trustee, for itself and its successor or
successors, accepts the terms of the Indenture as amended by this Supplemental
Indenture, and agrees to perform the same, but only upon the terms and
conditions set forth in the Indenture, including the terms and provisions
defining and limiting the liabilities and responsibilities of the Trustee, which
terms and provisions shall in like manner define and limit its liabilities and
responsibilities in the performance of the trust created by the Indenture. The
Trustee makes no representations as to the validity or sufficiency of this
Supplemental Indenture other than as to the validity of its execution and
delivery by the Trustee.
SECTION 2.7. Effect of Headings. The Article and Section headings
herein are for convenience only and shall not affect the construction hereof.
SECTION 2.8. Successors and Assigns. All covenants and agreements in
this Supplemental Indenture by the Company shall bind its successors and
assigns, whether so expressed or not.
SECTION 2.9. Separability Clause. In case any provision in this
Supplemental Indenture shall be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
SECTION 2.10. Benefits of Supplemental Indenture. Nothing in this
Supplemental Indenture, the Indenture, the Securities or the coupons, express or
implied, shall give to any Person, other than the parties hereto, their
successors hereunder and the Holders of Securities and coupons, any benefit or
any legal or equitable right, remedy or claim under this Supplemental Indenture.
SECTION 2.11. Governing Law. This Supplemental Indenture shall be
governed by and construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed of the date first above written.
3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed of the date first above written.
DELTA AIR LINES, INC.
By: /s/ Edward H. West
---------------------------------------
Name: Edward H. West
Title: Vice President - Financial
Planning & Analysis
THE BANK OF NEW YORK
as Trustee
By: /s/ Heidi Van Horn-Bash
---------------------------------------
Name: Heidi Van Horn-Bash
Title: Agent
4
<PAGE>
Exhibit 10.17
FORM OF SENIOR OFFICER EXCESS BENEFIT AGREEMENT
THIS EXCESS BENEFIT AGREEMENT ("Agreement") is made and entered into as
of the ___ day of ___, 19__, by and between DELTA AIR LINES, INC. (hereinafter
the "Company") and_________, (hereinafter "Key Employee"):
W I T N E S S E T H :
WHEREAS, the Company has implemented the 1991 Delta Excess Benefit
Plan, and the Delta Supplemental Excess Benefit Plan, both as amended
(collectively referred to as the "Plans"), and has entered into an Executive
Retention Protection Agreement with Key Employee; and
WHEREAS, Key Employee has been deemed to be a participant in the Plans
in accordance with their terms; and
WHEREAS, Key Employee has rendered valuable service to the Company in
various executive capacities and the Company believes it is in the best interest
of the Company in seeking to assure itself of Key Employee's continued best
efforts in the future to provide for the payment of full retirement and other
benefits to the Key Employee; and
WHEREAS, various sections of the Internal Revenue Code of 1986 (the
"Code"), including, but not limited to, Sections 79, 401(a)(4), 401(a)(17), 415,
and 505(b) restrict either: (i) compensation that may be taken into account in
determining benefits under a qualified pension plan; (ii) benefits that can be
paid from qualified pension plans; (iii) compensation that may be taken into
account in determining benefits for participants in a Voluntary Employee
Beneficiary Association ("VEBA") described in Section 501(c)(9) of the Code; or
(iv) restrict benefits that can be paid from a VEBA (such limitations
collectively or individually hereinafter referred to as the "Restrictions"); and
WHEREAS, the Company wishes to make up under nonqualified excess
benefit plans and/or this Agreement any reduction in Key Employee's monthly
retirement income benefit, disability or survivor benefits under either the
Delta Family-Care Retirement Plan (the "Retirement Plan") or the Delta
Family-Care Disability and Survivorship Plan (the "Disability and Survivorship
Plan") which results from the Restrictions, or any other applicable laws,
statutes, or regulations which restrict in any way the benefits that can be paid
from a VEBA or qualified pension plan; and
WHEREAS, the Board of Directors of the Company has authorized
post-retirement life insurance benefits for senior officers in excess of the
coverage provided to other employees of the Company through the Basic Lump Sum
Death Benefit under the Disability and Survivorship Plan; and
<PAGE>
WHEREAS, certain restrictions imposed by the Tax Equity and Fiscal
Responsibility Act of 1982 ("TEFRA") prohibit the Company from providing
post-retirement life insurance benefits to officers in excess of that provided
to other employees of the Company; and
WHEREAS, the Company wishes to make up any such loss of group life
insurance coverage for Key Employee which cannot be provided because of the
TEFRA restrictions;
NOW, THEREFORE, the parties hereby agree as follows:
1. Certain Requirements Not Applicable. The parties specifically
acknowledge that this Agreement and Key Employee's participation in the Delta
Supplemental Excess Benefit Plan is exempt from certain provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA") including, but not
limited to, parts 2, 3 and 4 of Subtitle B of Title 1 of ERISA and is also
subject to limited reporting and disclosure requirements of part 1 of Subtitle B
of Title 1 of ERISA. The parties further acknowledge that the 1991 Delta Excess
Benefit Plan is an "excess benefit plan" as defined in section 3(36) of ERISA
and is unfunded and not subject to any provision of ERISA.
2. Incorporation of the Retirement Plan and the Disability and
Survivorship Plan. The terms of the Retirement Plan and the Disability and
Survivorship Plan are hereby incorporated into this Agreement by reference,
except that changes in those plans which reduce benefits (except such changes as
may be required by law) shall be incorporated as to Key Employee only if advance
notice of such proposed reduction is given to the Key Employee and the Key
Employee agrees to an amendment of this Agreement to incorporate the benefit
reduction. The incorporation of the Retirement Plan and the Disability and
Survivorship Plan is not intended to modify any provision of this Agreement, and
the benefits provided hereunder shall be governed only by the provisions hereof
and the Plans. Unless indicated otherwise, capitalized terms used in this
Agreement shall have the meaning given those terms in the Retirement Plan and
Disability and Survivorship Plan.
3. Supplemental Retirement Income. Subject to Sections 8 and 18, the
Company agrees to pay Key Employee, or, in the event of Key Employee's death,
Key Employee's Spouse, at the time and in the manner set forth below,
supplemental retirement income ("Supplemental Retirement Income") equal to (a)
minus (b) where
(a) equals the Early, Normal or Deferred Retirement
income benefit or deferred vested pension benefit
(whichever is appropriate) which Key Employee would
receive or survivor benefit to which his spouse would
receive under the Retirement Plan beginning on the
Benefit Commencement Date (as defined below) if the
Restrictions as reflected in the Retirement Plan and
the Code were not in effect;
2
<PAGE>
(b) equals the Early, Normal or Deferred Retirement
benefit, or deferred vested pension benefit
(whichever is appropriate) which Key Employee
actually receives or survivor benefit which his
Spouse actually receives under the Retirement Plan
beginning on the Benefit Commencement Date;
(c) For purposes of determining benefits under (a) and
(b) above, any Qualified Domestic Relations Order
(QDRO) will be taken into account, such that the
benefits payable hereunder will not exceed those
which would be payable absent the QDRO.
Except as provided in the next sentence, for purposes of calculating the
Supplemental Retirement Income, Key Employee shall be credited with an
additional 11 years of service for vesting and benefit accrual purposes under
the Retirement Plan (the "Additional Service Credit"). The Additional Service
Credit shall not apply if prior to March 23, 2001 either (i) Key Employee's
employment with the Company is terminated for Cause; or (ii) Key Employee
terminates employment with the Company without Good Reason. For purposes of this
paragraph, "Cause" and "Good Reason" shall have the same meaning as ascribed to
those terms in Exhibit C attached to the March 23, 1998 letter to Key Employee
from Leo Mullin.
The amount of Supplemental Retirement Income paid under this Agreement will be
adjusted when and if the amount in (b) above increases or decreases as a result
of a change in the Restrictions, including cost of living adjustments to such
Restrictions.
4. Supplemental Disability Income. Subject to Sections 8 and 18, the
Company agrees to pay Key Employee at the time set forth below a supplemental
monthly disability income ("Supplemental Disability Income") equal to (a) minus
(b), where
(a) equals the monthly disability benefit which the Key
Employee would receive under the Disability and
Survivorship Plan beginning on the Benefit
Commencement Date (as defined below) if the
Restrictions were not in effect and taking into
account his or her elections under the Delta Air
Lines, Inc. DELTAFLEX Plan; and
(b) equals the monthly disability benefit which the Key
Employee actually receives from the Disability and
Survivorship Plan beginning on the Benefit
Commencement Date, taking into account his or her
elections under the Delta Air Lines, Inc. DELTAFLEX
Plan.
The amount of Supplemental Disability Income paid under this Agreement will be
adjusted as permitted under the Plan, and if the amount in (b) above increases
or decreases as a result of a change in the Restrictions.
3
<PAGE>
5. Supplemental Monthly Survivor Income. Subject to Sections 8 and 18,
the Company agrees to pay to Eligible Family Member(s) (as defined in the
Disability and Survivorship Plan) of Key Employee at Key Employee's death a
supplemental monthly survivor income ("Supplemental Survivor Income") equal to
(a) minus (b), where
(a) equals the monthly survivor benefit which the
Eligible Family Member (s) of Key Employee would
receive under the Disability and Survivorship Plan
beginning on the Benefit Commencement Date (as
defined below) without considering any Restrictions
on any benefit plan; and
(b) equals the monthly survivor benefit which the
Eligible Family Member(s) of Key Employee actually
receives under the terms of the Disability and
Survivorship Plan.
The amount of Supplemental Survivor Income paid under this Agreement will be
adjusted as permitted under the Plan and the Code to account for, inter alia,
changes in the number of Eligible Family Members.
6. Benefit Commencement Date; Cessation of Benefits. Subject to Section
18 (Change In Control), the Company shall commence payment of the Supplemental
Retirement Income as of the Benefit Commencement Date under the Retirement Plan
and the Supplemental Disability or Survivor Income as of the Benefit
Commencement Date under the Disability and Survivorship Plan. Subject to Section
18, Benefit Commencement Date under this Agreement shall mean the day that the
retirement income benefit, disability benefit or survivor benefit, as the case
may be, commences under the Retirement Plan or Disability and Survivorship Plan
with respect to Key Employee or his Spouse, or Eligible Family Member(s);
Supplemental Retirement Income will cease upon the death of the last to die of
Key Employee or, if applicable, his Spouse, or if changes in the Restrictions
permit the full benefit due under the Retirement Plan to be paid from the
Retirement Plan and the Retirement Plan assumes such full payment, or if full
payment of retirement benefits due hereunder have already been made.
Supplemental Disability Income will cease if the full benefit due under the
Disability and Survivorship Plan may be paid from that Plan and the Disability
and Survivorship Plan assumes such full payment or when the Key Employee is no
longer eligible for disability benefits under that Plan. Supplemental Survivor
Income will cease if the full benefit due under the Disability and Survivorship
Plan may be paid from that plan, and the Disability and Survivorship Plan
assumes full payment of the benefit amount or when there are no remaining
Eligible Family Member(s) under that Plan. Subject to Section 18, all benefits
payable hereunder may cease pursuant to Section 8 at any time.
7. Supplemental Lump Sum Death Benefit. Subject to Sections 8 and 18,
the Company agrees to pay to the named beneficiary (as designated by Key
Employee for the Basic Life Benefit under the Disability and Survivorship Plan)
of Key Employee at Key Employee's death, a supplemental lump sum death benefit
in the amount necessary to
4
<PAGE>
provide a total lump sum death benefit of $50,000 when combined with the Basic
Life Benefit actually provided by the Disability and Survivorship Plan.
8. Certain Restrictions. Subject to Section 18, or unless waived by the
Committee under circumstances the Committee deems appropriate, if a Key Employee
terminates active employment with the Company prior to his Normal Retirement
Date and within two years of such termination directly or indirectly provides
management or executive services (whether as a consultant, advisor, officer or
director) to any Person (as defined in Section 18) who is in direct and
substantial competition with the air transportation business of the Company or
any of its subsidiaries, then (a) if benefits under this Agreement shall have
not yet commenced, no benefits shall be paid under this Agreement to such Key
Employee, his Spouse, Eligible Family Member or beneficiary; and (b) if benefits
under this Agreement have commenced, no further benefits shall be paid. Because
of the broad and extensive scope of the Company's air transportation business,
the restrictions contained in this provision 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
interest of the Company. This section shall be deemed waived, but only with
respect to the Supplemental Retirement Income, if at any time subsequent to
March 23, 2001 either (i) Key Employee's employment with the Company is
terminated for cause; or (ii) Key Employee terminates his employment with the
Company without Good Reason; provided "Cause" and "Good Reason" shall have
the same meaning as ascribed to those terms in Exhibit C attached to the
letter dated ____________, 19__ to Key Employee from [the CEO].
9. Funding of Benefit. Subject to Section 18 (Change In Control) the
benefits provided by this Agreement shall be paid, as they become due, from the
Company's general assets or by such other means as the Company deems advisable,
including a trust or trusts established by the Company; provided however, if
such trusts are established, benefits shall be payable from such trusts only as
and to the extent provided therein. To the extent Key Employee acquires the
right to receive payments from the Company under this Agreement, such right
shall be no greater than that of a general creditor of the Company. The Company
shall have complete discretion under this Agreement to account for and report,
or to refrain from accounting for or reporting, its liabilities under this
Agreement. In the event that the Company in its sole discretion establishes a
reserve or bookkeeping account for the benefits payable under this Agreement,
the Key Employee shall have no proprietary or security interest in any such
reserve or account.
10. Nonassignability of Benefits. No benefit payable under this
Agreement may be assigned, transferred, encumbered or subjected to legal process
for the payment of any claim against Key Employee, his Spouse, Eligible Family
Member, or beneficiary.
11. No Right to Continued Employment. Nothing in this Agreement shall
be deemed to give Key Employee the right to be retained in the service of the
Company or to deny the Company any right it may have to discharge Key Employee
at any time, subject
5
<PAGE>
to the Company's obligation to provide benefits and amounts as may be required
hereunder.
12. Arbitration. The parties acknowledge that any claims or controversy
arising out of this Agreement is subject to arbitration in accordance with the
Plans.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia without regard to its conflict
of laws rules.
14. Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of the parties hereto.
15. Amendment. This writing, including any terms or documents
incorporated herein by reference, supersedes any previous excess benefit
agreement between Key Employee and the Company. This Agreement may not be
modified orally, but only by writing signed by the parties hereto.
16. Notice. All notices, requests, demands and other communications
under this Agreement, shall be in writing and shall be delivered personally
(including by courier) or mailed by certified mail, return receipt requested.
Refusal to acknowledge receipt of such notice shall constitute receipt of such
notice upon the date it is returned to the sender. Any notice under this
Agreement shall be sent to Key Employee, Spouse, his Eligible Family Member or
beneficiary at the last known address of such person as reflected in the
Company's records. Notice to the Company or the Committee shall be sent to:
Delta Air Lines, Inc.
Law Department
1030 Delta Boulevard
Atlanta, Georgia 30320
Attention: Robert S. Harkey,
Senior Vice President - General Counsel
17. Form of Payment; No Elections. Subject to Section 18 (Change In
Control), Key Employee shall not be permitted to exercise any election under the
Plans which affects the date of commencement, manner or form in which Key
Employee's Supplemental Retirement Income is paid. In addition, no election
under the Retirement Plan shall affect the manner or form in which Supplemental
Retirement Income is paid under the Plans. If Key Employee becomes entitled to
Supplemental Retirement Income under this Excess Benefit Agreement, such benefit
shall automatically be paid commencing with the date payments under the
Retirement Plan begin as follows:
(a) In every case in which the form of benefit payable
under the Retirement Plan is automatic and does not
depend on the election
6
<PAGE>
of the Participant thereunder, Supplemental
Retirement Income under this Excess Benefit Agreement
shall automatically be paid in the identical form
that it is payable under the Retirement Plan.
(b) In the case of any Key Employee who becomes eligible
for Early Retirement under the Retirement Plan and is
eligible to elect the level income option thereof,
such Key Employee's Supplemental Retirement income
under this Agreement, if any, shall be automatically
payable in the form that would have been payable
disregarding any election by such Key Employee of the
level income option.
18. Change In Control. Notwithstanding anything in this Agreement to
the contrary, in the event Key Employee has rights under an Executive Retention
Protection Agreement with the Company at the time a Change In Control (as
defined below) occurs, the Company shall, if not previously established,
establish a grantor trust (the "Trust") to provide benefits payable under this
Agreement and the Plans. Subject to the following paragraph, the Company shall
promptly cause to be irrevocably deposited in such Trust for the benefit of Key
Employee and his or her beneficiaries, on the terms set forth below, an amount
equal to the balance as of the date of such deposit of Key Employee's accrued
benefit under the Plans and Agreement, regardless of whether such benefit is
vested. From and after the date of such Change In Control, the Company shall
cause to be irrevocably deposited in the Trust any additional accruals under the
Plans and Agreement, regardless of whether such benefit is vested.
The instrument governing the Trust shall, to the extent reasonably
necessary to assure that the Plans and this Agreement 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 Trust will be maintained for the exclusive
benefit of Key Employee and his or her beneficiaries, and will otherwise be
subject to all fiduciary and other requirements of applicable state trust law.
In addition, in the event Employee's employment terminates as a result
of a Qualifying Event (as defined in any Executive Retention Protection
Agreement between Key Employee and the Company), Section 8 of this Agreement
shall be deemed waived and Section 6 of the 1991 Delta Excess Benefit Plan and
Section 6 of the Delta Supplemental Excess Benefit Plan shall not be applicable
to Key Employee. Further, the timing and payments of any retirement benefits to
be provided hereunder shall be governed by, and subject to, the terms of said
Executive Retention Protection Agreement to the extent such Agreement provides
for accelerated payments of retirement benefits otherwise payable under this
Agreement.
For purposes of this Agreement, "Change In Control" means, and shall be
deemed to have occurred upon, the first to occur of any of the following events:
7
<PAGE>
(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
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
8
<PAGE>
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 Key Employee, if Key Employee
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.
9
<PAGE>
As used in the above definition, the terms "Person", "Excluded
Person", "Affiliate", "Associate", "Beneficial Ownership", "Voting
Stock", "Board", "Exchange Act", "Holding Company", and "Effective
Date" shall have the same meaning as ascribed to those terms in the
then current Executive Retention Protection Agreement between
the Company and Key Employee.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
on the date(s) shown below.
DELTA AIR LINES, INC.
By:
------------------------------
President and Chief Executive Officer
Date:
----------------------------
----------------------------------
Date:
----------------------------
10
<PAGE>
Exhibit 10.19
March 23, 1998
Mr. Warren C. Jenson
284 Hawks Hill Road
New Canaan, CT 06840
Dear Warren:
I am pleased to confirm my verbal offer of employment for the position of
Executive Vice President and Chief Financial Officer (CFO) for Delta Air Lines,
Inc. (Delta or the Company), effective today. In this assignment, you will
report directly to me.
Your initial and minimum base salary will be $500,000 per annum, payable in
accordance with the usual payment practices of the Company.
With respect to each fiscal year beginning with the fiscal year ending June 30,
1999 during which you are employed by the Company, you will be eligible to
receive in addition to your base salary an annual incentive compensation award
(Annual Award) for services rendered during such fiscal year, subject to the
terms and conditions of the Company's annual incentive compensation plan as in
effect from time to time. Except as provided in the immediately following
paragraph, the amount of the Annual Award, if any, with respect to any fiscal
year will be based upon performance targets and award levels determined by the
Personnel & Compensation Committee of the Board of Directors (or any successor
committee designated by the Board) in its sole discretion, in accordance with
the Company's annual incentive compensation plan as in effect from time to time;
provided that for each fiscal year beginning with the fiscal year ending June
30, 1999, your target award level shall be established in such a manner as to
provide you with the opportunity to earn an award of at least 57.5% of your base
salary for such fiscal year, assuming performance at the target level.
<PAGE>
Mr. Warren C. Jenson
March 23, 1998
Page 2
Notwithstanding the preceding paragraph, you will receive an Annual Award of not
less than (1) $100,000 with respect to fiscal year 1998 and (2) $400,000 with
respect to fiscal year 1999, unless your employment is terminated by the Company
for Cause prior to June 30, 1998 or June 30, 1999, respectively; provided, that
if your employment terminates for any reason other than Cause prior to June 30,
1998 or June 30, 1999, respectively, the applicable minimum amount shall be
reduced by multiplication by a fraction which, (1) with respect to fiscal year
1998, the numerator of which is the number of days from March 23, 1998 through
the date of termination of your employment, and the denominator of which is 100
and (2) with respect to fiscal year 1999, the numerator of which is the number
of days from July 1, 1998 through the date of termination of your employment,
and the denominator of which is 365.
You will also be a participant in the 1989 Stock Incentive Plan in accordance
with the terms of that Plan. You will be granted an initial award with
non-qualified stock options on 250,000 shares of Delta common stock. The award
date will be March 23, 1998, and the exercise price will be the closing price of
Delta common stock on the New York Stock Exchange on that date. These options
will vest in 20% increments on each of the first five anniversaries of the award
date, subject to the terms and conditions set forth in the award agreement
attached as Exhibit A. Future grants, if any, will be in accordance with the
Plan.
To compensate you for benefits which you are forfeiting by resigning from NBC to
accept a position with the Company, you will be granted (1) 33,000 shares of
restricted stock, which will vest in equal amounts (11,000 shares) on each of
the first, second, and third anniversaries of March 23, 1998; and (2) an
additional 7,000 shares of restricted stock which will vest in equal amounts
(1,400 shares) on each of the first five anniversaries of March 23, 1998. These
restricted stock awards are subject to the terms and conditions set forth in the
award agreement attached as Exhibit B.
Delta will provide reimbursement for the reasonable cost of your legal counsel
in connection with the negotiation and preparation of this agreement. While
employed by the Company, you will be entitled to such fringe benefits as are
provided to Executive Vice Presidents of the Company,
<PAGE>
Mr. Warren C. Jenson
March 23, 1998
Page 3
including free and reduced-rate travel, automobile allowance, initiation fees
and monthly dues for one country club membership, and similar programs as in
effect from time to time.
Except as otherwise provided in this letter agreement, your employment with
Delta will be subject to Delta's standard policies and will be governed by the
terms and conditions of the Personnel Practices Manual, as may be amended from
time to time hereafter. You will be provided with vacation, sick leave, and paid
holidays in accordance with Delta's standard policy regarding these benefits for
Executive Vice Presidents of the Company.
You will also be eligible to participate in Delta's standard benefit programs,
as amended from time to time, including the following:
1. DeltaFlex, our flexible benefits plan, which provides you with a menu of
choices for medical, dental, life insurance, and disability benefits.
2. The Officer Life Insurance program.
3. The Delta Family-Care Disability and Survivorship Plan, which provides
certain disability benefits to you and certain benefits in the event of
your death.
4. The Delta Family-Care Retirement Plan benefit will accrue from the date you
join Delta. In addition, Delta has a nonqualified plan which will cover any
excess benefits not payable by the Delta Family-Care Retirement Plan (due
to Section 415 or 401(a)(17) limitations). For purposes of both vesting and
benefit accrual, you will be deemed to have eleven (11) additional years of
service with Delta, provided that you complete at least three (3) years of
actual service as an employee with Delta. The additional benefit will be
paid under the nonqualified plan.
5. After one year of service, the Delta Family-Care Savings Plan, which
currently features pre-tax or post-tax employee contributions of up to 12%
(up to the limits of the Internal Revenue Code), and a 50% match of your
contributions on the first 4% of salary, with Delta's maximum contribution
equal to 2% of your salary.
<PAGE>
Mr. Warren C. Jenson
March 23, 1998
Page 4
The Company will pay all costs of relocation of you and your family to the
Atlanta metropolitan area in accordance with the Company's relocation policy
supplemented as follows:
a) Reasonable temporary living expenses for you and your family in the
Atlanta metropolitan area for a period not to exceed six months from
April 23, 1998;
b) If you so elect prior to April 23, 1999, the Company will purchase
from you your primary residence as of the date hereof. The purchase
price will be equal to the average of the estimates of the fair market
value of the residence as determined, within 30 days of such election,
by two reputable and independent professional real estate appraisers,
one of which will be selected by you and one of which will be selected
by the Company;
c) The weight limitation for movement of your household effects will be
waived;
d) The Company will pay up to two discount points with respect to one
mortgage financing of your initial new residence in the Atlanta
metropolitan area; and
e) The Company will absorb any income tax liability resulting from
relocation benefits provided on your behalf.
Your eligibility for severance benefits is summarized below:
Change in Control
Your eligibility for benefits in conjunction with a Change in Control will be
governed by Delta's Retention Protection Agreement applicable to Executive Vice
Presidents of the Company.
Termination for Cause or Without Good Reason
No severance benefit provided.
<PAGE>
Mr. Warren C. Jenson
March 23, 1998
Page 5
Termination Without Cause or For Good Reason*
If your employment is terminated prior to March 23, 2001 (other than by reason
of death or disability) by the Company without Cause or by you with Good Reason,
you will receive: (1) the balance of your then current base salary and then
current target ICP award through March 22, 2001 (subject to a minimum of twelve
(12) months of such salary and award), (2) immediate vesting of any unvested
stock option and restricted stock awards which you have been granted on March
23, 1998, and (3) immediate vesting of all accrued retirement plan benefits,
including your eleven (11) additional years of service credit. For purposes of
this letter agreement, the terms "Cause" and "Good Reason" (and related terms)
shall have the meanings set forth in Exhibit C accompanying this letter
agreement.
Termination After Death or Disability*
If your employment is terminated due to death or disability prior to March 23,
2001, you will receive: (1) such death or disability benefits as shall then be
maintained by the Company for which you or your survivors are eligible; (2)
immediate vesting of any unvested stock option and restricted stock awards which
you have been granted on March 23, 1998, and (3) immediate vesting of all
accrued retirement plan benefits, including your eleven (11) additional years of
service credit.
In the event of any conflict between the terms of this letter agreement and the
terms of any other agreement, award or arrangement contemplated hereby, the
terms of this letter agreement shall control. This letter agreement supersedes
all prior discussions and documentation concerning your compensation
arrangements with the Company.
If the terms outlined above reflect your understanding of our offer and you
accept employment based on these terms, please indicate your acceptance by
signing the two original letters provided. Please keep one letter for your
records and return the other to me.
Warren, we are extremely pleased to have you join the Delta team, and I look
forward with great pleasure to our association with you in this important role
- -------------------------------
* In the event a Qualifying Event (as defined in your Retention Protection
Agreement) occurs during the term of your Retention Protection Agreement, the
Retention Protection Agreement shall apply instead of these provisions.
<PAGE>
Mr. Warren C. Jenson
March 23, 1998
Page 6
at Delta. I anticipate benefiting from your expertise, and I believe you will
help us establish a winning formula for success in the future.
Sincerely,
Leo F. Mullin
Accepted and agreed to this
23rd day of March, 1998
----------------------
Warren Jenson
<PAGE>
EXECUTIVE RETENTION PROTECTION AGREEMENT
EXECUTIVE RETENTION PROTECTION AGREEMENT ("Agreement") dated as of
March 23, 1998 (the "Effective Date") by and between Delta Air Lines, Inc., a
Delaware corporation (the "Company"), and
Warren C. Jenson ("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.
<PAGE>
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 the trustee invest the assets of the Trust in a
manner calculated to match as closely
<PAGE>
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 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
<PAGE>
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.
SECTION 3.03. Severance Benefits. Executive shall be entitled to the
following benefits (the "Severance Benefits") under the circumstances described
in Section 3.01:
<PAGE>
(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;
(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);
<PAGE>
(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
<PAGE>
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.
(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
<PAGE>
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.
(j) The Company shall indemnify Executive (and Executive's legal
representatives or other successors) to the fullest extent permitted by the
<PAGE>
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 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
<PAGE>
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 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
<PAGE>
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;
if to Executive, to Executive's last known address as reflected on the
books and records of the Company
<PAGE>
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), 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
<PAGE>
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.
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
<PAGE>
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.
"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.
<PAGE>
"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
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
<PAGE>
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
<PAGE>
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 "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.
<PAGE>
"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.
<PAGE>
"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.
"Gross-Up Payment" has the meaning accorded such term in
Section 4.01.
<PAGE>
"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.
"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:
<PAGE>
(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.
"Total Payments" has the meaning accorded such term in Section
4.01.
"Trust Instrument" has the meaning accorded such term in
Section 2.01.
<PAGE>
"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.
/s/ Warren C. Jenson By: /s/ Leo F. Mullin
- ------------------------ ------------------------------
Name: Leo F. Mullin
Title: President and Chief Executive Officer
<PAGE>
Attachment A
NONQUALIFIED STOCK OPTION AWARD AGREEMENT
UNDER THE 1989 STOCK INCENTIVE PLAN
March 23, 1998
Warren C. Jenson
Executive Vice President and Chief Financial Officer
The 1989 Stock Incentive Plan of Delta Air Lines, Inc., as amended
("Plan"), is intended as an inducement for officers, executives and key
employees of Delta Air Lines, Inc. (the "Company") to continue in the employment
of the Company, and to provide a greater incentive to such employees to make
material contributions to the Company's success by increasing their proprietary
interest in the Company through increased direct stock ownership. The Plan,
which provides for certain awards to eligible employees, is administered by the
Personnel & Compensation Committee of the Board of Directors (the "Committee").
Pursuant to the Plan, the Committee selected you to receive an award of a
Nonqualified Stock Option under the Plan, effective as of the close of business
on March 23, 1998, and has instructed me, on behalf of the Company, to provide
this Agreement to you.
In consideration of the mutual covenants herein contained and for other
good and valuable consideration, the Company and you as an employee of the
Company (hereinafter called "Employee"), do hereby agree as follows:
1. The Company hereby grants to Employee a Nonqualified Stock Option
("Stock Option") covering 250,000 shares of Stock, as defined in the Plan, a
copy of which has been furnished to Employee. This award is in all respects made
subject to the terms and conditions of the Plan and, by signing and returning a
copy of this Agreement to the Secretary of the Company, Employee acknowledges
that he has read this Agreement and the Plan and agrees to all of the terms and
conditions thereof for himself, any designated beneficiary and his heirs,
executors, administrators or personal representatives. Terms used in this
Agreement which are defined in the Plan shall have the meanings set forth in the
Plan. In the event of any conflict between the Plan and this Agreement, the Plan
shall control. Employee also acknowledges receipt of the Prospectus dated
October 23, 1997, relating to the Plan.
2. The Option Price of the Stock Option covered by this award shall be
$115.75 per share, the closing price of the Stock on the New York Stock Exchange
(the "NYSE") on March 23, 1998, the date of this award.
<PAGE>
3. Subject to the terms and conditions of the Plan and the other
provisions of this Agreement, the Stock Option shall become exercisable in
installments as follows, provided Employee continues to be employed by the
Company on the dates indicated:
<TABLE>
<CAPTION>
Number of Shares with
Respect to which Option
First Becomes Exercisable Date
------------------------- --------------
<S> <C>
50,000 March 23, 1999
50,000 March 23, 2000
50,000 March 23, 2001
50,000 March 23, 2002
50,000 March 23, 2003
</TABLE>
In the event of the occurrence prior to March 23, 2001 of the termination of
Employee's employment (i) by the Company without Cause, (ii) by Employee with
Good Reason or (iii) by reason of Employee's death or Disability (as defined in
the Plan), the Stock Option shall immediately become fully exercisable, and the
termination of Employee's employment will be treated, for purposes of
determining the terms of exercise of the Stock Option under Section 10(b) of the
Plan, as having occurred because of Employee's Retirement. For purposes of this
Agreement, the terms "Cause" and "Good Reason" shall have the respective
meanings assigned such terms in Annex A attached hereto.
4. Subject to the terms and conditions of the Plan and the other
provisions of this Agreement, including Paragraph 8 below, the Stock Option
granted to Employee herein may be exercised during the period beginning as set
forth in Paragraph 3 above and ending March 22, 2008, except as provided in
Sections 5 and 10 of the Plan. Subject to the terms and conditions of the Plan,
Employee (or, if Employee is deceased, a party acting on his behalf pursuant to
Section 10 of the Plan) may exercise the Stock Option granted herein in whole
or, from time to time, in part by way of a written notice delivered to the
Secretary of the Company which includes the following: (i) name, mailing address
and social security number of Employee and the date, which shall be actual date
of the notice; (ii) the number of shares of Stock with respect to which the
Stock Option is being exercised; (iii) the date of grant and the Option Price
with respect to the Stock Option being exercised; and (iv) the signature of
Employee or a party acting on behalf of a deceased employee. Payment of the full
purchase price of the shares of Stock covered by the exercise shall be made in
the manner prescribed by the Committee from time to time. If the Committee, in
its sole discretion, shall determine that it is appropriate to do so, such
payment may be made in whole or in part by tender of shares of unrestricted
Stock, as set forth in Section 5 of the Plan, subject to such requirements or
procedures as the Committee may specify.
5. When the Stock Option is exercised, the Company shall make the
appropriate calculations under the Plan and deliver to Employee, as soon as
practicable, a certificate or certificates representing the net number of shares
of Stock due to Employee
2
<PAGE>
pursuant to such exercise, calculated in accordance with this paragraph. Unless
other tax withholding arrangements are made by Employee and the Company, the
Company shall withhold from the shares of Stock issued to Employee a sufficient
number of shares of Stock based on its fair market value on the date of exercise
to cover any amounts which the Company is required to withhold to comply with
withholding requirements of federal, state or local tax laws, rules or
regulations. The fair market value for purposes of the second sentence of this
paragraph shall be as reasonably determined by the Committee.
6. The Stock Option granted herein is not transferable otherwise than
by will, by the laws of descent and distribution, or by a written designation
referred to in Section 10(c) of the Plan, and is exercisable during Employee's
lifetime only by Employee. In the event that the Stock Option is exercised
pursuant to Section 10 of the Plan by any person other than Employee, such
notice shall be accompanied by appropriate proof of the right of such person to
exercise the Stock Option.
7. The Stock Option granted herein is subject to all terms of the Plan,
including but not limited to Section 10(b), which provides for the forfeiture of
certain benefits in certain circumstances in the event of Employee's Retirement
prior to his normal retirement date.
8. Employee acknowledges that the federal securities laws and/or the
Company's policies regarding trading in its securities may limit or restrict
Employee's right to buy or sell shares of Stock, including, without limitation,
sales of Stock to exercise the Stock Option or sales of Stock acquired pursuant
to the exercise of the Stock Option. Employee agrees to comply with such federal
securities law requirements and Company policies, as such laws and policies are
amended from time to time.
This Agreement has been prepared in duplicate. Please note your
acceptance in the space provided therefor and return the original for the
Company's records.
IN WITNESS WHEREOF, the Company, acting through its duly authorized
officer, has caused this Agreement to be duly executed, and Employee has
hereunto set his hand, all as of the day and year first written above.
DELTA AIR LINES, INC.
BY________________________________
Leo F. Mullin
President and Chief Executive Officer
EMPLOYEE
__________________________________
Warren C. Jenson
3
<PAGE>
ANNEX A
"Cause" means the occurrence of any one or more of the following:
(a) A demonstrably willful and deliberate act or failure to act by you
(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) Your conviction for committing an act of fraud, embezzlement,
theft, or any other act constituting a felony involving moral turpitude.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to you 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
of Directors at a meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together with your counsel,
to be heard before the Board), finding that, in the good faith opinion of the
Board, you are guilty of conduct set forth above in clauses (a) or (b) of this
definition and specifying the particulars thereof in detail.
"Effective Date" means March 23, 1998.
"Good Reason" means the occurrence of any one or more of the following, unless
you have expressly consented in writing thereto:
(a) The assignment to you of duties inconsistent with your authorities,
duties, titles, responsibilities and status as an officer of the Company, or a
reduction or alteration in the nature or status of your authorities, duties,
titles or responsibilities, from those in effect as of the Effective Date, other
than an insubstantial and inadvertent act that is remedied by the Company
promptly after receipt of notice thereof given by you;
(b) The Company's requiring you to be based at a location in excess of
50 miles from your principal job location or office on the later of (i) the
Effective Date or (ii) immediately prior to the Reference Date; except for
required travel on the Company's business to an extent consistent with your
business travel obligations on the later of (i) the Effective Date or (ii)
immediately prior to the Reference Date;
(c) A reduction by the Company of your base salary as in effect on the
later of (i) the Effective Date or (ii) 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 your short-term or long-term incentive
compensation opportunities under the executive incentive
<PAGE>
compensation plans of the Company for which you are eligible as in effect on the
later of (i) the Effective Date or (ii) the Reference Date;
(d) The failure by the Company to keep in effect compensation,
retirement, health and welfare benefits, or perquisite programs under which you
receive benefits substantially similar, in the aggregate, to the benefits under
such programs as exist on the later of (i) the Effective Date or (ii)
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 the
letter agreement to which this Annex A relates or any failure of a successor of
the Company to assume and agree to perform the Company's entire obligations
under that letter agreement, provided that such successor has received at least
ten days written notice from the Company or you of the requirement to assume
those obligations.
"Reference Date" means the date 90 days prior to the termination of your
employment.
2
<PAGE>
Attachment B
RESTRICTED STOCK AWARD AGREEMENT
UNDER THE 1989 STOCK INCENTIVE PLAN
March 23, 1998
Warren C. Jenson
Executive Vice President and Chief Financial Officer
The 1989 Stock Incentive Plan of Delta Air Lines, Inc., as amended
("Plan"), is intended as an inducement for officers, executives and key
employees of Delta Air Lines, Inc. (the "Company") to continue in the employment
of the Company, and to provide a greater incentive to such employees to make
material contributions to the Company's success by increasing their proprietary
interest in the Company through increased direct stock ownership. The Plan,
which provides for certain awards to eligible employees, is administered by the
Personnel & Compensation Committee of the Board of Directors (the "Committee").
Pursuant to the Plan, the Committee has selected you to receive an award of
Restricted Stock (as defined in the Plan) effective as of the close of business
on March 23, 1998, and has instructed me to direct this letter to you.
In consideration of the mutual covenants herein contained and for other
good and valuable consideration, the Company and you as an employee of the
Company (hereinafter called "Employee"), do hereby agree as follows:
1. Grant of Shares. Pursuant to action of the Committee, the Company
hereby grants to Employee 40,000 shares of Restricted Stock (the "Shares"). This
award is in all respects made subject to the terms and conditions of the Plan, a
copy of which has been provided to Employee, and by signing and returning a copy
of this Agreement to the Secretary of the Company, Employee acknowledges that he
has read the Plan and agrees to all of the terms and conditions thereof for
himself, any designated beneficiary and his heirs, executors, administrators or
personal representatives. Terms used in this Agreement which are defined in the
Plan shall have the meanings set forth in the Plan. In the event of any conflict
between the Plan and this Agreement, the Plan shall control. Employee also
acknowledges receipt of the Prospectus dated October 23, 1997, relating to the
Plan.
As soon as practicable following Employee's execution of this
Agreement and the stock power described below in Section 6, a certificate or
certificates representing the Shares and bearing the legend described below in
Section 6 shall be issued to Employee. Upon issuance of the certificates
representing the Shares, Employee shall have all rights of a stockholder with
respect to the Shares, including the right to vote and, subject to Section 10 of
this Agreement, to receive all dividends or other distributions paid or made
with respect to the Shares; provided, however, that the Shares (and any
securities of the Company which may be issued with respect to the Shares by
virtue of any dividend reinvestment, stock split, combination, stock dividend or
recapitalization, which securities
<PAGE>
shall be deemed to be "Shares" hereunder) shall be subject to the terms and all
of the restrictions set forth in this Agreement.
2. Restriction. Until the restriction imposed by this Section 2 (the
"Restriction") has lapsed pursuant to Section 3 or 4 below, Employee shall not
be permitted to sell, exchange, assign, transfer, pledge or otherwise dispose of
the Shares and the Shares shall be subject to forfeiture as set forth in Section
5 below.
3. Lapse of Restriction by Passage of Time. The Restriction shall
lapse and have no further force or effect as follows: (a) with respect to 33,000
of the Shares, as to 33-1/3% of such Shares (including 33-1/3% of any additional
Shares which at the time have been purchased with dividends on such Shares) on
each of March 23, 1999, 2000 and 2001, provided Employee remains employed by the
Company on such dates; and (b) with respect to 7,000 of the Shares, as to 20% of
such Shares (including 20% of any additional Shares which at the time have been
purchased with dividends on such Shares) on each of March 23, 1999, 2000, 2001,
2002 and 2003, provided Employee remains employed by the Company on such dates.
4. Lapse of Restriction in Certain Cases. The Restriction shall lapse
and have no further force or effect with respect to all Shares hereunder upon
the occurrence prior to March 23, 2001 of the termination of Employee's
employment (i) by the Company without Cause, (ii) by Employee with Good Reason
or (iii) by reason of Employee's death or Disability (as defined in the Plan).
For purposes of this Agreement, the terms "Cause" and "Good Reason" shall have
the respective meanings assigned such terms in Annex A attached hereto. Employee
may provide to the Company written designation naming a person or persons who
shall receive the Shares in the event of Employee's death, and such designation
must be in a form approved by counsel for the Company. If there is no such
approved designation, Shares shall be distributed upon Employee's death pursuant
to Employee's last will and testament or as provided by law.
5. Forfeiture of Shares. In the event of termination of Employee's
employment with the Company other than in the circumstances described in clauses
(i), (ii) or (iii) of Section 4 and prior to lapse of the Restriction under
Section 3, Employee shall immediately forfeit all right, title, and interest to
the Shares which are still subject to the Restriction, and such Shares shall be
canceled or transferred to the Company by Employee, without consideration to
Employee or his heirs, executors, administrators or personal representatives.
6. Endorsement and Retention of Certificates. All certificates
representing the Shares shall be endorsed on the face thereof with the following
legend:
"The shares of stock represented by this certificate and the sale,
transfer or other disposition of such shares are restricted by and
subject to a Restricted Stock Award Agreement dated March 23, 1998
between Warren C. Jenson and the Company, a copy of which is on file
with the Secretary of the Company."
All certificates for Shares shall be held by the Company until the
restrictions thereon shall have lapsed and, as a condition to this award,
Employee shall execute and
<PAGE>
deliver to the Company a stock power, endorsed in blank and approved by counsel
for the Company, relating to the Shares, as set forth in the Plan.
Upon lapse of the Restriction pursuant to Section 3 or 4 of
this Agreement without a prior forfeiture of the Shares, a certificate or
certificates for an appropriate number of unrestricted Shares shall be delivered
to Employee and the certificate with the legend indicated above shall be
canceled.
7. Withholding Taxes. Upon lapse of the Restriction on the Shares
pursuant to Section 3 or 4 above, unless other tax withholding arrangements are
made by Employee and the Company, sufficient Shares shall be transferred to the
Company to provide for the payment of any taxes required to be withheld by
federal, state, or local law with respect to income resulting from such lapse.
The value of the Shares so transferred shall be the closing price of the Common
Stock on the NYSE on the date the Restriction lapses (or, in the event that no
sale of the Common Stock takes place on the NYSE on such date, the closing price
of the Common Stock on the NYSE on the immediately preceding date on which such
a sale occurred).
8. Rights Not Enlarged. Nothing herein confers on Employee any right
to continue in the employ of the Company or any of its subsidiaries.
9. Succession. This Agreement shall be binding upon and operate for the
benefit of the Company and its successors and assigns, and Employee and his
heirs, executors, administrators or personal representatives.
10. Dividends. Any cash dividends which may become payable on the
Shares shall be reinvested by the Company in shares of Common Stock, to the
extent Shares are available under the Plan. If shares are not so available,
dividends shall be paid in cash and held by the Company for the account of
Employee until the Restriction lapses. In such event the Company shall pay
interest on the amount so held as determined by the Committee, and the
accumulated amount of such dividends and interest shall be payable to Employee
upon the lapse of the Restriction. Those Shares and any cash held for the
account of the Employee shall be governed by the Restriction set forth in the
Agreement; the Restriction with respect to such Shares and such cash shall lapse
as provided in Sections 3 and 4 of this Agreement; and such shares and such cash
shall be forfeited pursuant to Section 5 to the extent that the Shares on which
such dividends were paid shall be so forfeited.
11. Fractional Shares. Upon lapse of the Restriction, certificates for
fractional Shares shall not be delivered to Employee, and the value of any
fractional Shares which may result from the application of Section 3 or 4 of
this Agreement shall be paid in cash to Employee, as determined in the last
sentence of Section 7 above.
This Agreement has been prepared in duplicate. Please note your
acceptance in the space provided therefor and return the original for the
Company's records.
<PAGE>
IN WITNESS WHEREOF, the Company, acting through its duly authorized
officer, has caused this Agreement to be duly executed, and Employee has
hereunto set his hand, all as of the day and year first written above.
DELTA AIR LINES, INC.
BY
--------------------------------------
Leo F. Mullin
President and Chief Executive Officer
EMPLOYEE
-----------------------------------
Warren C. Jenson
<PAGE>
ANNEX A
"Cause" means the occurrence of any one or more of the following:
(a) A demonstrably willful and deliberate act or failure to act by you
(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) Your conviction for committing an act of fraud, embezzlement,
theft, or any other act constituting a felony involving moral turpitude.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to you 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
of Directors at a meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together with your counsel,
to be heard before the Board), finding that, in the good faith opinion of the
Board, you are guilty of conduct set forth above in clauses (a) or (b) of this
definition and specifying the particulars thereof in detail.
"Effective Date" means March 23, 1998.
"Good Reason" means the occurrence of any one or more of the following, unless
you have expressly consented in writing thereto:
(a) The assignment to you of duties inconsistent with your authorities,
duties, titles, responsibilities and status as an officer of the Company, or a
reduction or alteration in the nature or status of your authorities, duties,
titles or responsibilities, from those in effect as of the Effective Date, other
than an insubstantial and inadvertent act that is remedied by the Company
promptly after receipt of notice thereof given by you;
(b) The Company's requiring you to be based at a location in excess of
50 miles from your principal job location or office on the later of (i) the
Effective Date or (ii) immediately prior to the Reference Date; except for
required travel on the Company's business to an extent consistent with your
business travel obligations on the later of (i) the Effective Date or (ii)
immediately prior to the Reference Date;
(c) A reduction by the Company of your base salary as in effect on the
later of (i) the Effective Date or (ii) 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 your short-term or long-term incentive
compensation opportunities under the executive incentive
<PAGE>
compensation plans of the Company for which you are eligible as in effect on the
later of (i) the Effective Date or (ii) the Reference Date;
(d) The failure by the Company to keep in effect compensation,
retirement, health and welfare benefits, or perquisite programs under which you
receive benefits substantially similar, in the aggregate, to the benefits under
such programs as exist on the later of (i) the Effective Date or (ii)
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 the
letter agreement to which this Annex A relates or any failure of a successor of
the Company to assume and agree to perform the Company's entire obligations
under that letter agreement, provided that such successor has received at least
ten days written notice from the Company or you of the requirement to assume
those obligations.
"Reference Date" means the date 90 days prior to the termination of your
employment.
<PAGE>
IRREVOCABLE STOCK POWER
The undersigned, Warren C. Jenson, does hereby assign, transfer and
deliver unto _____________________________________ all of those shares of common
stock of Delta Air Lines, Inc. (the "Company") granted as restricted stock (the
"Restricted Stock") pursuant to the Restricted Stock Award Agreement Under The
1989 Stock Incentive Plan dated as of March 23, 1998, between the Company and
Warren C. Jenson, as well as all of those shares of common stock of the Company
purchased for the undersigned with reinvested dividends from the Restricted
Stock (collectively, the "Shares").
The undersigned does hereby irrevocably constitute and appoint
_______________________________________ attorney-in-fact, with full power of
substitution, to transfer the Shares on the books of the Company, or to direct
the Transfer Agent of the Company to so transfer the Shares.
Signature:
---------------------
Printed Name:
---------------------
Date:
---------------------
Witness:
- -------------------------------
<PAGE>
Exhibit C
"Cause" means the occurrence of any one or more of the following:
(a) A demonstrably willful and deliberate act or failure to act by you
(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 action or inaction
is not remedied within fifteen business days of written notice from the Company;
or
(b) Your conviction for committing an act of fraud, embezzlement,
theft, or any other act constituting a felony involving moral turpitude.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to you 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
of Directors at a meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together with your counsel,
to be heard before the Board), finding that, in the good faith opinion of the
Board, you are guilty of conduct set forth above in clauses (a) or (b) of this
definition and specifying the particulars thereof in detail.
"Effective Date" means March 23, 1998.
"Good Reason" means the occurrence of any one or more of the following, unless
you have expressly consented in writing thereto:
(a) The assignment to you of duties inconsistent with your authorities,
duties, titles, responsibilities and status as an officer of the Company, or a
reduction or alteration in the nature or status of your authorities, duties,
titles or responsibilities, from those in effect as of the Effective Date, other
than an insubstantial and inadvertent act that is remedied by the Company
promptly after receipt of notice thereof given by you;
(b) The Company's requiring you to be based at a location in excess of
50 miles from your principal job location or office on the later of (i) the
Effective Date or (ii) immediately prior to the Reference Date; except for
required travel on the Company's business to an extent consistent with your
business travel obligations on the later of (i) the Effective Date or (ii)
immediately prior to the Reference Date;
<PAGE>
(c) A reduction by the Company of your base salary as in effect on
the later of (i) the Effective Date or (ii) 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 your short-term or
long-term incentive compensation opportunities under the executive incentive
compensation plans of the Company for which you are eligible as in effect on
the later of (i) the Effective Date or (ii) the Reference Date;
(d) The failure by the Company to keep in effect compensation,
retirement, health and welfare benefits, or perquisite programs under which you
receive benefits substantially similar, in the aggregate, to the benefits under
such programs as exist on the later of (i) the Effective Date or (ii)
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 the
letter agreement to which this Exhibit C relates or any failure of a successor
of the Company to assume and agree to perform the Company's entire obligations
under that letter agreement, provided that such successor has received at least
ten days written notice from the Company or you of the requirement to assume
those obligations.
"Reference Date" means the date 90 days prior to the termination of your
employment.
2
<PAGE>
EXCESS BENEFIT AGREEMENT
THIS EXCESS BENEFIT AGREEMENT ("Agreement") is made and entered into as
of the 1st day of May, 1998, by and between DELTA AIR LINES, INC. (hereinafter
the "Company") and Warren C. Jenson, (hereinafter "Key Employee"):
W I T N E S S E T H :
WHEREAS, the Company has implemented the 1991 Delta Excess Benefit
Plan, and the Delta Supplemental Excess Benefit Plan, both as amended
(collectively referred to as the "Plans"), and has entered into an Executive
Retention Protection Agreement with Key Employee; and
WHEREAS, Key Employee has been deemed to be a participant in the Plans
in accordance with their terms; and
WHEREAS, Key Employee has rendered valuable service to the Company in
various executive capacities and the Company believes it is in the best interest
of the Company in seeking to assure itself of Key Employee's continued best
efforts in the future to provide for the payment of full retirement and other
benefits to the Key Employee; and
WHEREAS, various sections of the Internal Revenue Code of 1986 (the
"Code"), including, but not limited to, Sections 79, 401(a)(4), 401(a)(17), 415,
and 505(b) restrict either: (i) compensation that may be taken into account in
determining benefits under a qualified pension plan; (ii) benefits that can be
paid from qualified pension plans; (iii) compensation that may be taken into
account in determining benefits for participants in a Voluntary Employee
Beneficiary Association ("VEBA") described in Section 501(c)(9) of the Code; or
(iv) restrict benefits that can be paid from a VEBA (such limitations
collectively or individually hereinafter referred to as the "Restrictions"); and
WHEREAS, the Company wishes to make up under nonqualified excess
benefit plans and/or this Agreement any reduction in Key Employee's monthly
retirement income benefit, disability or survivor benefits under either the
Delta Family-Care Retirement Plan (the "Retirement Plan") or the Delta
Family-Care Disability and Survivorship Plan (the "Disability and Survivorship
Plan") which results from the Restrictions, or any other applicable laws,
statutes, or regulations which restrict in any way the benefits that can be paid
from a VEBA or qualified pension plan; and
WHEREAS, the Board of Directors of the Company has authorized
post-retirement life insurance benefits for senior officers in excess of the
coverage provided to other employees of the Company through the Basic Lump Sum
Death Benefit under the Disability and Survivorship Plan; and
<PAGE>
WHEREAS, certain restrictions imposed by the Tax Equity and Fiscal
Responsibility Act of 1982 ("TEFRA") prohibit the Company from providing
post-retirement life insurance benefits to officers in excess of that provided
to other employees of the Company; and
WHEREAS, the Company wishes to make up any such loss of group life
insurance coverage for Key Employee which cannot be provided because of the
TEFRA restrictions;
NOW, THEREFORE, the parties hereby agree as follows:
1. Certain Requirements Not Applicable. The parties specifically
acknowledge that this Agreement and Key Employee's participation in the Delta
Supplemental Excess Benefit Plan is exempt from certain provisions of the
Employee Retirement Income Security Act of 1974 ("ERISA") including, but not
limited to, parts 2, 3 and 4 of Subtitle B of Title 1 of ERISA and is also
subject to limited reporting and disclosure requirements of part 1 of Subtitle B
of Title 1 of ERISA. The parties further acknowledge that the 1991 Delta Excess
Benefit Plan is an "excess benefit plan" as defined in section 3(36) of ERISA
and is unfunded and not subject to any provision of ERISA.
2. Incorporation of the Retirement Plan and the Disability and
Survivorship Plan. The terms of the Retirement Plan and the Disability and
Survivorship Plan are hereby incorporated into this Agreement by reference,
except that changes in those plans which reduce benefits (except such changes as
may be required by law) shall be incorporated as to Key Employee only if advance
notice of such proposed reduction is given to the Key Employee and the Key
Employee agrees to an amendment of this Agreement to incorporate the benefit
reduction. The incorporation of the Retirement Plan and the Disability and
Survivorship Plan is not intended to modify any provision of this Agreement, and
the benefits provided hereunder shall be governed only by the provisions hereof
and the Plans. Unless indicated otherwise, capitalized terms used in this
Agreement shall have the meaning given those terms in the Retirement Plan and
Disability and Survivorship Plan.
3. Supplemental Retirement Income. Subject to Sections 8 and 18, the
Company agrees to pay Key Employee, or, in the event of Key Employee's death,
Key Employee's Spouse, at the time and in the manner set forth below,
supplemental retirement income ("Supplemental Retirement Income") equal to (a)
minus (b) where
(a) equals the Early, Normal or Deferred Retirement
income benefit or deferred vested pension benefit
(whichever is appropriate) which Key Employee would
receive or survivor benefit to which his spouse would
receive under the Retirement Plan beginning on the
Benefit Commencement Date (as defined below) if the
Restrictions as reflected in the Retirement Plan and
the Code were not in effect;
2
<PAGE>
(b) equals the Early, Normal or Deferred Retirement
benefit, or deferred vested pension benefit
(whichever is appropriate) which Key Employee
actually receives or survivor benefit which his
Spouse actually receives under the Retirement Plan
beginning on the Benefit Commencement Date;
(c) For purposes of determining benefits under (a) and
(b) above, any Qualified Domestic Relations Order
(QDRO) will be taken into account, such that the
benefits payable hereunder will not exceed those
which would be payable absent the QDRO.
Except as provided in the next sentence, for purposes of calculating the
Supplemental Retirement Income, Key Employee shall be credited with an
additional 11 years of service for vesting and benefit accrual purposes under
the Retirement Plan (the "Additional Service Credit"). The Additional Service
Credit shall not apply if prior to March 23, 2001 either (i) Key Employee's
employment with the Company is terminated for Cause; or (ii) Key Employee
terminates employment with the Company without Good Reason. For purposes of this
paragraph, "Cause" and "Good Reason" shall have the same meaning as ascribed to
those terms in Exhibit C attached to the March 23, 1998 letter to Key Employee
from Leo Mullin.
The amount of Supplemental Retirement Income paid under this Agreement will be
adjusted when and if the amount in (b) above increases or decreases as a result
of a change in the Restrictions, including cost of living adjustments to such
Restrictions.
4. Supplemental Disability Income. Subject to Sections 8 and 18, the
Company agrees to pay Key Employee at the time set forth below a supplemental
monthly disability income ("Supplemental Disability Income") equal to (a) minus
(b), where
(a) equals the monthly disability benefit which the Key
Employee would receive under the Disability and
Survivorship Plan beginning on the Benefit
Commencement Date (as defined below) if the
Restrictions were not in effect and taking into
account his or her elections under the Delta Air
Lines, Inc. DELTAFLEX Plan; and
(b) equals the monthly disability benefit which the Key
Employee actually receives from the Disability and
Survivorship Plan beginning on the Benefit
Commencement Date, taking into account his or her
elections under the Delta Air Lines, Inc. DELTAFLEX
Plan.
The amount of Supplemental Disability Income paid under this Agreement will be
adjusted as permitted under the Plan, and if the amount in (b) above increases
or decreases as a result of a change in the Restrictions.
3
<PAGE>
5. Supplemental Monthly Survivor Income. Subject to Sections 8 and 18,
the Company agrees to pay to Eligible Family Member(s) (as defined in the
Disability and Survivorship Plan) of Key Employee at Key Employee's death a
supplemental monthly survivor income ("Supplemental Survivor Income") equal to
(a) minus (b), where
(a) equals the monthly survivor benefit which the
Eligible Family Member (s) of Key Employee would
receive under the Disability and Survivorship Plan
beginning on the Benefit Commencement Date (as
defined below) without considering any Restrictions
on any benefit plan; and
(b) equals the monthly survivor benefit which the
Eligible Family Member(s) of Key Employee actually
receives under the terms of the Disability and
Survivorship Plan.
The amount of Supplemental Survivor Income paid under this Agreement will be
adjusted as permitted under the Plan and the Code to account for, inter alia,
changes in the number of Eligible Family Members.
6. Benefit Commencement Date; Cessation of Benefits. Subject to Section
18 (Change In Control), the Company shall commence payment of the Supplemental
Retirement Income as of the Benefit Commencement Date under the Retirement Plan
and the Supplemental Disability or Survivor Income as of the Benefit
Commencement Date under the Disability and Survivorship Plan. Subject to Section
18, Benefit Commencement Date under this Agreement shall mean the day that the
retirement income benefit, disability benefit or survivor benefit, as the case
may be, commences under the Retirement Plan or Disability and Survivorship Plan
with respect to Key Employee or his Spouse, or Eligible Family Member(s);
Supplemental Retirement Income will cease upon the death of the last to die of
Key Employee or, if applicable, his Spouse, or if changes in the Restrictions
permit the full benefit due under the Retirement Plan to be paid from the
Retirement Plan and the Retirement Plan assumes such full payment, or if full
payment of retirement benefits due hereunder have already been made.
Supplemental Disability Income will cease if the full benefit due under the
Disability and Survivorship Plan may be paid from that Plan and the Disability
and Survivorship Plan assumes such full payment or when the Key Employee is no
longer eligible for disability benefits under that Plan. Supplemental Survivor
Income will cease if the full benefit due under the Disability and Survivorship
Plan may be paid from that plan, and the Disability and Survivorship Plan
assumes full payment of the benefit amount or when there are no remaining
Eligible Family Member(s) under that Plan. Subject to Section 18, all benefits
payable hereunder may cease pursuant to Section 8 at any time.
7. Supplemental Lump Sum Death Benefit. Subject to Sections 8 and 18,
the Company agrees to pay to the named beneficiary (as designated by Key
Employee for the Basic Life Benefit under the Disability and Survivorship Plan)
of Key Employee at Key Employee's death, a supplemental lump sum death benefit
in the amount necessary to
4
<PAGE>
provide a total lump sum death benefit of $50,000 when combined with the Basic
Life Benefit actually provided by the Disability and Survivorship Plan.
8. Certain Restrictions. Subject to Section 18 and the last sentence of
this section, or unless waived by the Committee under circumstances the
Committee deems appropriate, if a Key Employee terminates active employment with
the Company prior to his Normal Retirement Date and within two years of such
termination directly or indirectly provides management or executive services
(whether as a consultant, advisor, officer or director) to any Person (as
defined in Section 18) who is in direct and substantial competition with the air
transportation business of the Company or any of its subsidiaries, then (a) if
benefits under this Agreement shall have not yet commenced, no benefits shall be
paid under this Agreement to such Key Employee, his Spouse, Eligible Family
Member or beneficiary; and (b) if benefits under this Agreement have commenced,
no further benefits shall be paid. Because of the broad and extensive scope of
the Company's air transportation business, the restrictions contained in this
provision 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 interest of the Company. This section shall be
deemed waived, but only with respect to the Supplemental Retirement Income, if
at any time subsequent to March 23, 2001 either (i) Key Employee's employment
with the Company is terminated for Cause; or (ii) Key Employee terminates his
employment with the Company without Good Reason; provided "Cause" and "Good
Reason" shall have the same meaning as ascribed to those terms in Exhibit C
attached to the letter dated March 23, 1998 to Key Employee from Leo Mullin.
9. Funding of Benefit. Subject to Section 18 (Change In Control) the
benefits provided by this Agreement shall be paid, as they become due, from the
Company's general assets or by such other means as the Company deems advisable,
including a trust or trusts established by the Company; provided however, if
such trusts are established, benefits shall be payable from such trusts only as
and to the extent provided therein. To the extent Key Employee acquires the
right to receive payments from the Company under this Agreement, such right
shall be no greater than that of a general creditor of the Company. The Company
shall have complete discretion under this Agreement to account for and report,
or to refrain from accounting for or reporting, its liabilities under this
Agreement. In the event that the Company in its sole discretion establishes a
reserve or bookkeeping account for the benefits payable under this Agreement,
the Key Employee shall have no proprietary or security interest in any such
reserve or account.
10. Nonassignability of Benefits. No benefit payable under this
Agreement may be assigned, transferred, encumbered or subjected to legal process
for the payment of any claim against Key Employee, his Spouse, Eligible Family
Member, or beneficiary.
11. No Right to Continued Employment. Nothing in this Agreement shall
be deemed to give Key Employee the right to be retained in the service of the
Company or to deny the Company any right it may have to discharge Key Employee
at any time, subject
5
<PAGE>
to the Company's obligation to provide benefits and amounts as may be required
hereunder.
12. Arbitration. The parties acknowledge that any claims or controversy
arising out of this Agreement is subject to arbitration in accordance with the
Plans.
13. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia without regard to its conflict
of laws rules.
14. Successors and Assigns. This Agreement shall be binding upon the
successors and assigns of the parties hereto.
15. Amendment. This writing, including any terms or documents
incorporated herein by reference, supersedes any previous excess benefit
agreement between Key Employee and the Company. This Agreement may not be
modified orally, but only by writing signed by the parties hereto.
16. Notice. All notices, requests, demands and other communications
under this Agreement, shall be in writing and shall be delivered personally
(including by courier) or mailed by certified mail, return receipt requested.
Refusal to acknowledge receipt of such notice shall constitute receipt of such
notice upon the date it is returned to the sender. Any notice under this
Agreement shall be sent to Key Employee, Spouse, his Eligible Family Member or
beneficiary at the last known address of such person as reflected in the
Company's records. Notice to the Company or the Committee shall be sent to:
Delta Air Lines, Inc.
Law Department
1030 Delta Boulevard
Atlanta, Georgia 30320
Attention: Robert S. Harkey,
Senior Vice President - General Counsel
17. Form of Payment; No Elections. Subject to Section 18 (Change In
Control), Key Employee shall not be permitted to exercise any election under the
Plans which affects the date of commencement, manner or form in which Key
Employee's Supplemental Retirement Income is paid. In addition, no election
under the Retirement Plan shall affect the manner or form in which Supplemental
Retirement Income is paid under the Plans. If Key Employee becomes entitled to
Supplemental Retirement Income under this Excess Benefit Agreement, such benefit
shall automatically be paid commencing with the date payments under the
Retirement Plan begin as follows:
(a) In every case in which the form of benefit payable
under the Retirement Plan is automatic and does not
depend on the election
6
<PAGE>
of the Participant thereunder, Supplemental
Retirement Income under this Excess Benefit Agreement
shall automatically be paid in the identical form
that it is payable under the Retirement Plan.
(b) In the case of any Key Employee who becomes eligible
for Early Retirement under the Retirement Plan and is
eligible to elect the level income option thereof,
such Key Employee's Supplemental Retirement income
under this Agreement, if any, shall be automatically
payable in the form that would have been payable
disregarding any election by such Key Employee of the
level income option.
18. Change In Control. Notwithstanding anything in this Agreement to
the contrary, in the event Key Employee has rights under an Executive Retention
Protection Agreement with the Company at the time a Change In Control (as
defined below) occurs, the Company shall, if not previously established,
establish a grantor trust (the "Trust") to provide benefits payable under this
Agreement and the Plans. Subject to the following paragraph, the Company shall
promptly cause to be irrevocably deposited in such Trust for the benefit of Key
Employee and his or her beneficiaries, on the terms set forth below, an amount
equal to the balance as of the date of such deposit of Key Employee's accrued
benefit under the Plans and Agreement, regardless of whether such benefit is
vested. From and after the date of such Change In Control, the Company shall
cause to be irrevocably deposited in the Trust any additional accruals under the
Plans and Agreement, regardless of whether such benefit is vested.
The instrument governing the Trust shall, to the extent reasonably
necessary to assure that the Plans and this Agreement 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 Trust will be maintained for the exclusive
benefit of Key Employee and his or her beneficiaries, and will otherwise be
subject to all fiduciary and other requirements of applicable state trust law.
In addition, in the event Employee's employment terminates as a result
of a Qualifying Event (as defined in any Executive Retention Protection
Agreement between Key Employee and the Company), Section 8 of this Agreement
shall be deemed waived and Section 6 of the 1991 Delta Excess Benefit Plan and
Section 6 of the Delta Supplemental Excess Benefit Plan shall not be applicable
to Key Employee. Further, the timing and payments of any retirement benefits to
be provided hereunder shall be governed by, and subject to, the terms of said
Executive Retention Protection Agreement to the extent such Agreement provides
for accelerated payments of retirement benefits otherwise payable under this
Agreement.
For purposes of this Agreement, "Change In Control" means, and shall be
deemed to have occurred upon, the first to occur of any of the following events:
7
<PAGE>
(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
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
8
<PAGE>
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 Key Employee, if Key Employee
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.
9
<PAGE>
As used in the above definition, the terms "Person", "Excluded
Person", "Affiliate", "Associate", "Beneficial Ownership", "Voting
Stock", "Board", "Exchange Act", "Holding Company", and "Effective
Date" shall have the same meaning as ascribed to those terms in the
then current Executive Retention Protection Agreement between the
Company and Key Employee.
IN WITNESS WHEREOF, the parties hereto have set their hands and seals
on the date(s) shown below.
DELTA AIR LINES, INC.
By:
-----------------------------
Leo F. Mullin
President and Chief Executive Officer
Date:
---------------------------
-------------------------------
Warren C. Jenson
Date:
--------------------------
10
<PAGE>
[Delta Air Lines, Inc. Letterhead]
Leo F. Mullin
President and
Chief Executive Officer
June 5, 1998
Mr. Frederick W. Reid
Heinrich von Kleist Strabe 42
61350 Bad Homburg, Germany
Dear Fred:
I am pleased to confirm my verbal offer of employment for the position of
Executive Vice President and Chief Marketing Officer (CMO) for Delta Air Lines,
Inc. (Delta or the Company), commencing on the date you accept this letter
agreement, with your active employment beginning on a date to be mutually agreed
upon which shall not be later than September 1, 1998. In this assignment, you
will report directly to me.
Your initial and minimum base salary will be $500,000 per annum, payable in
accordance with the usual payment practices of the Company.
With respect to each fiscal year beginning with the fiscal year ending June 30,
1999, during which you are employed by the Company, you will be eligible to
receive in addition to your base salary an annual incentive compensation award
(Annual Award) for services rendered during such fiscal year, subject to the
terms and conditions of the Company's annual incentive compensation plan as in
effect from time to time. Except as provided in the immediately following
paragraph, the amount of the Annual Award, if any, with respect to any fiscal
year will be based upon performance targets and award levels determined by the
Personnel & Compensation Committee of the Board of Directors (or any successor
committee designated by the Board) in its sole discretion, in accordance with
the Company's annual incentive compensation plan as in effect from time to time;
provided that for each fiscal year beginning with the fiscal year ending June
30, 1999, your target award level shall be established in such a manner as to
provide you with the opportunity to earn an award of at least 57.5% of your base
salary for such fiscal year, assuming performance at the target level.
<PAGE>
Notwithstanding the preceding paragraph, you will receive an Annual Award not
less than $300,000 with respect to fiscal year 1999, unless your employment is
terminated by the Company for Cause prior to June 30, 1999; provided, that if
your employment terminates for any reason other than Cause prior to June 30,
1999, the applicable minimum amount shall be reduced by multiplication by a
fraction, the numerator of which is the number of days from July 1, 1998 through
the date of termination of your employment, and the denominator of which is 365.
You will also be a participant in the 1989 Stock Incentive Plan in accordance
with the terms of that Plan. You will be granted an initial award of
nonqualified stock options on 125,000 shares of Delta common stock. The award
date will be the date of your acceptance of this letter agreement, and the
exercise price will be the closing price of Delta common stock on the New York
Stock Exchange on the day prior to the public announcement of your joining the
Company. These options will vest in 20% increments on each of the first five
anniversaries of the award date, subject to the terms and conditions set forth
in the award agreement attached as Exhibit A. Future grants, if any, will be in
accordance with the Plan.
To compensate you for benefits which you are forfeiting by resigning from
Lufthansa to accept a position with the Company, you will be granted 3,000
shares of restricted Delta common stock, which will vest in equal amounts (1,000
shares) on each of the first, second, and third anniversaries of the date of
your acceptance of this letter agreement. This restricted stock award is subject
to the terms and conditions set forth in the award agreement attached as Exhibit
B.
Through the end of April 2002, Delta will provide reimbursement for the premium
payments, plus full tax gross-up on the premium payments, for your current $3.2
million life insurance policy. Currently, the approximate annual premium is
$63,000.
Delta will provide reimbursement for the reasonable cost of your legal counsel
in connection with the negotiation and preparation of this agreement. While
employed by the Company, you will be entitled to such fringe benefits as are
provided to Executive Vice Presidents of the Company, including free and
2
<PAGE>
reduced-rate travel, automobile allowance, initiation fees and monthly dues for
one country club membership, and similar programs as in effect from time to
time.
Except as otherwise provided in this letter agreement, your employment with
Delta will be subject to Delta's standard policies and will be governed by the
terms and conditions of the Personnel Practices Manual, as may be amended from
time to time hereafter. You will be provided with vacation, sick leave, and paid
holidays in accordance with Delta's standard policy regarding these benefits for
Executive Vice Presidents of the Company.
You will also be eligible to participate in Delta's standard benefit programs,
as amended from time to time, including the following:
1. DeltaFlex, our flexible benefits plan, which provides you with a menu of
choices for medical, dental, life insurance, and disability benefits.
2. The Officer Life Insurance program.
3. The Delta Family-Care Disability and Survivorship Plan, which provides
certain disability benefits to you and certain benefits in the event of your
death.
4. The Delta Family-Care Retirement Plan benefit will accrue from the date you
join Delta. In addition, Delta has a nonqualified plan which will cover any
excess benefits not payable by the Delta Family-Care Retirement Plan (due to
Section 415 or 401(a)(17) limitations). For purposes of both vesting and benefit
accrual, you will be deemed to have eleven (11) additional years of service with
Delta, provided that you complete at least three (3) years of actual service as
an employee with Delta. The additional benefit will be paid under the
nonqualified plan.
5. After one year of service, the Delta Family-Care Savings Plan, which
currently features pre-tax or post-tax employee contributions of up to 12% (up
to the limits of the Internal Revenue Code), and at 50% match of your
contributions on the first 4% of salary, with Delta's maximum contribution equal
to 2% of your salary.
3
<PAGE>
The Company will pay all costs of relocation of you and your family to the
Atlanta metropolitan area in accordance with the Company's relocation policy
supplemented as follows:
(a) Reasonable temporary living expenses for you and your family in the
Atlanta metropolitan area for a period not to exceed six months from the date
you commence your duties with the Company;
(b) If you so elect prior to July 1, 1999, the Company will purchase from
you your primary residence as of the date hereof. The purchase price will be
equal to the average of the estimates of the fair market value of the residence
as determined, within 30 days of such election, by two reputable and independent
professional real estate appraisers, one of which will be selected by you and
one of which will be selected by the Company;
(c) The weight limitation for movement of your household effects will be
waived;
(d) The Company will pay up to two discount points with respect to one
mortgage financing of your initial new residence in the Atlanta metropolitan
area; and
(e) The Company will absorb any income tax liability resulting from
relocation benefits provided on your behalf.
Your eligibility for severance benefits is summarized below:
Change in Control
- -----------------
Your eligibility for benefits in conjunction with a Change in Control will be
governed by Delta's Retention Protection Agreement applicable to Executive
Vice Presidents of the Company.
Termination for Cause or Without Good Reason
- --------------------------------------------
No severance benefit provided.
4
<PAGE>
Termination Without Cause or For Good Reason*
- ---------------------------------------------
If your employment is terminated prior to July 1, 2001 (other than by reason of
death or disability) by the Company without Cause or by you with Good Reason,
you will receive: (1) the balance of your then current base salary and then
current target incentive compensation plan award through July 1, 2001 (subject
to a minimum of twelve (12) months of such salary and award), (2) immediate
vesting of any unvested stock option and restricted stock awards which you have
been granted under the terms of this letter agreement, and (3) immediate vesting
of all accrued retirement plan benefits, including your eleven (11) additional
years of service credit. For purposes of this letter agreement, the terms
"Cause" and "Good Reason" (and related terms) shall have the meanings set forth
in Exhibit C accompanying this letter agreement.
Termination After Death or Disability*
- --------------------------------------
If your employment is terminated due to death or disability prior to July 1,
2001, you will receive: (1) such death or disability benefits as shall then be
maintained by the Company for which you or your survivors are eligible; (2)
immediate vesting of any unvested stock option and restricted stock awards which
you have been granted under the terms of this letter agreement, and (3)
immediate vesting of all accrued retirement plan benefits, including your eleven
(11) additional years of service credit.
In the event of any conflict between the terms of this letter agreement and the
terms of any other agreement, award or arrangement contemplated hereby, the
terms of this letter agreement shall control. This letter agreement supersedes
all prior discussions and documentation concerning your compensation
arrangements with the Company.
- --------------------
* In the event a Qualifing Event (as defined in your Retention Protection
Agreement) occurs during the term of your Retention Protection Agreement, the
Retention Protection Agreement shall apply instead of these provisions.
5
<PAGE>
This offer shall remain open for your acceptance until 5:00 p.m. eastern time,
on Monday, June 15, 1998. If the terms outlined above reflect your understanding
of our offer and you accept employment based on these terms, please indicate
your acceptance by signing the two original letters provided. Please keep one
letter for your records and return the other to me.
Fred, we are extremely pleased to have you join the Delta team, and I look
forward with great pleasure to our association with you in this important role
at Delta. I anticipate benefiting from your expertise, and I believe you will
help us establish a winning formula for success in the future.
Sincerely,
/s/ Leo F. Mullin
Accepted and agreed to this
9th day of June, 1998
/s/ Frederick W. Reid
---------------------
Frederick W. Reid
<PAGE>
Exhibit A
---------
NONQUALIFIED STOCK OPTION AWARD AGREEMENT
UNDER THE 1989 STOCK INCENTIVE PLAN
June 9, 1998
Frederick W. Reid
Executive Vice President and Chief Marketing Officer
The 1989 Stock Incentive Plan of Delta Air Lines, Inc., as amended
("Plan"), is intended as an inducement for officers, executives and key
employees of Delta Air Lines, Inc. (the "Company") to continue in the employment
of the Company, and to provide a greater incentive to such employees to make
material contributions to the Company's success by increasing their proprietary
interest in the Company through increased direct stock ownership. The Plan,
which provides for certain awards to eligible employees, is administered by the
Personnel & Compensation Committee of the Board of Directors (the "Committee").
Pursuant to the Plan, the Committee selected you to receive an award of a
Nonqualified Stock Option under the Plan, effective as of the close of business
on June 9, 1998, and has instructed me, on behalf of the Company, to provide
this Agreement to you.
In consideration of the mutual covenants herein contained and for other
good and valuable consideration, the Company and you as an employee of the
Company (hereinafter called "Employee"), do hereby agree as follows:
1. The Company hereby grants to Employee a Nonqualified Stock Option
("Stock Option") covering 125,000 shares of Stock, as defined in the Plan, a
copy of which has been furnished to Employee. This award is in all respects made
subject to the terms and conditions of the Plan and, by signing and returning a
copy of this Agreement to the Secretary of the Company, Employee acknowledges
that he has read this Agreement and the Plan and agrees to all of the terms and
conditions thereof for himself, any designated beneficiary and his heirs,
executors, administrators or personal representatives. Terms used in this
Agreement which are defined in the Plan shall have the meanings set forth in the
Plan. In the event of any conflict between the Plan and this Agreement, the Plan
shall control. Employee also acknowledges receipt of the Prospectus dated
October 23, 1997, relating to the Plan.
2. The Option Price of the Stock Option covered by this award shall be
the closing price of the Stock on the New York Stock Exchange (the "NYSE") on
June 9, 1998, the date of this award.
3. Subject to the terms and conditions of the Plan and the other
provisions of this Agreement, the Stock Option shall become exercisable in
installments as follows, provided Employee continues to be employed by the
Company on the dates indicated:
<PAGE>
<TABLE>
<CAPTION>
Number of Shares with
Respect to which Option
First Becomes Exercisable Date
------------------------- ----
<S> <C>
25,000 June 9, 1999
25,000 June 9, 2000
25,000 June 9, 2001
25,000 June 9, 2002
25,000 June 9, 2003
</TABLE>
In the event of the occurrence prior to July 1, 2001 of the termination of
Employee's employment (i) by the Company without Cause, (ii) by Employee with
Good Reason or (iii) by reason of Employee's death or Disability (as defined in
the Plan), the Stock Option shall immediately become fully exercisable, and the
termination of Employee's employment will be treated, for purposes of
determining the terms of exercise of the Stock Option under Section 10(b) of the
Plan, as having occurred because of Employee's Retirement. For purposes of this
Agreement, the terms "Cause" and "Good Reason" shall have the respective
meanings assigned such terms in Annex A attached hereto.
4. Subject to the terms and conditions of the Plan and the other
provisions of this Agreement, including Paragraph 8 below, the Stock Option
granted to Employee herein may be exercised during the period beginning as set
forth in Paragraph 3 above and ending June 8, 2008, except as provided in
Sections 5 and 10 of the Plan. Subject to the terms and conditions of the Plan,
Employee (or, if Employee is deceased, a party acting on his behalf pursuant to
Section 10 of the Plan) may exercise the Stock Option granted herein in whole
or, from time to time, in part by way of a written notice delivered to the
Secretary of the Company which includes the following: (i) name, mailing address
and social security number of Employee and the date, which shall be actual date
of the notice; (ii) the number of shares of Stock with respect to which the
Stock Option is being exercised; (iii) the date of grant and the Option Price
with respect to the Stock Option being exercised; and (iv) the signature of
Employee or a party acting on behalf of a deceased employee. Payment of the full
purchase price of the shares of Stock covered by the exercise shall be made in
the manner prescribed by the Committee from time to time. If the Committee, in
its sole discretion, shall determine that it is appropriate to do so, such
payment may be made in whole or in part by tender of shares of unrestricted
Stock, as set forth in Section 5 of the Plan, subject to such requirements or
procedures as the Committee may specify.
5. When the Stock Option is exercised, the Company shall make the
appropriate calculations under the Plan and deliver to Employee, as soon as
practicable, a certificate or certificates representing the net number of shares
of Stock due to Employee pursuant to such exercise, calculated in accordance
with this paragraph. Unless other tax withholding arrangements are made by
Employee and the Company, the Company shall withhold from the shares of Stock
issued to Employee a sufficient number of shares of Stock based on its fair
market value on the date of exercise to cover any amounts which the Company is
required to withhold to comply with withholding requirements of federal, state
or local tax laws, rules or regulations. The fair market value for purposes of
the second sentence of this paragraph shall be as reasonably determined by the
Committee.
2
<PAGE>
6. The Stock Option granted herein is not transferable otherwise than
by will, by the laws of descent and distribution, or by a written designation
referred to in Section 10(c) of the Plan, and is exercisable during Employee's
lifetime only by Employee. In the event that the Stock Option is exercised
pursuant to Section 10 of the Plan by any person other than Employee, such
notice shall be accompanied by appropriate proof of the right of such person to
exercise the Stock Option.
7. The Stock Option granted herein is subject to all terms of the Plan,
including but not limited to Section 10(b), which provides for the forfeiture of
certain benefits in certain circumstances in the event of Employee's Retirement
prior to his normal retirement date.
8. Employee acknowledges that the federal securities laws and/or the
Company's policies regarding trading in its securities may limit or restrict
Employee's right to buy or sell shares of Stock, including, without limitation,
sales of Stock to exercise the Stock Option or sales of Stock acquired pursuant
to the exercise of the Stock Option. Employee agrees to comply with such federal
securities law requirements and Company policies, as such laws and policies are
amended from time to time.
This Agreement has been prepared in duplicate. Please note your
acceptance in the space provided therefor and return the original for the
Company's records.
IN WITNESS WHEREOF, the Company, acting through its duly authorized
officer, has caused this Agreement to be duly executed, and Employee has
hereunto set his hand, all as of the day and year first written above.
DELTA AIR LINES, INC.
BY
----------------------------
Leo F. Mullin
President and Chief Executive Officer
EMPLOYEE
-----------------------------------
Frederick W. Reid
3
<PAGE>
ANNEX A
"Cause" means the occurrence of any one or more of the following:
(a) A demonstrably willful and deliberate act or failure to act by you
(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 action or inaction
is not remedied within fifteen business days of written notice from the Company;
or
(b) Your conviction for committing an act of fraud, embezzlement,
theft, or any other act constituting a felony involving moral turpitude.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to you 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
of Directors at a meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together with your counsel,
to be heard before the Board), finding that, in the good faith opinion of the
Board, you are guilty of conduct set forth above in clauses (a) or (b) of this
definition and specifying the particulars thereof in detail.
"Effective Date" means June 9, 1998.
"Good Reason" means the occurrence of any one or more of the following, unless
you have expressly consented in writing thereto:
(a) The assignment to you of duties inconsistent with your authorities,
duties, titles, responsibilities and status as an officer of the Company, or a
reduction or alteration in the nature or status of your authorities, duties,
titles or responsibilities, from those in effect as of the Effective Date, other
than an insubstantial and inadvertent act that is remedied by the Company
promptly after receipt of notice thereof given by you;
(b) The Company's requiring you to be based at a location in excess of
50 miles from your principal job location or office on the later of (i) the
Effective Date or (ii) immediately prior to the Reference Date; except for
required travel on the Company's business to an extent consistent with your
business travel obligations on the later of (i) the Effective Date or (ii)
immediately prior to the Reference Date;
(c) A reduction by the Company of your base salary as in effect on the
later of (i) the Effective Date or (ii) 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 your short-term or long-term incentive
compensation opportunities under the executive incentive compensation plans of
the Company for which you are eligible as in effect on the later of (i) the
Effective Date or (ii) the Reference Date;
<PAGE>
(d) The failure by the Company to keep in effect compensation,
retirement, health and welfare benefits, or perquisite programs under which you
receive benefits substantially similar, in the aggregate, to the benefits under
such programs as exist on the later of (i) the Effective Date or (ii)
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 the
letter agreement to which this Annex A relates or any failure of a successor of
the Company to assume and agree to perform the Company's entire obligations
under that letter agreement, provided that such successor has received at least
ten days written notice from the Company or you of the requirement to assume
those obligations.
"Reference Date" means the date 90 days prior to the termination of your
employment.
2
<PAGE>
Exhibit B
---------
RESTRICTED STOCK AWARD AGREEMENT
UNDER THE 1989 STOCK INCENTIVE PLAN
June 9, 1998
Frederick W. Reid
Executive Vice President and Chief Marketing Officer
The 1989 Stock Incentive Plan of Delta Air Lines, Inc., as amended
("Plan"), is intended as an inducement for officers, executives and key
employees of Delta Air Lines, Inc. (the "Company") to continue in the employment
of the Company, and to provide a greater incentive to such employees to make
material contributions to the Company's success by increasing their proprietary
interest in the Company through increased direct stock ownership. The Plan,
which provides for certain awards to eligible employees, is administered by the
Personnel & Compensation Committee of the Board of Directors (the "Committee").
Pursuant to the Plan, the Committee has selected you to receive an award of
Restricted Stock (as defined in the Plan) effective as of the close of business
on June 9, 1998, and has instructed me to direct this letter to you.
In consideration of the mutual covenants herein contained and for other
good and valuable consideration, the Company and you as an employee of the
Company (hereinafter called "Employee"), do hereby agree as follows:
1. Grant of Shares. Pursuant to action of the Committee, the Company
hereby grants to Employee 3,000 shares of Restricted Stock (the "Shares"). This
award is in all respects made subject to the terms and conditions of the Plan, a
copy of which has been provided to Employee, and by signing and returning a copy
of this Agreement to the Secretary of the Company, Employee acknowledges that he
has read the Plan and agrees to all of the terms and conditions thereof for
himself, any designated beneficiary and his heirs, executors, administrators or
personal representatives. Terms used in this Agreement which are defined in the
Plan shall have the meanings set forth in the Plan. In the event of any conflict
between the Plan and this Agreement, the Plan shall control. Employee also
acknowledges receipt of the Prospectus dated October 23, 1997, relating to the
Plan.
As soon as practicable following Employee's execution of this
Agreement and the stock power described below in Section 6, a certificate or
certificates representing the Shares and bearing the legend described below in
Section 6 shall be issued to Employee. Upon issuance of the certificates
representing the Shares, Employee shall have all rights of a stockholder with
respect to the Shares, including the right to vote and, subject to Section 10 of
this Agreement, to receive all dividends or other distributions paid or made
with respect to the Shares; provided, however, that the Shares (and any
securities of the Company which may be issued with respect to the Shares by
virtue of any dividend reinvestment, stock split, combination, stock dividend or
recapitalization, which securities shall be deemed to be "Shares" hereunder)
shall be subject to the terms and all of the restrictions set forth in this
Agreement.
<PAGE>
2. Restriction. Until the restriction imposed by this Section 2 (the
"Restriction") has lapsed pursuant to Section 3 or 4 below, Employee shall not
be permitted to sell, exchange, assign, transfer, pledge or otherwise dispose of
the Shares and the Shares shall be subject to forfeiture as set forth in Section
5 below.
3. Lapse of Restriction by Passage of Time. The Restriction shall
lapse and have no further force or effect as to 33-1/3% of such Shares
(including 33-1/3% of any additional Shares which at the time have been
purchased with dividends on such Shares) on each of June 9, 1999, 2000 and 2001,
provided Employee remains employed by the Company on such dates.
4. Lapse of Restriction in Certain Cases. The Restriction shall lapse
and have no further force or effect with respect to all Shares hereunder upon
the occurrence prior to July 1, 2001 of the termination of Employee's employment
(i) by the Company without Cause, (ii) by Employee with Good Reason or (iii) by
reason of Employee's death or Disability (as defined in the Plan). For purposes
of this Agreement, the terms "Cause" and "Good Reason" shall have the respective
meanings assigned such terms in Annex A attached hereto. Employee may provide to
the Company written designation naming a person or persons who shall receive the
Shares in the event of Employee's death, and such designation must be in a form
approved by counsel for the Company. If there is no such approved designation,
Shares shall be distributed upon Employee's death pursuant to Employee's last
will and testament or as provided by law.
5. Forfeiture of Shares. In the event of termination of Employee's
employment with the Company other than in the circumstances described in clauses
(i), (ii) or (iii) of Section 4 and prior to lapse of the Restriction under
Section 3, Employee shall immediately forfeit all right, title and interest to
the Shares which are still subject to the Restriction, and such Shares shall be
canceled or transferred to the Company by Employee, without consideration to
Employee or his heirs, executors, administrators or personal representatives.
6. Endorsement and Retention of Certificates. All certificates
representing the Shares shall be endorsed on the face thereof with the following
legend:
"The shares of stock represented by this certificate and the sale,
transfer or other disposition of such shares are restricted by and
subject to a Restricted Stock Award Agreement dated June 9, 1998
between Frederick W. Reid and the Company, a copy of which is on file
with the Secretary of the Company."
All certificates for Shares shall be held by the Company until the
restrictions thereon shall have lapsed and, as a condition to this award,
Employee shall execute and deliver to the Company a stock power, endorsed in
blank and approved by counsel for the Company, relating to the Shares, as set
forth in the Plan.
Upon lapse of the Restriction pursuant to Section 3 or 4 of
this Agreement without a prior forfeiture of the Shares, a certificate or
certificates for an appropriate number of unrestricted Shares shall be delivered
to Employee and the certificate with the legend indicated above shall be
canceled.
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7. Withholding Taxes. Upon lapse of the Restriction on the Shares
pursuant to Section 3 or 4 above, unless other tax withholding arrangements are
made by Employee and the Company, sufficient Shares shall be transferred to the
Company to provide for the payment of any taxes required to be withheld by
federal, state, or local law with respect to income resulting from such lapse.
The value of the Shares so transferred shall be the closing price of the Common
Stock on the NYSE on the date the Restriction lapses (or, in the event that no
sale of the Common Stock takes place on the NYSE on such date, the closing price
of the Common Stock on the NYSE on the immediately preceding date on which such
a sale occurred).
8. Rights Not Enlarged. Nothing herein confers on Employee any right
to continue in the employ of the Company or any of its subsidiaries.
9. Succession. This Agreement shall be binding upon and operate for
the benefit of the Company and its successors and assigns, and Employee and his
heirs, executors, administrators or personal representatives.
10. Dividends. Any cash dividends which may become payable on the
Shares shall be reinvested by the Company in shares of Common Stock, to the
extent Shares are available under the Plan. If shares are not so available,
dividends shall be paid in cash and held by the Company for the account of
Employee until the Restriction lapses. In such event the Company shall pay
interest on the amount so held as determined by the Committee, and the
accumulated amount of such dividends and interest shall be payable to Employee
upon the lapse of the Restriction. Those Shares and any cash held for the
account of the Employee shall be governed by the Restriction set forth in the
Agreement; the Restriction with respect to such Shares and such cash shall lapse
as provided in Sections 3 and 4 of this Agreement; and such shares and such cash
shall be forfeited pursuant to Section 5 to the extent that the Shares on which
such dividends were paid shall be so forfeited.
11. Fractional Shares. Upon lapse of the Restriction, certificates for
fractional Shares shall not be delivered to Employee, and the value of any
fractional Shares which may result from the application of Section 3 or 4 of
this Agreement shall be paid in cash to Employee, as determined in the last
sentence of Section 7 above.
This Agreement has been prepared in duplicate. Please note your
acceptance in the space provided therefor and return the original for the
Company's records.
IN WITNESS WHEREOF, the Company, acting through its duly authorized
officer, has caused this Agreement to be duly executed, and Employee has
hereunto set his hand, all as of the day and year first written above.
DELTA AIR LINES, INC.
BY
-----------------------------
Leo F. Mullin
President and Chief Executive Officer
EMPLOYEE
-----------------------------------
Frederick W. Reid
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ANNEX A
"Cause" means the occurrence of any one or more of the following:
(a) A demonstrably willful and deliberate act or failure to act by you
(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 action or inaction
is not remedied within fifteen business days of written notice from the Company;
or
(b) Your conviction for committing an act of fraud, embezzlement,
theft, or any other act constituting a felony involving moral turpitude.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to you 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
of Directors at a meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together with your counsel,
to be heard before the Board), finding that, in the good faith opinion of the
Board, you are guilty of conduct set forth above in clauses (a) or (b) of this
definition and specifying the particulars thereof in detail.
"Effective Date" means June 9, 1998.
"Good Reason" means the occurrence of any one or more of the following, unless
you have expressly consented in writing thereto:
(a) The assignment to you of duties inconsistent with your authorities,
duties, titles, responsibilities and status as an officer of the Company, or a
reduction or alteration in the nature or status of your authorities, duties,
titles or responsibilities, from those in effect as of the Effective Date, other
than an insubstantial and inadvertent act that is remedied by the Company
promptly after receipt of notice thereof given by you;
(b) The Company's requiring you to be based at a location in excess of
50 miles from your principal job location or office on the later of (i) the
Effective Date or (ii) immediately prior to the Reference Date; except for
required travel on the Company's business to an extent consistent with your
business travel obligations on the later of (i) the Effective Date or (ii)
immediately prior to the Reference Date;
(c) A reduction by the Company of your base salary as in effect on the
later of (i) the Effective Date or (ii) 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 your short-term or long-term incentive
compensation opportunities under the executive incentive compensation plans of
the Company for which you are eligible as in effect on the later of (i) the
Effective Date or (ii) the Reference Date;
<PAGE>
(d) The failure by the Company to keep in effect compensation,
retirement, health and welfare benefits, or perquisite programs under which you
receive benefits substantially similar, in the aggregate, to the benefits under
such programs as exist on the later of (i) the Effective Date or (ii)
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 the
letter agreement to which this Annex A relates or any failure of a successor of
the Company to assume and agree to perform the Company's entire obligations
under that letter agreement, provided that such successor has received at least
ten days written notice from the Company or you of the requirement to assume
those obligations.
"Reference Date" means the date 90 days prior to the termination of your
employment.
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IRREVOCABLE STOCK POWER
-----------------------
The undersigned, Frederick W. Reid, does hereby assign, transfer and
deliver unto _____________________________________ all of those shares of common
stock of Delta Air Lines, Inc. (the "Company") granted as restricted stock (the
"Restricted Stock") pursuant to the Restricted Stock Award Agreement Under The
1989 Stock Incentive Plan dated as of June 9, 1998, between the Company and
Frederick W. Reid, as well as all of those shares of common stock of the Company
purchased for the undersigned with reinvested dividends from the Restricted
Stock (collectively, the "Shares").
The undersigned does hereby irrevocably constitute and appoint
_______________________________________ attorney-in-fact, with full power of
substitution, to transfer the Shares on the books of the Company, or to direct
the Transfer Agent of the Company to so transfer the Shares.
Signature:
------------------------
Printed Name:
------------------------
Date:
------------------------
Witness:
- -------------------------------
<PAGE>
Exhibit C
---------
"Cause" means the occurrence of any one or more of the following:
(a) A demonstrably willful and deliberate act or failure to act by you
(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 action or inaction
is not remedied within fifteen business days of written notice from the Company;
or
(b) Your conviction for committing an act of fraud, embezzlement,
theft, or any other act constituting a felony involving moral turpitude.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to you 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
of Directors at a meeting of the Board called and held for such purpose (after
reasonable notice to you and an opportunity for you, together with your counsel,
to be heard before the Board), finding that, in the good faith opinion of the
Board, you are guilty of conduct set forth above in clauses (a) or (b) of this
definition and specifying the particulars thereof in detail.
"Effective Date" means June 9, 1998.
"Good Reason" means the occurrence of any one or more of the following, unless
you have expressly consented in writing thereto:
(a) The assignment to you of duties inconsistent with your authorities,
duties, titles, responsibilities and status as an officer of the Company, or a
reduction or alteration in the nature or status of your authorities, duties,
titles or responsibilities, from those in effect as of the Effective Date, other
than an insubstantial and inadvertent act that is remedied by the Company
promptly after receipt of notice thereof given by you;
(b) The Company's requiring you to be based at a location in excess of
50 miles from your principal job location or office on the later of (i) the
Effective Date or (ii) immediately prior to the Reference Date; except for
required travel on the Company's business to an extent consistent with your
business travel obligations on the later of (i) the Effective Date or (ii)
immediately prior to the Reference Date;
(c) A reduction by the Company of your base salary as in effect on the
later of (i) the Effective Date or (ii) immediately prior to; except for
required travel on the Company's business to an extent consistent with your
business travel obligations on the later of (i) the Effective Date or (ii) 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 your short-term
or long-term incentive compensation opportunities under the executive incentive
compensation plans of the Company for which you are eligible as in effect on the
later of (I) the Effective Date or (ii) the Reference Date;
(d) The failure by the Company to keep in effect compensation,
retirement, health and welfare benefits, or perquisite programs under which you
receive benefits substantially similar, in the aggregate, to the benefits under
such programs as exist on the later of (i) the Effective Date or
<PAGE>
(ii) 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 the
letter agreement to which this Exhibit C relates or any failure of a successor
of the Company to assume and agree to perform the Company's entire obligations
under that letter agreement, provided that such successor has received at least
ten days written notice from the Company or you of the requirement to assume
those obligations.
"Reference Date" means the date 90 days prior to the termination of your
employment.
<PAGE>
EXECUTIVE RETENTION PROTECTION AGREEMENT
EXECUTIVE RETENTION PROTECTION AGREEMENT ("Agreement") dated as of June
9, 1998 (the "Effective Date") by and between Delta Air Lines, Inc., a Delaware
corporation (the "Company"), and Frederick W. Reid ("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
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<PAGE>
Instrument shall 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 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 or exercisability under this Article 2 would result in the imposition of
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<PAGE>
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.
4
<PAGE>
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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(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.
(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)
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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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<PAGE>
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), programs, policies, or practices provided by the Company, for
which Executive may qualify. Vested benefits or other amounts which Executive is
otherwise
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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.
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.
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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
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(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 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
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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 "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
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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.
"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).
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"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;
(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
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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),
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).
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"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.
"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.
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"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: Leo F. Mullin
Title: President and Chief Executive
Officer
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Exhibit 12
DELTA AIR LINES, INC.
STATEMENT REGARDING COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In millions, except ratios)
<TABLE>
<CAPTION>
------- ------- ------- ------- -------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings (loss):
Earnings (loss) before income taxes and cumulative
effect of accounting change $ 1,648 $ 1,415 $ 276 $ 494 $ (660)
Add (deduct):
Fixed charges from below 669 673 582 665 689
Interest capitalized (38) (33) (26) (30) (33)
Interest offset on Guaranteed Serial ESOP Notes -- -- (2) (4) (14)
------- ------- ------- ------- -------
Earnings (loss) as adjusted $ 2,279 $ 2,055 $ 830 $ 1,125 $ (18)
Fixed charges:
Interest expense $ 186 $ 207 $ 269 $ 292 $ 304
Portion of rental expense representative of the
interest factor 483 466 311 369 371
Additional interest on Guaranteed Serial ESOP Notes -- -- 2 4 14
------- ------- ------- ------- -------
Total fixed charges $ 669 $ 673 $ 582 $ 665 $ 689
Ratio of earnings to fixed charges 3.41 3.05 1.43 1.69 --
</TABLE>
- ----------------------------------------------------------------------------
Earnings for fiscal years ended June 30, 1994 were inadequate to cover
fixed charges. Additional earnings of $707 million for the fiscal year ended
June 30, 1994 would have been necessary to bring the ratio to 1.0.
<PAGE>
Exhibit 13
AIRCRAFT FLEET
At the heart of the Company's operations is Delta's aircraft fleet. To maintain
a young and technologically advanced fleet, Delta has entered into a long-term
aircraft purchase agreement with The Boeing Company (Boeing). The agreement
covers firm orders, options and rolling options for certain aircraft through
calendar year 2017, and supports the Company's plan for disciplined growth,
aircraft rationalization and fleet replacement.
The agreement with Boeing provides Delta with long-term price controls, risk
sharing and the flexibility to adjust scheduled aircraft deliveries or
substitute between aircraft models and aircraft types, subject to certain
conditions.
The majority of the aircraft under firm order will be used to replace older
aircraft. Delta's long-term plan is to reduce aircraft family types from six to
three. A move to a more standardized fleet is expected to improve reliability
and result in long-term cost savings. As previously announced, the Company plans
to retire its remaining L-1011 aircraft by August 2001, replaced primarily by
B-767 aircraft. Delta also has announced a three-year acceleration of the
planned retirement of the B-727 aircraft fleet which it now plans to retire by
the end of fiscal 2005. The B-727 aircraft will be replaced primarily by new
generation B-737 aircraft.
Delta accepted delivery of 15 new aircraft and acquired 10 aircraft from
other carriers during fiscal 1998, composed of two B-727-200 aircraft, six
B-737-300 aircraft, four B-757-200 aircraft, 12 B-767-300ER aircraft and one
MD-11 aircraft. In addition, Delta purchased four 727-200 aircraft that it
previously leased. The Company expects to take delivery of seven aircraft from
other carriers in fiscal 1999, five of which have been delivered. Delta retired
nine L-1011 aircraft from the fleet in fiscal 1998.
AIRCRAFT FLEET AT JUNE 30, 1998
<TABLE>
<CAPTION>
Leased
Average ------------------
Aircraft Type Age Owned Capital Operating Total
- -------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
B-727-200 21.2 121 - 10 131
B-737-200 13.6 1 45 8 54
B-737-300 11.6 - 3 16 19
B-757-200 9.1 54 - 41 95
B-767-200 15.1 15 - - 15
B-767-300 9.1 2 - 24 26
B-767-300ER 4.2 31 - 8 39
L-1011-1 19.8 18 - - 18
L-1011-250 15.7 6 - - 6
L-1011-500 17.3 15 - - 15
MD-11 4.4 8 - 7 15
MD-88 8.0 63 - 57 120
MD-90 2.6 16 - - 16
- -------------------------------------------------------------
Total 12.3 350 48 171 569
---------------------------
---------------------------
</TABLE>
AIRCRAFT DELIVERY SCHEDULES AT AUGUST 14, 1998
<TABLE>
<CAPTION>
Delivery in Year Ending June 30:
--------------------------------
After
Aircraft on Firm Order 1999 2000 2001 2002 2002 Total
- --------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
B-737-600/700/800 7 12 5 9 54 87
B-757-200 5 7 - - - 12
B-767-300/300ER 14 - - - - 14
B-767-400 - 2 19 - - 21
B-777-200 2 10 2 - - 14
- --------------------------------------------------------------------
Total 28 31 26 9 54 148
- --------------------------------------------------------------------
- --------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Delivery in Year Ending June 30:
--------------------------------
After Rolling
Aircraft on Option* 1999 2000 2001 2002 2002 Total Options
- ----------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
B-737-600/700/800 - 5 12 7 36 60 275
B-757-200 - 4 3 8 5 20 85
B-767-300/300ER - 1 4 2 4 11 19
B-767-400 - - - 12 12 24 25
B-777-200 - - 1 5 14 20 30
- ----------------------------------------------------------------
Total - 10 20 34 71 135 434
- ----------------------------------------------------------------
- ----------------------------------------------------------------
</TABLE>
*Aircraft options have scheduled delivery slots, while rolling options replace
options and are assigned delivery slots as options expire or are exercised.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
DELTA AIR LINES, INC.
RESULTS OF OPERATIONS
SUMMARY OF RESULTS
For fiscal 1998, Delta recorded operating income of $1.7 billion and net income
of $1.0 billion ($13.28 basic and $12.68 diluted income per common share). These
results represent the strongest financial performance ever reported by Delta for
a fiscal year. In fiscal 1997, Delta recorded operating income of $1.5 billion
and net income of $854 million ($11.39 basic and $11.03 diluted income per
common share).
Financial Results Summary
<TABLE>
<CAPTION>
(In Millions, Except Share Amounts) 1998 1997 Change
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues $14,138 $13,594 4%
Operating Expenses 12,445 12,063 3
- -----------------------------------------------------------------
Operating Income 1,693 1,531 11
Other Expense, Net 45 116 (61)
- -----------------------------------------------------------------
Income Before Income Taxes 1,648 1,415 16
Income Taxes Provided 647 561 15
- -----------------------------------------------------------------
Net Income 1,001 854 17
Preferred Stock Dividends 11 9 22
- -----------------------------------------------------------------
Net Income Available to
Common Shareowners $ 990 $ 845 17%
- -----------------------------------------------------------------
- -----------------------------------------------------------------
Income per common share:
Basic $ 13.28 $ 11.39 17%
Diluted $ 12.68 $ 11.03 15%
Number of Shares Used
to Compute Income
Per Common Share:
Basic 74,567,059 74,233,606
Diluted 78,630,519 76,964,892
</TABLE>
Fiscal 1997 results include pretax restructuring and other non-recurring
charges of $52 million ($32 million after-tax or $0.43 basic and $0.42 diluted
income per common share) related to the realignment of the Company's
transatlantic and European operations.
FISCAL 1998 COMPARED WITH FISCAL 1997
OPERATING REVENUES
Operating Revenue Detail
<TABLE>
<CAPTION>
(In Millions) 1998 1997 Change
- -----------------------------------------------------------
<S> <C> <C> <C>
Passenger $12,976 $12,505 4%
Cargo 582 554 5
Other, Net 580 535 8
- ------------------------------------------------
Total $14,138 $13,594 4%
- ------------------------------------------------
- ------------------------------------------------
</TABLE>
Operating revenues for fiscal 1998 were $14.1 billion, up 4% from $13.6
billion in fiscal 1997. Passenger revenue increased 4%, which reflects a 3%
increase in revenue passenger miles on capacity growth of 2%. The passenger mile
yield was 12.83 cents, virtually unchanged from fiscal 1997. During fiscal 1998,
Delta benefited from continued favorable economic conditions, increased demand
for air travel and the strategic reallocation of certain aircraft.
Domestic passenger revenue increased 4%, to $10.7 billion, driven by a 3%
increase in domestic revenue passenger miles on a 2% increase in domestic
capacity. The increase in domestic revenue passenger miles is primarily due to
favorable economic conditions and improved asset utilization. Domestic passenger
mile yield increased 1% due to a domestic fare increase implemented during the
September 1997 quarter, largely offset by the full-year impact of the U.S.
transportation excise tax and increased low-fare competition.
Consistent with the Company's strategy to expand its global reach,
international passenger revenue increased 3%, to $2.3 billion, reflecting a 6%
increase in international revenue passenger miles on a 5% increase in
international capacity. The increase in international revenue passenger miles is
primarily due to the addition of new routes, improved asset utilization, and
continued strong demand in the Atlantic market, as well as the Company's recent
expansion into Latin America. The international passenger mile yield decreased
3% year over year, mainly due to overall capacity growth in the Atlantic market.
Cargo revenues increased 5% to $582 million, reflecting a 14% increase in
cargo ton miles and an 8% decrease in cargo ton mile yield. All other revenues
increased 8% to $580 million, mainly due to higher administrative service charge
revenues.
Revenue-Related Statistics
<TABLE>
<CAPTION>
1998 1997 Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue Passengers
Enplaned (Thousands) 104,148 101,147 3%
Revenue Passenger
Miles (Millions) 101,136 97,758 3%
Passenger Load Factor 72.2% 71.4% 0.8 pts.
Passenger Mile Yield 12.83 cents 12.79 cents -
Cargo Ton Miles (Millions) 1,745 1,532 14%
Cargo Ton Mile Yield 33.35 cents 36.14 cents (8)%
Operating Revenue
Per Available Seat Mile 10.09 cents 9.94 cents 2%
- --------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
DELTA AIR LINES, INC.
OPERATING EXPENSES
Operating expenses in fiscal 1998 totaled $12.4 billion, up 3% from $12.1
billion in fiscal 1997. Operating cost per available seat mile increased 1% to
8.88 cents.
Operating Expense Detail
<TABLE>
<CAPTION>
(In Millions) 1998 1997 Change
- -----------------------------------------------------------
<S> <C> <C> <C>
Salaries and Related Costs $ 4,850 $ 4,534 7%
Aircraft Fuel 1,507 1,722 (12)
Passenger Commissions 980 1,017 (4)
Depreciation and Amortization 861 710 21
Contracted Services 694 630 10
Other Selling Expenses 681 677 1
Landing Fees and Other Rents 649 649 -
Aircraft Rent 552 547 1
Aircraft Maintenance Materials
and Outside Repairs 495 434 14
Passenger Service 450 389 16
Restructuring and
Other Non-recurring Charges - 52 -
Other 726 702 3
- -----------------------------------------------------------
Total $12,445 $12,063 3%
- -----------------------------------------------------------
- -----------------------------------------------------------
</TABLE>
Salaries and related costs increased 7% due to an 8% increase in full-time
equivalent employees, primarily in customer service areas, and compensation and
benefit enhancements for non-contract domestic employees, which became effective
July 1, 1997. Aircraft fuel expense decreased 12% as the average fuel price per
gallon declined 15% to 56.54(cent). Passenger commissions expense decreased 4%
due to the implementation of a lower commission rate structure in the September
1997 quarter and increased utilization of lower cost distribution channels,
partially offset by higher total commissions resulting from increased passenger
revenue. Depreciation and amortization expense increased 21% due to the
acquisition of additional aircraft and ground equipment, as well as increased
investment in information systems. Contracted services expense rose 10% due to
higher information technology costs and increased airport contract expenses
associated with customer service initiatives and higher passenger volume.
Aircraft maintenance materials and outside repairs expense increased 14% largely
due to increased scheduled maintenance visits. Passenger service expense
increased 16% due to onboard service enhancements and increased passenger
traffic.
Operating Statistics
<TABLE>
<CAPTION>
1998 1997 Change
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Available Seat Miles (Millions) 140,149 136,821 2%
Operating Margin 12.0% 11.3% 0.7 pts.
Fuel Gallons Consumed (Millions) 2,664 2,599 3%
Average Fuel Price Per Gallon 56.54 cents 66.23 cents (15)%
Breakeven Passenger Load Factor 62.7% 62.7% -
Operating Cost Per Available
Seat Mile 8.88 cents 8.82 cents 1%
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
OTHER INCOME (EXPENSE)
Other expense for fiscal 1998 decreased $71 million to $45 million, primarily
due to lower interest expense resulting from lower average levels of debt
outstanding and higher interest income resulting from higher cash balances. In
addition, fiscal 1997 other expense included a $20 million payment to settle
certain class action antitrust lawsuits filed by travel agents.
FISCAL 1997 COMPARED WITH FISCAL 1996
For fiscal 1997, Delta recorded operating income of $1.5 billion and net income
of $854 million ($11.39 basic and $11.03 diluted income per common share). In
fiscal 1996, Delta recorded operating income of $463 million and net income of
$156 million ($1.43 basic and diluted income per common share).
As discussed previously, fiscal 1997 results include pretax restructuring
and other non-recurring charges of $52 million. Fiscal 1996 results include
pretax restructuring and other non-recurring charges totaling $829 million ($506
million after-tax or $9.77 per common share) related to the write-down of
Delta's L-1011 fleet and certain cost reduction initiatives.
OPERATING REVENUES
Operating revenues for fiscal 1997 were $13.6 billion, up 9% from $12.5 billion
in fiscal 1996. Passenger revenue increased 8%, the result of 10% growth in
revenue passenger miles partially offset by a 2% decline in the passenger mile
yield.
26
<PAGE>
Domestic passenger revenue increased 9%, to $10.3 billion, reflecting a
13% increase in domestic revenue passenger miles on a 6% increase in domestic
capacity, and a 3% decline in the domestic passenger mile yield. Domestic
traffic growth was primarily due to the Company's realignment of domestic
routes which increased Delta's operations at its Atlanta and Cincinnati hubs;
reduced operations by a competitor; and favorable economic conditions. The
decrease in the domestic passenger mile yield was due to the use of more
competitive pricing strategies and the reimposition of the U.S.
transportation excise tax on March 7, 1997.
International passenger revenue rose 1%, to $2.2 billion, due to a 3%
increase in international revenue passenger miles which was largely offset by a
2% decline in the international passenger mile yield. The increase in
international revenue passenger miles was primarily due to improved asset
utilization and favorable economic conditions. The decrease in the international
passenger mile yield was due to the Company's use of more competitive pricing
strategies.
Cargo revenues increased 6% to $554 million, reflecting a 12% increase in
cargo ton miles and a 5% decline in cargo ton mile yield. Other revenues were up
68% to $535 million, mainly due to increased revenues from expanded joint
marketing programs and improved results from code-sharing arrangements.
OPERATING EXPENSES
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
8.82(cent). Excluding restructuring and other non-recurring charges, operating
expenses were up 8%, and operating cost per available seat mile increased 3%.
This increase was primarily due to higher salaries and related costs, aircraft
fuel expense and certain traffic-related costs.
OTHER INCOME (EXPENSE)
Other expense for fiscal 1997 decreased $71 million, to $116 million, primarily
due to lower interest expense and higher equity income from associated
companies. Other expense for fiscal 1997 included Delta's $20 million payment to
settle certain class action antitrust lawsuits filed by travel agents.
LIQUIDITY AND CAPITAL RESOURCES
FISCAL YEAR 1998
During fiscal 1998, strong operating results enabled the Company to continue to
strengthen its financial position. Cash and cash equivalents and short-term
investments totaled $1.6 billion at June 30, 1998, compared to $1.2 billion at
June 30, 1997. The principal sources of funds during fiscal 1998 were $2.9
billion of cash from operations, $402 million (including an income tax benefit
of $84 million related to the exercise of stock options) from the issuance of
Common Stock, primarily under the Company's broad-based employee stock option
plans, and $125 million from the issuance of long-term obligations.
During fiscal 1998, Delta invested $1.8 billion in flight equipment and
$531 million in ground property and equipment. The Company also made payments of
$307 million on long-term debt and capital lease obligations; paid $354 million
to repurchase Common Stock; and paid cash dividends of $28 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, 1998 and 1997, the Company had negative working capital of
$1.2 billion. A negative working capital position is normal for Delta and does
not indicate a lack of liquidity. The Company expects to meet its current and
long-term 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 14, 1998,
the Company had $1.25 billion of credit available under its 1997 Bank Credit
Agreement. See Note 6 of Notes to Consolidated Financial Statements.
27
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
DELTA AIR LINES, INC.
Long-term debt and capital lease obligations, including current maturities,
totaled $1.9 billion at June 30, 1998, compared to $2.1 billion at June 30,
1997. Shareowners' equity was $4.0 billion at June 30, 1998, compared to $3.0
billion at June 30, 1997. The Company's debt-to-equity position, including
current maturities, was 32% debt and 68% equity at June 30, 1998, compared to
41% debt and 59% equity at June 30, 1997.
At August 14, 1998, 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. Delta is required to
purchase the Series C ESOP Notes in certain circumstances. See Note 6 of Notes
to Consolidated Financial Statements.
FISCAL YEAR 1997
During fiscal 1997, the principal source of funds was $2.0 billion of cash from
operations. 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; paid $379 million to repurchase
Common Stock; and paid cash dividends of $29 million on its Series B ESOP
Convertible Preferred Stock and $15 million on its Common Stock.
FISCAL YEAR 1996
In fiscal 1996, the principal source of funds was $1.4 billion of cash from
operations. During fiscal 1996, Delta invested $639 million in flight equipment,
and $297 million in ground property and equipment. The Company made payments of
$440 million on long-term debt and capital lease obligations; 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; and paid $66 million to repurchase Common Stock.
COMMITMENTS
Future expenditures for aircraft, engines and engine hush-kits on firm order as
of August 14, 1998, are estimated to be $6.9 billion. The Company has also
authorized fiscal 1999 capital expenditures of approximately $550 million for
improvement of airport and office facilities, ground equipment and other assets.
See Notes 7 and 8 of Notes to Consolidated Financial Statements for additional
information on the Company's lease obligations and commitments.
YEAR 2000 ISSUE
Background
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.
Delta's Year 2000 Program
The Company's flight operations, flight support units and other business support
units depend on internal and external computer systems and equipment that will
be affected by the Year 2000 issue. Accordingly, achieving Year 2000 readiness
is a top priority of the Company. Delta has implemented a Year 2000 program for
its internal systems and equipment which has four phases: (1) identification;
(2) assessment (including prioritization); (3) remediation (including
modification, upgrading and replacement); and (4) testing. The Company is also
reviewing the Year 2000 readiness of third parties who provide goods or services
which are essential to Delta's operations. In addition, Delta is revising its
existing business interruption contingency plans to address issues specific to
the Year 2000 problem. The Company's senior management and the Board of
Directors receive regular updates on the status of the Company's Year 2000
program.
28
<PAGE>
Safety-of-Flight Systems
The Company has completed its review of the impact of Year 2000 issues on its
aircraft fleet and onboard flight support systems and has determined that there
are no safety-of-flight issues with such equipment or systems. The Company has
completed the assessment phase for its onboard flight management systems, which
maximize operating efficiency but are not essential to the safe operation of
flights, and expects to complete the remediation and testing phases for these
systems by June 1999.
The Company also uses ground-based, safety-related computer systems and
equipment which are vital to the maintenance of aircraft and the control of
flight operations. The identification and assessment phases are complete with
respect to such systems and equipment and the Company expects to complete the
remediation and testing phases by June 1999.
Critical Internal Business Systems
The Company's critical internal business systems and equipment include computer
hardware, software and related equipment which are essential for customer
reservations, ticketing, flight scheduling and seat inventory management;
airport customer services; finance systems, such as revenue management, revenue
accounting and payroll; and other functions, such as internal voice and data
communications, aircraft ground handling, baggage handling, facility management
and security.
The identification and assessment phases for all of the Company's critical
internal business systems and equipment are complete. The remediation phase is
complete for Delta's internal customer reservations, ticketing, flight
scheduling and seat inventory management systems and the Company expects to
complete the testing phase for these systems by June 1999. These are the
internal business systems which are the most critical for Delta to continue its
operations without interruption. The Company expects to complete the remediation
and testing phases for all other critical internal business systems and
equipment by December 1998 and June 1999, respectively, except for customer
service hardware installed at the Company's airport facilities, which will be
replaced with upgraded, Year 2000-compliant hardware. The Company will begin
installing this new hardware in September 1998 and expects to complete all
installations by the end of the December 1999 quarter.
Interfaces with Third Parties
The Company is reviewing, and has initiated formal communications with, third
parties which provide goods or services which are essential to Delta's
operations in order to: (1) determine the extent to which the Company is
vulnerable to any failure by such material third parties to remediate their
respective Year 2000 problems; and (2) resolve such problems to the extent
practicable. These entities include the suppliers of infrastructure critical to
the airline industry, such as the air traffic control and related systems of the
U.S. Federal Aviation Administration and international aviation authorities, the
U.S. Department of Transportation and local airport authorities. Other critical
third parties on which Delta relies include airlines and the suppliers of
aircraft fuel, utilities, external computer reservations services, and
communication services. As part of this review, the Company is actively involved
in airline industry Year 2000 review efforts led by the Air Transport
Association and the International Air Transport Association (IATA).
Estimated Year 2000 Costs
The Company estimates that the total cost of achieving Year 2000 readiness for
its internal systems and equipment is approximately $160 million to $175
million, of which $40 million has been recognized as expense in the Company's
Consolidated Statements of Operations through June 30, 1998. The Company
believes a majority of the estimated total Year 2000 compliance cost will be
funded by reallocating existing resources rather than incurring incremental
costs.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
DELTA AIR LINES, INC.
Contingency Planning
The Company is revising its existing business interruption contingency plans to
address internal and external issues specific to the Year 2000 problem, to the
extent practicable. Such revisions are expected to be completed by July 1999.
These plans, which are intended to enable the Company to continue to operate to
the extent that it can do so safely, include performing certain processes
manually; repairing or obtaining replacement systems; changing suppliers; and
reducing or suspending operations. The Company believes, however, that due to
the widespread nature of potential Year 2000 issues, the contingency planning
process is an ongoing one which will require further modifications as the
Company obtains additional information regarding (1) the Company's internal
systems and equipment during the remediation and testing phases of its Year 2000
program; and (2) the status of third party Year 2000 readiness.
Possible Consequences of Year 2000 Problems
Delta believes that completed and planned modifications and conversions of its
internal systems and equipment will allow it to be Year 2000 compliant in a
timely manner. There can be no assurance, however, that the Company's internal
systems or equipment or those of third parties on which Delta relies will be
Year 2000 compliant in a timely manner or that the Company's or third parties'
contingency plans will mitigate the effects of any noncompliance. The failure of
the systems or equipment of Delta or third parties (which Delta believes is the
most reasonably likely worst case scenario) could result in the reduction or
suspension of the Company's operations and could have a material adverse effect
on the Company's business or consolidated financial statements.
Forward-Looking Statements
The preceding "Year 2000 Issue" discussion contains various forward-looking
statements which represent the Company's beliefs or expectations regarding
future events. When used in the "Year 2000 Issue" discussion, the words
"believes," "expects," "estimates" and similar expressions are intended to
identify forward-looking statements. Forward-looking statements include, without
limitation, the Company's expectations as to when it will complete the
remediation and testing phases of its Year 2000 program as well as its Year 2000
contingency plans; its estimated cost of achieving Year 2000 readiness; and the
Company's belief that its internal systems and equipment will be Year 2000
compliant in a timely manner. All forward-looking statements involve a number of
risks and uncertainties that could cause the actual results to differ materially
from the projected results. Factors that may cause these differences include,
but are not limited to, the availability of qualified personnel and other
information technology resources; the ability to identify and remediate all date
sensitive lines of computer code or to replace embedded computer chips in
affected systems or equipment; and the actions of governmental agencies or other
third parties with respect to Year 2000 problems.
Euro Currency Issue
On January 1, 1999, eleven of the fifteen countries which are members of the
European Union are scheduled to introduce a new currency unit called the "euro."
Prior to the full implementation of the new currency for the participating
countries on January 1, 2002, there will be a transition period during which
parties may use either the existing currencies or the euro. However, all
exchanges between currencies of the participating countries are required to be
converted first into the euro and then into the other country's currency.
Delta's internal customer reservations systems and business support
systems and processes are currently being modified to operate effectively in
the euro environment. The Company expects these modifications to be completed
by the end of the December 1998 quarter. Delta also depends on third party
financial institutions, computer reservation systems and IATA programs to
process most of its international ticket payment and refund transactions and
therefore is reviewing their respective euro-related conversion plans. Delta
does not expect the implementation of the euro currency to have a material
adverse impact on the Company's business or consolidated financial statements.
30
<PAGE>
Delta's expectations regarding the euro currency issue are forward-looking
statements that involve a number of risks and uncertainties that could cause the
actual results to differ materially from the projected results. Factors that may
cause these differences include, but are not limited to, the ability or
willingness of third parties to convert affected systems in a timely manner; the
ability of the Company to modify its systems and processes in a timely manner;
and the actions of governmental agencies or other third parties with respect to
euro currency issues.
OTHER MATTERS
Stock Split
In July 1998, Delta's Board of Directors approved a two-for-one Common Stock
split, subject to shareowner approval of an amendment to the Company's
Certificate of Incorporation to increase the number of shares of Common Stock
the Company is authorized to issue and to effect the proposed split. If the
amendment is approved by shareowners at Delta's October 22, 1998 annual meeting,
the split would be effective for common shareowners of record at 5 p.m., eastern
standard time, on November 2, 1998.
Common Stock Repurchase Programs
For information regarding the Company's Common Stock repurchase programs, see
Note 14 of Notes to Consolidated Financial Statements.
Broad-Based Employee Stock Option Plans
During fiscal 1997, the Company's shareowners approved two plans providing for
the issuance of non-qualified stock options to substantially all of Delta's
non-officer personnel. For additional information regarding these plans, see
Note 13 of Notes to Consolidated Financial Statements.
Change in Estimate
As a result of a review of its aircraft fleet plan and comparable industry
practices, the Company increased the depreciable life of certain new generation
aircraft types from 20 to 25 years. The change in estimate is effective July 1,
1998.
Alliance Agreement
On April 29, 1998, Delta and United Air Lines, Inc. (United) entered into a
marketing alliance agreement (Agreement) pursuant to which the two airlines
would engage in code-sharing arrangements, reciprocal frequent flyer programs
and other areas of marketing cooperation.
The implementation of the code-sharing aspects of the Agreement is subject
to the approval of both companies' pilot unions. In August 1998, Delta's Board
of Directors (Board) decided not to grant the request of the Delta pilot union
for a voting seat on the Board. Following this decision, the Delta pilot union
said it would no longer consider the approval of the code-sharing aspects of the
Agreement. As a result, Delta has discontinued consideration of code-sharing
arrangements with United.
On September 1, 1998, Delta and United began reciprocal frequent flyer
program participation.
Personnel Matters
On May 1, 1996, the Company and the Air Line Pilots Association, International
(ALPA) entered into a new collective bargaining agreement covering the rates of
pay, rules and working conditions of the Company's approximately 8,800 pilots.
The contract, which becomes amendable on May 2, 2000, provides in part (1) that
if the Company operates an aircraft type (New Equipment) for which the rates of
pay, rules and working conditions (collectively, Pay Rates) are not set forth in
the collective bargaining agreement, the Company and ALPA will negotiate the Pay
Rates applicable to the New Equipment; (2) that pilots will fly the New
Equipment whether or not Pay Rates for the equipment have been agreed upon; but
(3) that the pilots' obligation to fly the New Equipment will end if Pay Rates
have not been agreed upon within six months after the Company places the New
Equipment into operation.
The Company has placed orders to purchase the following aircraft types,
each of which constitutes New Equipment under the collective bargaining
agreement: B-737-600/700/800 aircraft; B-777-200 aircraft; and B-767-400
aircraft. Delta plans to place these aircraft types in service shortly after
their delivery, which is expected to begin in October 1998,
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS continued
DELTA AIR LINES, INC.
March 1999, and May 2000, respectively. In addition, the Company is leasing from
a third party eight B-737-300 aircraft and has agreed, subject to certain
conditions, to lease one additional B-737-300 aircraft which also constitutes
New Equipment under the collective bargaining agreement. The Company placed the
first of these leased aircraft in service in July 1998.
In October 1997, the Company and ALPA began discussions on the Pay Rates
applicable to B-737-600/700/800 aircraft and the nine B-737-300 aircraft
discussed above. ALPA has announced plans to request pilots not to fly these
aircraft types subsequent to the six-month period after such aircraft are
initially placed in service unless and until Pay Rates for these aircraft are
agreed upon. Additionally, in January 1998, the Company's pilots voted to
authorize ALPA to assess pilots 1% of their gross pay for up to nine months to
finance a contingency fund for pilots who would have flown these aircraft.
On June 23, 1998, the Company and ALPA reached an agreement regarding Pay
Rates applicable to the B-737 aircraft discussed above (B-737 Agreement). The
B-737 Agreement is subject to the approval of Delta's pilots. ALPA is planning
to distribute ballots to pilots beginning in September to vote on the B-737
Agreement, and to announce the results of the voting in October. The outcome of
this matter cannot presently be determined.
Governmental Matters
On April 6, 1998, the U.S. Department of Transportation (DOT) published a
proposed statement of enforcement policy to address DOT concerns that major
carriers are taking actions designed to exclude new entrants in certain airline
markets, particularly at hub airports. The proposed DOT guidelines focus on
unreasonable price cuts and/or capacity increases by major carriers in response
to entry by new carriers at hub airports, and whether the major carrier could
have pursued a more reasonable alternative strategy for competing with the new
entrant. The proposed policy, if adopted, could adversely affect Delta's ability
to respond to competitive challenges by new entrant carriers.
Competitive Environment
Delta expects that low-fare competition will 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.
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, management
believes that the resolution of these actions is not likely to have a
material adverse effect on Delta's consolidated financial statements.
Forward-Looking Information
Delta and its representatives may make forward-looking statements, within the
meaning of the Private Securities Litigation Reform Act of 1995, 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 aircraft 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
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(SFAS 130), and Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" (SFAS
131). SFAS 130 establishes standards
32
<PAGE>
for the reporting and presentation of comprehensive income and its components.
SFAS 131 establishes standards for reporting information about operating
segments. Delta is required to adopt both SFAS 130 and SFAS 131 in fiscal 1999.
The adoption of SFAS 130 and SFAS 131 will not have a material effect on the
Company's financial statements.
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued Statement of Position 98-1, "Accounting for Costs of Computer
Software Developed or Obtained for Internal Use" (SOP 98-1), which defines the
type of costs related to such activities that should be capitalized versus
expensed as incurred.
In April 1998, the AICPA issued Statement of Position 98-5, "Reporting on
the Costs of Start-Up Activities" (SOP 98-5), which requires all costs incurred
in the start-up of a new business or business segment to be expensed as
incurred.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS
133), which establishes accounting and reporting standards for derivatives and
hedging activities.
Delta is required to adopt SOP 98-1, SOP 98-5 and SFAS 133 in fiscal 2000.
The adoption of these statements is not expected to have a material impact on
the Company's financial statements.
MARKET RISKS ASSOCIATED WITH
FINANCIAL INSTRUMENTS
Commodity Price Risk
The Company's results of operations are significantly impacted by changes in the
price of aircraft fuel. During fiscal 1998, aircraft fuel accounted for 12% of
the Company's operating expenses. Based on the Company's fiscal 1999 projected
aircraft fuel consumption of 2.7 billion gallons, a one-cent change in the
average annual price per gallon of aircraft fuel would impact Delta's annual
aircraft fuel expense by approximately $27 million. The Company uses fuel swap
and option contracts to manage aircraft fuel price risk. At June 30, 1998, the
Company had entered into hedge agreements for 2.1 billion gallons of its
projected fiscal 1999 aircraft fuel requirements. (See Note 4 of Notes to
Consolidated Financial Statements.)
Equity Price Risk
At June 30, 1998, the quoted fair value of Delta's equity investments in ASA
Holdings, Inc., Comair Holdings, Inc., Singapore Airlines Limited, SAirGroup and
SkyWest, Inc. was approximately $1.3 billion.
The aggregate unrealized gain from these investments was $785 million at
June 30, 1998. The market risk associated with these equity investments is the
potential loss in fair value resulting from a decrease in market prices. In
addition, Delta has exposure to foreign currency exchange rate risk relating to
its investments in Singapore Airlines and SAirGroup. See Notes 2 and 3 of Notes
to Consolidated Financial Statements.
Interest Rate Risk
The Company's exposure to market risk for changes in interest rates relates to
its long-term debt obligations and cash investment portfolio.
At June 30, 1998, the fair value of the Company's long-term fixed-rate debt
was estimated at approximately $1.9 billion using quoted market prices where
available, or discounted cash flow analyses. Market risk associated with the
Company's long-term debt is the potential increase in fair value resulting from
a decrease in interest rates. A 10% decrease in assumed interest rates would
increase the fair value of Delta's long-term debt by approximately $117 million.
Based on the Company's average balance of cash equivalents and short-term
investments during fiscal 1998, a 10% decrease in the average interest rate
experienced in fiscal 1998 would not materially impact Delta's annual interest
income.
Foreign Currency Exchange Rate Risk
Delta is exposed to foreign currency exchange rate fluctuations on the U.S.
dollar value of foreign currency denominated transactions. Based on the
Company's average net currency positions in fiscal 1998, the potential loss due
to a 10% adverse change in foreign currency exchange rates is immaterial. The
Company enters into certain foreign exchange forward contracts, generally with
maturities of less than two months, to manage its foreign currency exchange rate
risk. The principal amount of such contracts was approximately $26 million at
June 30, 1998.
33
<PAGE>
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1998 AND 1997
DELTA AIR LINES, INC.
<TABLE>
<CAPTION>
ASSETS 1998 1997
- ------------------------------------------------------------------------------------------------------
(In Millions)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,077 $ 662
Short-term investments 557 508
Accounts receivable, net of allowance for uncollectible accounts of
$36 at June 30, 1998 and $48 at June 30, 1997 938 943
Deferred income taxes 464 413
Prepaid expenses and other 326 341
- ------------------------------------------------------------------------------------------------------
Total current assets 3,362 2,867
- ------------------------------------------------------------------------------------------------------
Property and Equipment:
Flight equipment 11,180 9,619
Less: Accumulated depreciation 3,895 3,510
- ------------------------------------------------------------------------------------------------------
7,285 6,109
- ------------------------------------------------------------------------------------------------------
Flight equipment under capital leases 515 523
Less: Accumulated amortization 216 176
- ------------------------------------------------------------------------------------------------------
299 347
- ------------------------------------------------------------------------------------------------------
Ground property and equipment 3,285 3,032
Less: Accumulated depreciation 1,854 1,758
- ------------------------------------------------------------------------------------------------------
1,431 1,274
- ------------------------------------------------------------------------------------------------------
Advance payments for equipment 306 312
- ------------------------------------------------------------------------------------------------------
Total property and equipment 9,321 8,042
- ------------------------------------------------------------------------------------------------------
Other Assets:
Marketable equity securities 424 432
Deferred income taxes -- 103
Investments in associated companies 326 299
Cost in excess of net assets acquired, net of accumulated amortization of
$112 at June 30, 1998 and $102 at June 30, 1997 265 275
Leasehold and operating rights, net of accumulated amortization of
$209 at June 30, 1998 and $199 at June 30, 1997 124 134
Other 781 589
- ------------------------------------------------------------------------------------------------------
Total other assets 1,920 1,832
- ------------------------------------------------------------------------------------------------------
Total assets $14,603 $12,741
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREOWNERS' EQUITY 1998 1997
- -------------------------------------------------------------------------------------------------------------
(In Millions, Except Share Data)
<S> <C> <C>
Current Liabilities:
Current maturities of long-term debt $ 67 $ 236
Current obligations under capital leases 63 62
Accounts payable and miscellaneous accrued liabilities 2,025 1,691
Air traffic liability 1,667 1,418
Accrued rent 202 213
Accrued salaries and vacation pay 553 463
- -------------------------------------------------------------------------------------------------------------
Total current liabilities 4,577 4,083
- -------------------------------------------------------------------------------------------------------------
Noncurrent Liabilities:
Long-term debt 1,533 1,475
Postretirement benefits 1,873 1,839
Accrued rent 651 602
Capital leases 249 322
Deferred income taxes 262 --
Other 511 406
- -------------------------------------------------------------------------------------------------------------
Total noncurrent liabilities 5,079 4,644
- -------------------------------------------------------------------------------------------------------------
Deferred Credits:
Deferred gain on sale and leaseback transactions 694 746
Manufacturers' and other credits 55 105
- -------------------------------------------------------------------------------------------------------------
749 851
- -------------------------------------------------------------------------------------------------------------
Commitments and Contingencies (Notes 6, 7, 8 and 9)
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 6,603,429 shares at June 30, 1998
and 6,668,248 shares at June 30, 1997 475 480
Unearned compensation under employee stock ownership plan (300) (324)
- -------------------------------------------------------------------------------------------------------------
175 156
- -------------------------------------------------------------------------------------------------------------
Shareowners' Equity:
Common stock, $3.00 par value; authorized 150,000,000 shares; issued
88,283,089 shares at June 30, 1998 and 83,645,047 shares at June 30, 1997 265 251
Additional paid-in capital 3,034 2,645
Retained earnings 1,687 711
Net unrealized gain on marketable equity securities 89 101
Treasury stock at cost, 13,057,892 shares at June 30, 1998 and
9,949,060 shares at June 30, 1997 (1,052) (701)
- -------------------------------------------------------------------------------------------------------------
Total shareowners' equity 4,023 3,007
- -------------------------------------------------------------------------------------------------------------
Total liabilities and shareowners' equity $ 14,603 $ 12,741
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these Consolidated Balance
Sheets.
35
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
DELTA AIR LINES, INC.
<TABLE>
<CAPTION>
(In Millions, Except Per Share Data) 1998 1997 1996
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Revenues:
Passenger $ 12,976 $ 12,505 $ 11,616
Cargo 582 554 521
Other, net 580 535 318
- ------------------------------------------------------------------------------------------------------
Total operating revenues 14,138 13,594 12,455
- ------------------------------------------------------------------------------------------------------
Operating Expenses:
Salaries and related costs 4,850 4,534 4,206
Aircraft fuel 1,507 1,722 1,464
Passenger commissions 980 1,017 1,042
Depreciation and amortization 861 710 634
Contracted services 694 630 704
Other selling expenses 681 677 594
Landing fees and other rents 649 649 627
Aircraft rent 552 547 555
Aircraft maintenance materials and outside repairs 495 434 376
Passenger service 450 389 368
Restructuring and other non-recurring charges -- 52 829
Other 726 702 593
- ------------------------------------------------------------------------------------------------------
Total operating expenses 12,445 12,063 11,992
- ------------------------------------------------------------------------------------------------------
Operating Income 1,693 1,531 463
Other Income (Expense):
Interest expense (186) (207) (269)
Interest capitalized 38 33 26
Interest income 79 63 86
Miscellaneous income (expense), net 24 (5) (30)
- ------------------------------------------------------------------------------------------------------
(45) (116) (187)
- ------------------------------------------------------------------------------------------------------
Income Before Income Taxes 1,648 1,415 276
Income Taxes Provided (647) (561) (120)
- ------------------------------------------------------------------------------------------------------
Net Income 1,001 854 156
Preferred Stock Dividends (11) (9) (82)
- ------------------------------------------------------------------------------------------------------
Net Income Available to Common Shareowners $ 990 $ 845 $ 74
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Basic Income Per Common Share $ 13.28 $ 11.39 $ 1.43
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
Diluted Income Per Common Share $ 12.68 $ 11.03 $ 1.43
- ------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
36
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
DELTA AIR LINES, INC.
<TABLE>
<CAPTION>
(In Millions) 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $ 1,001 $ 854 $ 156
Adjustments to reconcile net income to cash provided
by operating activities:
Restructuring and other non-recurring charges -- 52 829
Depreciation and amortization 861 710 634
Deferred income taxes 294 240 (57)
Rental expense less than rent payments (17) (58) (32)
Pension, postretirement and postemployment expense in excess
of (less than) payments 179 92 (67)
Changes in certain current assets and liabilities:
Decrease (increase) in accounts receivable 5 25 (213)
Decrease (increase) in prepaid expenses and other
current assets 15 (31) (47)
Increase in air traffic liability 249 4 271
Increase (decrease) in other payables and accrued expenses 330 186 (91)
Other, net (1) (35) 8
- ----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 2,916 2,039 1,391
- ----------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Property and equipment additions:
Flight equipment, including advance payments (1,760) (1,598) (639)
Ground property and equipment (531) (350) (297)
Decrease (increase) in short-term investments, net (43) (1) 22
Proceeds from sale of flight equipment 10 8 26
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (2,324) (1,941) (888)
- ----------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Payments on long-term debt and capital lease obligations (307) (196) (440)
Cash dividends (43) (44) (120)
Issuance of long-term obligations 125 -- --
Issuance of Common Stock 318 38 35
Income tax benefit from exercise of stock options 84 -- --
Repurchase of Common Stock (354) (379) (66)
- ----------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (177) (581) (591)
- ----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 415 (483) (88)
Cash and cash equivalents at beginning of fiscal year 662 1,145 1,233
- ----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of fiscal year $ 1,077 $ 662 $ 1,145
- ----------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
37
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREOWNERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
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> <C> <C>
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 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
- ---------------------------------------------------------------------------------------------------------------------------------
Fiscal Year 1998:
Net income -- -- 1,001 -- -- 1,001
Dividends on Common Stock ($0.20 per share) -- -- (15) -- -- (15)
Dividends on Series B ESOP Convertible
Preferred Stock allocated shares -- -- (11) -- -- (11)
Issuance of 4,638,042 shares of Common Stock under
dividend reinvestment and stock purchase plan
and stock options ($68.56 per share) 14 304 -- -- -- 318
Repurchase of 3,158,373 common shares
($112.08 per share) -- -- -- -- (354) (354)
Income Tax Benefit from exercise of stock options -- 84 -- -- -- 84
Transfer of 49,541 shares of Common Stock from treasury
under stock incentive plan ($77.17 per share) -- -- -- -- 3 3
Net unrealized loss on marketable equity securities and other -- 1 1 (12) -- (10)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1998 $ 265 $ 3,034 $ 1,687 $ 89 $(1,052) $ 4,023
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
38
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1998, 1997 AND 1996
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
1, 1998, Delta served 148 domestic cities in 42 states, the District of
Columbia, Puerto Rico and the U.S. Virgin Islands, as well as 46 cities in 31
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 account balances 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.
Accounting Changes - During fiscal 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings Per Share" (SFAS 128),
and SFAS No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits" (SFAS 132). (See Notes 11 and 10, respectively.) During
fiscal 1997, the Company adopted SFAS No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). (See Note 13.)
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 SFAS No. 115, "Accounting for Certain Investments in
Debt and Equity Securities" (SFAS 115), and are stated at fair value. (See Note
2.)
Depreciation and Amortization - Effective July 1, 1998, the Company increased
the depreciable life of certain new generation aircraft types from 20 to 25
years. Owned flight equipment is depreciated on a straight-line basis to a
residual value equal to 5% of cost. Flight equipment under capital leases is
amortized on a straight-line basis over the original terms of the respective
leases, which generally 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. 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.
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.
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 Empresa de Transporte Aereo del Peru,
S.A., Aeroperu (Aeroperu). Effective July 1997, the Company began accounting for
its investment in SkyWest, Inc. (SkyWest), the parent of SkyWest Airlines, Inc.,
under the cost method. (See Note 2.) Atlantic Southeast Airlines, Inc., Comair,
Inc., and SkyWest Airlines, Inc. are participants in the Delta Connection
program.
Cost in Excess of Net Assets Acquired - The cost in excess of net assets
acquired (goodwill), which is being amortized over 40 years, is primarily
related to the Company's acquisition of Western Air Lines, Inc. in December
1986.
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
39
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
JUNE 30, 1998, 1997 AND 1996
DELTA AIR LINES, INC.
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-Registered Trademark- 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, as applicable.
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.
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 equipment.
Advertising Costs - Advertising costs are expensed when incurred and are
included as a component of other selling expense. Advertising expense for fiscal
1998, 1997 and 1996 was $105 million, $121 million and $109 million,
respectively.
Foreign Currency Remeasurement - Assets and liabilities denominated in foreign
currencies are remeasured generally at exchange rates in effect at the balance
sheet date, except fixed assets are recorded at exchange rates in effect when
the assets were acquired. The resulting foreign exchange gains and losses are
recognized as a component of miscellaneous income (expense). Revenues and
expenses from foreign operations are recorded using applicable average monthly
exchange rates prevailing during the year, except depreciation and amortization
charges are recorded at the exchange rate 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 the measurement date is equal to or greater than the fair market value of the
Common Stock on the date of grant. (See Note 13.)
2. FINANCIAL INSTRUMENTS
All financial instruments, except long-term debt, are carried at fair value or
have a carrying value which approximates fair value.
Long-Term Debt - The fair values and carrying values of long-term debt,
including current maturities, at June 30, 1998 and 1997, were as follows:
<TABLE>
<CAPTION>
(In Billions) 1998 1997
- -------------------------------------------------------------
<S> <C> <C>
Fair value $1.9 $1.8
Carrying value 1.6 1.7
- -------------------------------------------------------------
</TABLE>
These values are based on quoted market prices, where available, or
discounted cash flow analyses.
Marketable Equity Securities - Effective July 1, 1997, the Company began
accounting for its investment in SkyWest under the cost method due to dilution
in the Company's equity ownership in SkyWest. The Company's investments in
Singapore Airlines Limited (Singapore Airlines), SAirGroup (formerly Swissair,
Swiss Air Transport Company Ltd.) and SkyWest are classified as
available-for-sale under SFAS 115 and are recorded at fair value. The following
table summarizes the Company's investments in Singapore Airlines, SAirGroup and
SkyWest:
<TABLE>
<CAPTION>
Quoted Cost Unrealized
(In Millions) Fair Value Basis Gain (Loss)
- -----------------------------------------------------------
June 30, June 30,
1998 1997 1998 1997
- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Singapore Airlines $165 $315 $181 $(16) $134
SAirGroup $172 $117 $ 85 $ 87 $ 32
SkyWest $ 87 N/A* $ 14 $ 73 N/A*
- -----------------------------------------------------------
</TABLE>
* Prior to fiscal 1998, the Company accounted for its investment in SkyWest
under the equity method. (See Note 3.)
40
<PAGE>
The aggregate unrealized gains, net of the related deferred tax provision, of
these investments at June 30, 1998 and 1997 are reflected in shareowners'
equity. Delta's right to vote, to transfer or to acquire additional shares of
the stock of Singapore Airlines and SAirGroup is subject to certain
restrictions.
Short-Term Investments - The Company invests its cash in excess of operating
requirements in short-term, highly-liquid investments. These investments are
classified as available-for-sale securities, have an average stated maturity of
eight months, and are recorded as short-term investments in the Company's
Consolidated Balance Sheets. The aggregate fair value of these investments was
$557 million and $508 million at June 30, 1998 and 1997, respectively.
Unrealized gains and losses from these investments, net of deferred taxes, are
reflected in shareowners' equity. Such amounts were immaterial at June 30, 1998
and 1997.
3. INVESTMENTS IN ASSOCIATED COMPANIES
The Company's percentage ownership and quoted fair value (where applicable)
of its investment in associated companies at June 30, 1998, and equity
earnings (losses) for fiscal 1998, 1997 and 1996, were as follows:
<TABLE>
<CAPTION>
Quoted
Percentage Fair
Investment Ownership Value 1998 1997 1996
- ----------------------------------------------------------
(In Millions)
<S> <C> <C> <C> <C> <C>
WORLDSPAN 38% N/A 14 $23 $(5)
ASA 27 $397 17 15 13
Comair 21 434 25 16 13
Aeroperu 35 N/A - - -
SkyWest 13 87 N/A 2 1
- ----------------------------------------------------------
</TABLE>
4. RISK MANAGEMENT
Fuel Price Risk Management -- Delta enters into fuel swap and option contracts
up to one year in duration to manage risk associated with changes in aircraft
fuel prices. Under these contracts, Delta receives or makes payments based on
differences between fixed and variable prices for certain fuel commodities.
Gains and losses from fuel swap and option contracts are deferred and recognized
as a component of fuel expense when the underlying fuel being hedged is used.
Premiums paid to enter into hedging contracts are recorded as a prepaid expense
and amortized to fuel expense over the respective contract period. At June 30,
1998, the Company had entered into hedge agreements for 2.1 billion gallons of
its projected fiscal 1999 aircraft fuel requirements. At June 30, 1998,
unrealized gains and losses from these contracts were immaterial.
Foreign Exchange Risk Management - Delta enters into foreign exchange forward
contracts, generally with maturities of less than two months, to manage risk
associated with its net foreign currency denominated positions. The principal
amount, which approximates fair value, of outstanding foreign exchange forward
contracts was approximately $26 million at June 30, 1998. Gains and losses
resulting from foreign exchange forward contracts are recognized as a component
of miscellaneous income (expense).
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.
Concentration of Credit Risk - Delta's accounts receivable are generated
primarily from airline ticket and cargo service 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.
41
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
JUNE 30, 1998, 1997 AND 1996
DELTA AIR LINES, INC.
5. 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 for income tax purposes. Significant components of the Company's
deferred tax assets and liabilities as of June 30, 1998 and 1997 are a result of
temporary differences related to the items described below:
<TABLE>
<CAPTION>
(In Millions) 1998 1997
- ---------------------------------------------------------
<S> <C> <C>
Deferred Tax Assets:
Postretirement benefits $ 756 $ 741
Other employee benefits 405 328
Gains on sale and leaseback
transactions (net) 257 302
Rent expense 200 212
Spare parts repair expense 139 122
Alternative minimum tax
credit carryforwards 107 216
Other 159 212
- ---------------------------------------------------------
Total Deferred Tax Assets $2,023 $2,133
- ---------------------------------------------------------
Deferred Tax Liabilities:
Depreciation and amortization $1,446 $1,239
Other 375 378
- ---------------------------------------------------------
Total Deferred Tax Liabilities $1,821 $1,617
- ---------------------------------------------------------
- ---------------------------------------------------------
</TABLE>
Income taxes provided in fiscal 1998, 1997 and 1996 consisted of:
<TABLE>
<CAPTION>
(In Millions) 1998 1997 1996
- ----------------------------------------------------------
<S> <C> <C> <C>
Current taxes $(353) $(321) $(177)
Deferred taxes (298) (244) 54
Tax benefit of dividends on
allocated Series B ESOP
Convertible Preferred Stock 4 4 3
- ----------------------------------------------------------
Income taxes provided $(647) $(561) $(120)
- ----------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
The income tax provisions generated for fiscal 1998, 1997 and 1996 differ
from amounts which would result from applying the federal statutory tax rate to
pretax income, as follows:
<TABLE>
<CAPTION>
(In Millions) 1998 1997 1996
- ---------------------------------------------------------------
<S> <C> <C> <C>
Income before income taxes $1,648 $1,415 $ 276
Items not deductible for
tax purposes:
Meals and entertainment 42 39 36
Amortization 9 9 9
Other, net (27) (17) (8)
- ---------------------------------------------------------------
Adjusted pretax income 1,672 1,446 313
Federal statutory tax rate 35% 35% 35%
- ---------------------------------------------------------------
Income tax provision at
statutory rate (585) (506) (110)
State and other income taxes, net
of federal income tax provision (62) (55) (10)
- ---------------------------------------------------------------
Income taxes provided $ (647) $ (561) $(120)
- ---------------------------------------------------------------
- ---------------------------------------------------------------
</TABLE>
The Company made income tax payments, net of income tax refunds, of $244
million in fiscal 1998, $336 million in fiscal 1997 and $192 million in fiscal
1996.
42
<PAGE>
6. LONG-TERM DEBT
At June 30, 1998 and 1997, the Company's long-term debt (including current
maturities) was as follows:
<TABLE>
<CAPTION>
(In Millions) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
9 7/8% Notes, unsecured, due January 1, 1998 $ -- $ 207
Medium-Term Notes, Series A and B, unsecured, interest rates from
7.79% to 9.15%; maturities ranging from 1998 to 2007 128 157
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, due in installments between 2002 and 2009 290 290
Development Authority of Fulton County, unsecured loan agreement, due $10 million on November 1, 2007
and $20 million on November 1, 2012. Interest rates from 6.85% to 6.95% 30 30
10 1/8% Debentures, unsecured, due May 15, 2010 113 113
10 3/8% Debentures, unsecured, due February 1, 2011 175 175
Development Authority of Fulton County, unsecured loan agreement, due $19 million on May 1, 2013,
$85 million on May 1, 2023, and $21 million on May 1, 2033. Interest rates from 5.30% to 5.50% 125 -
9% Debentures, unsecured, due May 15, 2016 101 101
7 5/8% Development Authority of Clayton County, unsecured loan agreement, due on January 1, 2020 45 45
9 3/4% Debentures, unsecured, due May 15, 2021 250 250
9 1/4% Debentures, unsecured, due March 15, 2022 64 64
10 3/8% Debentures, unsecured, due December 15, 2022 66 66
- -----------------------------------------------------------------------------------------------------------------------
Total 1,600 1,711
Less: Current maturities 67 236
- -----------------------------------------------------------------------------------------------------------------------
Total long-term debt $1,533 $ 1,475
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Under its 1997 Bank Credit Agreement with a group of banks, the Company may
borrow up to $1.25 billion on an unsecured and revolving basis until May 1,
2002, subject to compliance with certain conditions. 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 London Interbank Offered
Rate 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 covenants that restrict the Company's ability to grant liens, to incur
or guarantee debt and to 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 14, 1998, no borrowings or letters of credit were outstanding
under the 1997 Bank Credit Agreement.
At June 30, 1998, 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 and are payable in
installments between July 1, 2002 and January 1, 2009. The Series C ESOP Notes
were issued under note purchase agreements (1) which 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); but (2) which provide
that Delta has no obligation to purchase the Series C ESOP Notes under the note
purchase agreements so long as Delta 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 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
43
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
JUNE 30, 1998, 1997 AND 1996
DELTA AIR LINES, INC.
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.
On May 11, 1993, a Purchase Event occurred, and Delta became obligated to
purchase on September 15, 1993 any Series C ESOP Notes 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 14, 1998, the face amount of the letter of credit issued under
the Letter of Credit Facility was $445 million. It covers the $290 million
outstanding principal amount of the Series C ESOP Notes, up to $123 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 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 that 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 14,
1998, Delta's long-term senior unsecured debt was rated Baa3 by Moody's and
BBB- by Standard & Poor's.
At June 30, 1998, the annual scheduled maturities of long-term debt during
the next five fiscal years were as follows:
<TABLE>
<CAPTION>
Years Ending June 30
(In Millions) Amount
- ------------------------------------------------
<S> <C>
1999 $ 67
2000 142
2001 -
2002 75
2003 43
- ------------------------------------------------
</TABLE>
44
<PAGE>
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 Company's Common Stock (Common Stock) in certain
circumstances. (See Note 12.)
Cash payments for interest, net of interest capitalized, totaled $152
million in fiscal 1998; $171 million in fiscal 1997; and $232 million in fiscal
1996.
7. 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 1998, 1997
and 1996.
At June 30, 1998, the Company's minimum rental commitments under capital
leases (primarily aircraft) and noncancelable operating leases with initial or
remaining terms of more than one year were as follows:
<TABLE>
<CAPTION>
Years Ending June 30 Capital Operating
(In Millions) Leases Leases
- --------------------------------------------------------------------
<S> <C> <C>
1999 $ 100 $ 950
2000 67 950
2001 57 940
2002 57 960
2003 48 960
After 2003 71 10,360
- --------------------------------------------------------------------
Total minimum lease payments $ 400 $15,120
--------
--------
Less: Amounts representing interest 88
- ----------------------------------------------------------
Present value of future minimum
capital lease payments 312
Less: Current obligations under capital leases 63
- ----------------------------------------------------------
Long-term capital lease obligations $ 249
- ----------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
As of June 30, 1998, Delta leased 219 aircraft. These leases have remaining
terms ranging from 18 months to 19 years and expiration dates ranging from 1999
to 2017. Of these leases, 48 are accounted for as capital leases.
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.
8. PURCHASE COMMITMENTS
Future expenditures for aircraft, engines and engine hush-kits on firm order as
of August 14, 1998 are estimated to be $6.9 billion, as follows:
<TABLE>
<CAPTION>
Years Ending June 30
(In Millions) Amount
- -------------------------------------------------
<S> <C>
1999 $1,580
2000 1,610
2001 1,570
2002 300
2003 370
After 2003 1,460
- -------------------------------------------------
Total $6,890
- -------------------------------------------------
- -------------------------------------------------
</TABLE>
The Company has authorized capital expenditures of approximately $550
million for fiscal 1999 for improvement of airport and office facilities, 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 airlines, subject
to certain conditions. None of these agreements has material noncancelable terms
in excess of one year.
45
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
JUNE 30, 1998, 1997 AND 1996
DELTA AIR LINES, INC.
9. 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, management believes that
the resolution of these actions is not likely to have a material adverse effect
on Delta's consolidated financial statements.
Delta's approximately 8,800 pilots are represented by the Air Line Pilots
Association, International (ALPA). The collective bargaining agreement between
the Company and ALPA becomes amendable on May 2, 2000. The Company and ALPA are
currently in negotiations to establish pay rates for certain aircraft equipment
types. See "Personnel Matters" on page 31 of Management's Discussion and
Analysis for additional information on this subject.
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 Delta Family-Care Savings
Plan (Savings Plan) 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 following table sets forth the defined benefit pension plans' change in
projected benefit obligation for the plan years ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
(In Millions) 1998 1997
- ---------------------------------------------------------
<S> <C> <C>
Projected benefit obligation at
beginning of year $7,572 $7,430
- ---------------------------------------------------------
- ---------------------------------------------------------
Service cost 207 188
Interest cost 574 568
Actuarial (gain) loss 605 (46)
Benefits paid (648) (568)
- ---------------------------------------------------------
Projected benefit obligation
at end of year $8,310 $7,572
- ---------------------------------------------------------
- ---------------------------------------------------------
</TABLE>
The weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligations in the above table was 7.0% and 4.3%,
respectively, at March 31, 1998, and 7.75% and 4.7%, respectively, at March 31,
1997. The expected long-term rate of return on assets was 10.0% at March 31,
1998 and 1997.
The following table sets forth the defined benefit pension plans' change in
the fair value of plan assets for the plan years ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
(In Millions) 1998 1997
- ---------------------------------------------------------
<S> <C> <C>
Fair value of plan assets
at beginning of year $7,512 $7,233
- ---------------------------------------------------------
- ---------------------------------------------------------
Actual return on plan assets 2,203 744
Employer contributions 54 103
Benefits paid (648) (568)
- ---------------------------------------------------------
Fair value of plan assets at end of year $9,121 $7,512
- ---------------------------------------------------------
</TABLE>
The accrued pension cost recognized in the Consolidated Balance Sheets is
computed as follows:
<TABLE>
<CAPTION>
(In Millions) 1998 1997
- ----------------------------------------------------------
<S> <C> <C>
Funded status $ 811 $ (60)
Unrecognized net actuarial gain (1,239) (331)
Unrecognized transition obligation 61 63
Unrecognized prior service cost 27 29
Contributions made between
April 1 and June 30 11 18
- ----------------------------------------------------------
Accrued pension cost recognized in
the Consolidated Balance Sheets $ (329) $(281)
- ----------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
46
<PAGE>
Net periodic defined benefit pension cost for fiscal 1998, 1997 and 1996
included the following components:
<TABLE>
<CAPTION>
(In Millions) 1998 1997 1996
- --------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 207 $ 188 $ 225
Interest cost 574 568 526
Expected return on plan assets (685) (653) (591)
Amortization of prior service cost 2 2 1
Recognized net actuarial (gain) loss (4) 3 8
Amortization of net
transition obligation 2 2 --
- --------------------------------------------------------------
Net periodic pension cost $ 96 $ 110 $ 169
- --------------------------------------------------------------
- --------------------------------------------------------------
</TABLE>
Delta also sponsors several non-qualified pension plans which are funded
from current assets. The accumulated benefit obligation of these plans totaled
$259 million at March 31, 1998.
Defined Contribution Pension Plans:
Delta Pilots Money Purchase Pension Plan - 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. During fiscal 1998, 1997 and 1996, the
Company recognized expense of $54 million, $49 million and $2 million,
respectively, for these plans.
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 matches 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 (ESOP Preferred Stock), Common Stock or cash, and
are recorded as salaries and related costs in the Company's Consolidated
Statements of Operations. Delta's contributions to the Savings Plan were $49
million in fiscal 1998 and $45 million in fiscal 1997 and fiscal 1996.
In connection with the adoption of the ESOP in 1989, 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 Savings Plan but not yet allocated to
participants' accounts. As shares of the ESOP Preferred Stock are allocated to
participants' accounts, 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 basic and diluted income per common share,
allocated shares of ESOP Preferred Stock are considered outstanding, but
unallocated shares of ESOP Preferred Stock are not considered outstanding.
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. 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.
The following table sets forth the postretirement benefit plans' change in
accumulated postretirement benefit obligation (APBO) for the plan years ended
June 30, 1998 and 1997:
<TABLE>
<CAPTION>
(In Millions) 1998 1997
- ---------------------------------------------------------
<S> <C> <C>
APBO at beginning of year $1,565 $1,505
- ---------------------------------------------------------
- ---------------------------------------------------------
Service cost 33 25
Interest cost 110 115
Actuarial gain (17) (35)
Benefits paid (64) (45)
- ---------------------------------------------------------
APBO at end of year $1,627 $1,565
- ---------------------------------------------------------
- ---------------------------------------------------------
</TABLE>
47
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
JUNE 30, 1998, 1997 AND 1996
DELTA AIR LINES, INC.
The accrued postretirement benefit cost recognized in the Consolidated
Balance Sheets is computed as follows:
<TABLE>
<CAPTION>
(In Millions) 1998 1997
- ----------------------------------------------------------
<S> <C> <C>
Funded status $(1,627) $(1,565)
Unrecognized net loss 61 76
Unrecognized prior service cost (388) (426)
Contributions made between April 1
and June 30 16 14
- ----------------------------------------------------------
Accrued postretirement benefit cost
in the Consolidated Balance Sheets $(1,938) $(1,901)
- ----------------------------------------------------------
- ----------------------------------------------------------
</TABLE>
Net periodic postretirement benefit cost for fiscal 1998, 1997 and 1996
included the following components:
<TABLE>
<CAPTION>
(In Millions) 1998 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 33 $ 25 $ 32
Interest cost 110 115 118
Amortization of prior service cost (38) (38) (31)
Recognized net actuarial (gain) loss (2) 1 4
- ---------------------------------------------------------------------------
Net periodic postretirement
benefit cost $103 $103 $123
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
</TABLE>
The weighted average discount rate used to estimate the APBO was 7.0% at
March 31, 1998 and 7.75% at March 31, 1997. The assumed health care cost trend
rate used in measuring the APBO was 6.0% in fiscal 1998 and 8.0% in fiscal 1997,
declining gradually to 4.25% by March 31, 2000, and remaining level thereafter.
A one-percentage-point change in the health care cost rate used in measuring the
APBO at March 31, 1998 would have the following effects:
<TABLE>
<CAPTION>
One-Percentage- One-Percentage-
(In Millions) Point Increase Point Decrease
- ----------------------------------------------------------------
<S> <C> <C>
Increase (decrease) in the total
service and interest cost $ 14 $ (13)
Increase (decrease) in the APBO 130 (117)
- ----------------------------------------------------------------
- ----------------------------------------------------------------
</TABLE>
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.
The Company's postemployment benefit expense for fiscal years 1998, 1997
and 1996 was $74 million, $71 million and $78 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 to better manage employee benefits
and control costs. Any changes in the plans 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. INCOME PER SHARE
During fiscal 1998, Delta adopted SFAS 128, which establishes new standards for
computing, presenting, and disclosing income per share data. All prior year
income per share data have been restated to conform with SFAS 128. Application
of SFAS 128 did not have a material impact on previously reported income per
share amounts for the fiscal years ended June 30, 1997 and 1996.
48
<PAGE>
The following table shows a reconciliation of the numerator (net income)
and the denominator (average shares outstanding) used in computing basic and
diluted income per share:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, 1998 1997 1996
(In Millions, except per share data)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic:
Net income $ 1,001 $ 854 $ 156
Dividends on allocated Series B ESOP
Convertible Preferred Stock (11) (9) (8)
Dividends on Series C
Convertible Preferred Stock - - (74)
- --------------------------------------------------------------------------------
Income available to common
shareowners $ 990 $ 845 $ 74
Weighted average shares outstanding 74.6 74.2 51.8
Basic income per common share $13.28 $11.39 $1.43
Diluted:
Net Income $1,001 $ 854 $ 156
Adjustment to net income assuming
conversion of allocated Series B ESOP
Convertible Preferred Stock (4) (5) (5)
Dividends on Series C
Convertible Preferred Stock - - (74)
- --------------------------------------------------------------------------------
Income available to common
shareowners $ 997 $ 849 $ 77
Weighted average shares outstanding 74.6 74.2 51.8
Additional shares assuming:
Exercise of stock options 1.9 .6 .3
Conversion of allocated Series B ESOP
Convertible Preferred Stock 2.1 1.9 1.6
Conversion of Series C
Convertible Preferred Stock - .3 -
- --------------------------------------------------------------------------------
Weighted average shares
outstanding as adjusted 78.6 77.0 53.7
- --------------------------------------------------------------------------------
Diluted income per common share $12.68 $11.03 $1.43
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
Fiscal 1996 diluted income per common share calculation does not assume
conversion of the 3.23% Convertible Subordinated Notes due June 15, 2003 and the
Series C Convertible Preferred Stock, because to do so would have been
antidilutive.
12. COMMON AND PREFERRED STOCK
During fiscal 1998, the Company issued 4,160,501 shares of Common Stock under
its broad-based employee stock option plans, and a total of 477,541 shares of
Common Stock under its 1989 Stock Incentive and Dividend Reinvestment and Stock
Purchase Plans. In addition, the Company distributed a total of 49,541 shares of
Common Stock from treasury under its 1989 Stock Incentive Plan. Also during
fiscal 1998, the Company repurchased 3,158,373 shares of Common Stock.
At June 30, 1998, 20,539,449 shares of Common Stock were reserved for
issuance under the Company's broad-based employee stock option plans; 7,663,763
shares of Common Stock were reserved for issuance under the 1989 Stock Incentive
Plan; 5,664,421 shares of Common Stock were reserved for conversion of the ESOP
Preferred Stock; and 248,215 shares of Common Stock were reserved for issuance
under the Non-Employee Directors' Stock Plan. In addition, 1,500,000 shares of
preferred stock were reserved for issuance under the Shareowner Rights Plan.
The Shareowner Rights Plan is designed to enhance the ability of the Board
of Directors to protect shareowners against attempts to acquire Delta that do
not offer an adequate price to all shareowners, or that are otherwise not in the
best interest of the Company and its shareowners. Under this 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
49
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
JUNE 30, 1998, 1997 AND 1996
DELTA AIR LINES, INC.
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 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
share 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.
13. 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 the 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 1998, 1997 and 1996 of $8 million, $3 million
and $14 million, respectively. Stock options are generally exercisable beginning
one year, and ending ten years, after their grant date.
On October 24, 1996, the Company's shareowners approved two plans providing
for the issuance of non-qualified stock options to substantially all of Delta's
non-officer personnel 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 eligible 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 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 these plans are generally exercisable
beginning one year and ending ten years after their grant dates, and are not
transferable other than upon the death of the person granted the stock options.
On October 30, 1997 and 1996, Delta granted eligible personnel non-qualified
stock options to purchase 8.3 million and 8.2 million shares of Common Stock,
respectively, at exercise prices of $98 per share and $69 per share,
respectively. The third grant date under the Nonpilot and Pilot Plans is
scheduled to occur on October 30, 1998.
Transactions involving stock options and SARs during fiscal 1998, 1997 and
1996 were as follows:
<TABLE>
<CAPTION>
Fiscal 1998 Fiscal 1997 Fiscal 1996
- ---------------------------------------------------------------------------------------------------------------------------
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 9,901 $ 69 2,332 $65 3,386 $63
Granted 9,849 100 8,932 70 644 71
Exercised (4,659) 69 (1,279) 67 (1,654) 63
Forfeited (88) 92 (84) 75 (44) 65
- ---------------------------------------------------------------------------------------------------------------------------
Outstanding at end of fiscal year 15,003 89 9,901 69 2,332 65
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Stock options exercisable at fiscal year end 5,211 $ 70 1,049 $63 1,698 $63
</TABLE>
50
<PAGE>
The following table summarizes information about stock options outstanding at
June 30, 1998:
<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, 1998 Remaining Life Exercise Price June 30, 1998 Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------
(000) (Years) (000)
<S> <C> <C> <C> <C> <C>
$52-$68 276 5 $ 56 276 $56
$69-$83 4,935 8 71 4,935 71
$84-$125 9,792 9 100 - -
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
SFAS 123 requires pro forma information regarding net income and income per
share, determined as if the Company accounted for its employee stock option
plans under the fair value method of SFAS 123. The fair value of stock options
granted in fiscal 1998, 1997 and 1996 was derived using the Black-Scholes stock
option pricing model. The assumptions and the weighted average fair values were
as follows:
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Stock Options
Granted in Fiscal Year
Assumptions 1998 1997 1996
- -----------------------------------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.8% 6.0% 5.4%
Average expected life of
stock options (Years) 3.3 2.7 5.1
Expected volatility of
Common Stock 25.3% 26.4% 26.5%
Expected annual dividends on
Common Stock $0.20 $0.20 $0.20
Weighted average fair value
of stock options $ 26 $ 17 $ 24
- -----------------------------------------------------------
</TABLE>
Pro Forma Net Income and Income per Common Share:
<TABLE>
<CAPTION>
Fiscal Year Ended June 30, June 30, June 30,
(In Millions): 1998 1997 1996
- -------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported $1,001 $ 854 $ 156
Pro forma 875 791 152
Basic income per common share:
As reported $13.28 $ 11.39 $ 1.43
Pro forma 11.59 10.53* 1.36*
Diluted income per common share:
As reported $12.68 $ 11.03 $ 1.43
Pro forma 11.07 10.21* 1.35*
</TABLE>
- -------------------------------------------------------------
*Restated in accordance with SFAS 128. See Note 11.
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 1998 may not be representative of the pro forma effects SFAS 123 may have
in future years.
14. STOCK REPURCHASE AUTHORIZATION
In April 1996, Delta's Board of Directors authorized the Company to repurchase
up to 24.7 million shares of Common Stock and Common Stock equivalents. Under
this authorization, the Company could repurchase up to 6.2 million of these
shares before October 30, 1997 - the date the initial stock option grants under
the broad-based employee stock option plans became exercisable - and may
purchase the remaining shares as Delta personnel exercise their stock options
under those plans. (See Note 13.) The Company repurchased 3,079,000, 5,378,700
and 821,300 shares of Common Stock for $345 million, $379 million and $66
million during fiscal 1998, 1997 and 1996, respectively, under this
authorization.
In July 1998, Delta's Board of Directors authorized
the Company to repurchase Common Stock and Common Stock equivalents for an
aggregate purchase price of up to $750 million from time to time through
December 31, 1999. This authorization is in addition to the Company's stock
repurchase plan discussed in the preceding paragraph.
Repurchases under both of the above authorizations are subject to market
conditions and may be made on the open market or in privately negotiated
transactions.
51
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued
JUNE 30, 1998, 1997 AND 1996
DELTA AIR LINES, INC.
15. 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 were due to the writedown of Delta's L-1011 fleet in accordance with
SFAS 121; employee early retirement programs; lease termination costs related to
abandoned facilities and discontinued routes; and costs related to the
realignment of the Company's transatlantic and European operations.
The Company made payments of $51 million related to these charges during
fiscal 1998. The remaining liability related to the charges was $36 million
as of June 30, 1998.
Actual costs incurred, 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.
16. INTERNATIONAL REVENUES
Delta provides scheduled air transportation for passengers, freight and mail
over a network of routes throughout the United States and abroad. Delta's
operating revenues by international region are as follows:
<TABLE>
<CAPTION>
(In Millions) 1998 1997 1996
- ------------------------------------------------------------
<S> <C> <C> <C>
Entity:
Atlantic 2,092 2,024 1,909
Pacific 304 325 342
Latin America 245 218 187
- ------------------------------------------------------------
2,641 2,567 2,438
</TABLE>
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations for
fiscal 1998 and 1997 (in millions, except per share data):
<TABLE>
<CAPTION>
Three Months Ended
- ---------------------------------------------------------------------------------------------------------------------------
Sept. 30 Dec. 31 Mar. 31 June 30
<S> <C> <C> <C> <C>
Fiscal 1998
Operating revenues $3,553 $3,434 $3,390 $3,761
Operating income $ 431 $ 332 $ 336 $ 594
Net income $ 254 $ 190 $ 195 $ 362
Basic income per common share $ 3.41* $ 2.52 $ 2.57 $ 4.77
Diluted income per common share $ 3.26* $ 2.40 $ 2.45 $ 4.52
- ---------------------------------------------------------------------------------------------------------------------------
Fiscal 1997
Operating revenues $3,433 $3,198 $3,421 $3,542
Operating income $ 439 $ 227 $ 346 $ 519
Net income $ 238 $ 125 $ 190 $ 301
Basic income per common share $ 3.10* $ 1.66* $ 2.56* $ 4.06*
Diluted income per common share $ 2.98* $ 1.63* $ 2.47* $ 3.90*
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Restated to conform with SFAS 128. See Note 11.
The sum of the quarterly income per common share does not equal the fiscal
income per common share due to changes in average share calculations.
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 15.)
52
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
DELTA AIR LINES, INC.
To the Shareowners and
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, 1998 and 1997, and
the related consolidated statements of operations, cash flows and shareowners'
equity for each of the three years in the period ended June 30, 1998. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Delta Air
Lines, Inc. and subsidiaries as of June 30, 1998 and 1997, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1998, in conformity with generally accepted accounting
principles.
/s/Arthur Andersen LLP
----------------------
Arthur Andersen
Atlanta, Georgia
August 14, 1998
REPORT OF MANAGEMENT
DELTA AIR LINES, INC.
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/Warren C. Jenson /s/Leo F. Mullin
- --------------------------- -----------------------
Warren C. Jenson Leo F. Mullin
Executive Vice President President and
and Chief Financial Officer Chief Executive Officer
53
<PAGE>
CONSOLIDATED SUMMARY OF OPERATIONS
DELTA AIR LINES, INC.
<TABLE>
<CAPTION>
For the fiscal years ended June 30
- ---------------------------------------------------------------------------------------------------------------------------
(In Millions, Except Per Share Data) 1998 1997(1) 1996(2) 1995(3)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $14,138 $13,594 $12,455 $12,194
Operating expenses 12,445 12,063 11,992 11,533
- ---------------------------------------------------------------------------------------------------------------------------
Operating income (loss) 1,693 1,531 463 661
Interest expense, net (148) (174) (243) (262)
Gain (loss) on disposition of flight equipment - - 2 -
Miscellaneous income, net(6) 103 58 54 95
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 1,648 1,415 276 494
Income tax benefit (provision) (647) (561) (120) (200)
Amortization of investment tax credits - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) 1,001 854 156 294
Preferred stock dividends (11) (9) (82) (88)
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to common shareowners $ 990 $ 845 $ 74 $ 206
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share:(7)
Basic $ 13.28 $ 11.39 $ 1.43 $ 4.07
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Diluted $ 12.68 $ 11.03 $ 1.43 $ 4.01
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Dividends declared on Common Stock $ 15 $ 15 $ 10 $ 10
Dividends declared per common share $ 0.20 $ 0.20 $ 0.20 $ 0.20
</TABLE>
<TABLE>
<CAPTION>
For the fiscal years ended June 30
- ---------------------------------------------------------------------------------------------------------------------------
(In Millions, Except Per Share Data) 1994(4) 1993(5) 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating revenues $12,077 $11,657 $10,837 $9,171
Operating expenses 12,524 12,232 11,512 9,621
- ---------------------------------------------------------------------------------------------------------------------------
Operating income (loss) (447) (575) (675) (450)
Interest expense, net (271) (177) (151) (97)
Gain (loss) on disposition of flight equipment 2 65 35 17
Miscellaneous income, net(6) 56 36 5 30
- ---------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes (660) (651) (786) (500)
Income tax benefit (provision) 250 233 271 163
Amortization of investment tax credits 1 3 9 13
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) (409) (415) (506) (324)
Preferred stock dividends (110) (110) (19) (19)
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) attributable to common shareowners $ (519) $ (525) $ (525) $ (343)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Net income (loss) per common share:(7)
Basic $(10.32) $(10.54) $(10.60) $(7.73)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Diluted $(10.32) $(10.54) $(10.60) $(7.73)
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
Dividends declared on Common Stock $ 10 $ 35 $ 59 $ 54
Dividends declared per common share $ 0.20 $ 0.70 $ 1.20 $ 1.20
</TABLE>
<TABLE>
<CAPTION>
For the fiscal years ended June 30
- -----------------------------------------------------------------------------------------------------
(In Millions, Except Per Share Data) 1990 1989 1988
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating revenues $8,583 $8,089 $6,915
Operating expenses 8,163 7,411 6,418
- -----------------------------------------------------------------------------------------------------
Operating income (loss) 420 678 497
Interest expense, net (27) (39) (65)
Gain (loss) on disposition of flight equipment 18 17 (1)
Miscellaneous income, net(6) 57 55 25
- -----------------------------------------------------------------------------------------------------
Income (loss) before income taxes 468 711 456
Income tax benefit (provision) (187) (279) (181)
Amortization of investment tax credits 22 29 32
- -----------------------------------------------------------------------------------------------------
Net income (loss) 303 461 307
Preferred stock dividends (18) - -
- -----------------------------------------------------------------------------------------------------
Net income (loss) attributable to common shareowners $ 285 $ 461 $ 307
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Net income (loss) per common share:(7)
Basic $ 5.79 $ 9.37 $ 6.30
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Diluted $ 5.28 $ 9.37 $ 6.30
- -----------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------
Dividends declared on Common Stock $ 85 $ 59 $ 59
Dividends declared per common share $ 1.70 $ 1.20 $ 1.20
</TABLE>
<PAGE>
OTHER FINANCIAL AND STATISTICAL DATA
<TABLE>
<CAPTION>
For the fiscal years ended June 30
- ------------------------------------------------------------------------------------------------------------------------------------
(Financial Data In Millions) 1998 1997(1) 1996(2) 1995(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total assets $14,603 $12,741 $12,226 $12,143
Long-term debt and capital leases (excluding current maturities) $ 1,783 $ 1,797 $ 2,175 $ 3,121
Shareowners' equity $ 4,023 $ 3,007 $ 2,540 $ 1,827
Shares of Common Stock outstanding at year end 75,225,197 73,695,987 67,778,106 50,816,010
Revenue passengers enplaned (Thousands) 104,148 101,147 91,341 88,893
Available seat miles (Millions) 140,149 136,821 130,751 130,645
Revenue passenger miles (Millions) 101,136 97,758 88,673 86,417
Operating revenue per available seat mile 10.09(cent) 9.94(cent) 9.53(cent) 9.33(cent)
Passenger mile yield 12.83(cent) 12.79(cent) 13.10(cent) 13.10(cent)
Operating cost per available seat mile 8.88(cent) 8.82(cent) 9.17(cent) 8.83(cent)
Passenger load factor 72.2% 71.4% 67.8% 66.2%
Breakeven passenger load factor 62.7% 62.7% 65.1% 62.3%
Available ton miles (Millions) 19,890 18,984 18,084 18,150
Revenue ton miles (Millions) 11,859 11,308 10,235 10,142
Operating cost per available ton mile 62.57(cent) 63.54(cent) 66.31(cent) 63.55(cent)
</TABLE>
<TABLE>
<CAPTION>
For the fiscal years ended June 30
- ------------------------------------------------------------------------------------------------------------------------------------
(Financial Data In Millions) 1994(4) 1993(5) 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total assets $ 11,896 $11,871 $ 10,162 $8,411
Long-term debt and capital leases (excluding current maturities) $ 3,228 $ 3,716 $ 2,833 $2,059
Shareowners' equity $ 1,467 $ 1,913 $ 1,894 $2,457
Shares of Common Stock outstanding at year end 50,453,272 50,063,841 49,699,098 49,401,779
Revenue passengers enplaned (Thousands) 87,399 85,085 77,038 69,127
Available seat miles (Millions) 131,906 132,282 123,102 104,328
Revenue passenger miles (Millions) 85,268 82,406 72,693 62,086
Operating revenue per available seat mile 9.16(cent) 8.81(cent) 8.80(cent) 8.79(cent)
Passenger mile yield 13.23(cent) 13.23(cent) 13.91(cent) 13.80(cent)
Operating cost per available seat mile 9.49(cent) 9.25(cent) 9.35(cent) 9.22(cent)
Passenger load factor 64.6% 62.3% 59.1% 59.5%
Breakeven passenger load factor 67.2% 65.6% 63.0% 62.6%
Available ton miles (Millions) 18,302 18,182 16,625 13,825
Revenue ton miles (Millions) 9,911 9,503 8,361 7,104
Operating cost per available ton mile 68.43(cent) 67.27(cent) 69.24(cent) 69.59(cent)
</TABLE>
<TABLE>
<CAPTION>
For the fiscal years ended June 30
- ------------------------------------------------------------------------------------------------------------------------------------
(Financial Data In Millions) 1990 1989 1988
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets $7,227 $6,484 $5,748
Long-term debt and capital leases (excluding current maturities) $1,315 $ 703 $ 729
Shareowners' equity $2,596 $2,620 $2,209
Shares of Common Stock outstanding at year end 46,086,110 49,265,884 49,101,271
Revenue passengers enplaned (Thousands) 67,240 64,242 58,565
Available seat miles (Millions) 96,463 90,742 85,834
Revenue passenger miles (Millions) 58,987 55,904 49,009
Operating revenue per available seat mile 8.90(cent) 8.91(cent) 8.06(cent)
Passenger mile yield 13.63(cent) 13.56(cent) 13.15(cent)
Operating cost per available seat mile 8.46(cent) 8.17(cent) 7.48(cent)
Passenger load factor 61.2% 61.6% 57.1%
Breakeven passenger load factor 58.0% 56.1% 52.7%
Available ton miles (Millions) 12,500 11,725 11,250
Revenue ton miles (Millions) 6,694 6,338 5,557
Operating cost per available ton mile 65.30(cent) 63.21(cent) 57.05(cent)
</TABLE>
(1) Summary of operations and other financial and statistical data include $52
million in pretax restructuring and other non-recurring charges ($0.43
basic and $0.42 diluted after-tax income per common share).
(2) Summary of operations and other financial and statistical data include $829
million in pretax restructuring charges and other non-recurring charges
($9.77 after-tax per common share).
(3) Summary of operations and other financial and statistical data exclude $114
million after-tax cumulative effect of change in accounting standards
($2.25 basic and $1.43 diluted income per common share).
(4) Summary of operations and other financial and statistical data include $526
million in pretax restructuring charges ($6.59 after-tax per common share).
(5) Summary of operations and other financial and statistical data include $82
million pretax restructuring charge ($1.05 after-tax per common share).
Summary of operations exclude $587 million after-tax cumulative effect of
changes in accounting standards ($11.78 after-tax per common share).
(6) Includes interest income.
(7) Income per share data for fiscal years 1988-1997 have been restated in
accordance with SFAS 128. See Note 11 of Notes to Consolidated Financial
Statements.
54-55
<PAGE>
COMMON STOCK
Listed on the New York Stock Exchange under the ticker symbol DAL.
NUMBER OF SHAREOWNERS
As of August 1, 1998, there were 21,672 registered owners of Common Stock.
MARKET PRICES AND DIVIDENDS
<TABLE>
<CAPTION>
Closing Price of
Common Stock on Cash Dividends Per
Fiscal Year 1998 New York Stock Exchange Common Share
- ------------------------------------------------------------------------
Quarter Ended: High Low
- ------------------------------------------------------------------------
<S> <C> <C> <C>
September 30 $107 1/8 $ 82 $0.05
December 31 120 3/8 94 5/8 0.05
March 31 123 1/8 110 1/8 0.05
June 30 129 3/8 110 2/4 0.05
Fiscal Year 1997
Quarter Ended: High Low
- ------------------------------------------------------------------------
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 0.05
</TABLE>
56
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our reports dated August 14, 1998 included or incorporated by
reference in Delta Air Lines, Inc.'s Annual Report on Form 10-K for the year
ending June 30, 1998 into the Company's previously filed Registration Statement
File Nos. 2-94541, 33-30454, 33-65391, 333-16471, 333-49553, and 333-58647.
/s/ ARTHUR ANDERSEN LLP
- ---------------------------------------
Atlanta, Georgia
September 23, 1998
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Warren C. Jenson 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, 1998, 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 12th day of
September, 1998.
/s/ Leo F. Mullin
-----------------------------------
Leo F. Mullin
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Warren C. Jenson 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, 1998, 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
September, 1998.
/s/ Edwin L. Artzt
-----------------------------------
Edwin L. Artzt
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Warren C. Jenson 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, 1998, 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
September, 1998.
/s/ Henry A. Biedenharn, III
-----------------------------------
Henry A. Biedenharn, III
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Warren C. Jenson 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, 1998, 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 18th day of
September, 1998.
/s/ James L. Broadhead
-----------------------------------
James L. Broadhead
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Warren C. Jenson 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, 1998, 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
September, 1998.
/s/ Edward H. Budd
-----------------------------------
Edward H. Budd
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Warren C. Jenson 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, 1998, 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
September, 1998.
/s/ R. Eugene Cartledge
-----------------------------------
R. Eugene Cartledge
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Warren C. Jenson 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, 1998, 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
September, 1998.
/s/ Mary Johnston Evans
-----------------------------------
Mary Johnston Evans
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Warren C. Jenson 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, 1998, 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
September, 1998.
/s/ Gerald Grinstein
-----------------------------------
Gerald Grinstein
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Warren C. Jenson 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, 1998, 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
September, 1998.
/s/ Jesse Hill, Jr.
-----------------------------------
Jesse Hill, Jr.
Director
Delta Air Lines, Inc.
<PAGE>
POWER OF ATTORNEY
I hereby constitute and appoint Maurice W. Worth, Warren C. Jenson 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, 1998, 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
September, 1998.
/s/ Andrew J. Young
-----------------------------------
Andrew J. Young
Director
Delta Air Lines, Inc.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM DELTA
AIR LINES, INC.'S FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE RELATED FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> YEAR
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<SECURITIES> 557
<RECEIVABLES> 974
<ALLOWANCES> 36
<INVENTORY> 100
<CURRENT-ASSETS> 3,362
<PP&E> 15,286
<DEPRECIATION> 5,965
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0
0
<COMMON> 265
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<TOTAL-REVENUES> 14,138
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<TOTAL-COSTS> 12,445
<OTHER-EXPENSES> (141)
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<INTEREST-EXPENSE> 186
<INCOME-PRETAX> 1,648
<INCOME-TAX> 647
<INCOME-CONTINUING> 1,001
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