<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For fiscal year ended December 31, 1998.
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
Commission file number 1-8400.
------
AMR CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 75-1825172
- ----------------------------------------------- ----------------------------------------------------
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
4333 Amon Carter Blvd.
Fort Worth, Texas 76155
- ----------------------------------------------- ----------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (817) 963-1234
-------------------
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of exchange on which registered
- ------------------------------------------------------- ----------------------------------------------------
<S> <C>
Common stock, $1 par value per share New York Stock Exchange
9.00% Debentures due 2016 New York Stock Exchange
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
NONE
- --------------------------------------------------------------------------------
(Title of Class)
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 (ss. 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of the 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. [X]
The aggregate market value of the voting stock held by non-affiliates of the
registrant as of March 12, 1999, was approximately $10,572,168,428. As of March
12, 1999, 182,278,766 shares of the registrant's common stock were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Form 10-K incorporates by reference certain information from
the Proxy Statement for the Annual Meeting of Stockholders to be held May 19,
1999.
================================================================================
<PAGE> 2
PART I
- --------------------------------------------------------------------------------
ITEM 1. BUSINESS
AMR Corporation (AMR or the Company) was incorporated in October 1982. AMR's
principal subsidiary, American Airlines, Inc. (American), was founded in 1934.
Following the announcement of AMR's plans to sell the companies that comprised
the majority of what was previously the Management Services Group, AMR's
operations fall within two major lines of business: the Airline Group and The
Sabre Group.
AIRLINE GROUP
The Airline Group consists primarily of American and AMR Eagle Holding
Corporation (AMR Eagle), a separate subsidiary of AMR. American is one of the
largest scheduled passenger airlines in the world. At the end of 1998, American
provided scheduled jet service to more than 180 destinations throughout North
America, the Caribbean, Latin America, Europe and the Pacific. American is also
one of the largest scheduled air freight carriers in the world, providing a full
range of freight and mail services to shippers throughout its system. AMR Eagle
owns three regional airlines which operate as "American Eagle" -- American Eagle
Airlines, Inc., Executive Airlines, Inc. and Business Express Airlines, Inc. The
American Eagle carriers provide connecting service from seven of American's
high-traffic cities to smaller markets throughout the United States, Canada, the
Bahamas and the Caribbean.
THE SABRE GROUP
The Sabre Group, in which AMR holds an 82.4 percent economic and 97.9 percent
voting interest, is the world leader in the electronic distribution of travel
through its Sabre(R) computer reservations system (Sabre). Through Sabre, travel
agencies, corporate travel departments and individual consumers can access
information on - and book reservations with - airlines and other providers of
travel and travel-related products and services. In addition, The Sabre Group is
a leading provider of information technology solutions to the travel and
transportation industry and fulfills substantially all of the data processing,
network and distribution systems needs of American and AMR's other subsidiaries,
Canadian Airlines International Limited (Canadian), US Airways, Inc. (US
Airways) and certain other customers. The Sabre Group also employs its airline
technology expertise to offer technology solutions to other clients that face
similar complex operations issues, including companies in the airport, railroad,
trucking and hospitality industries. The services offered by The Sabre Group
include software development and product sales, transactions processing,
consulting and comprehensive information technology outsourcing.
In December 1997, The Sabre Group executed a 25 year, multi-billion
dollar technology agreement with US Airways to provide substantially all of US
Airways' information technology services. The agreement covers the management
and operation of US Airways' systems and information technology services. In
February 1998, The Sabre Group signed long-term agreements with ABACUS
International Holdings Ltd. which created a Singapore-based joint venture
company to manage travel distribution in the Asia-Pacific region. The Sabre
Group owns 35 percent of the joint venture company, called ABACUS International
Ltd., and provides it with transaction processing and product development on the
Sabre system.
OTHER
In September 1998, AMR announced plans to sell three of the companies which were
previously part of the Management Services Group and accounted for a substantial
portion of that group's revenues and operating income: AMR Services, AMR Combs
and TeleService Resources. As of December 31, 1998, the Company had reached
agreements to sell all three companies. The sale of TeleService Resources was
completed on January 31, 1999 and the sale of AMR Combs was completed on March
4, 1999. The Company expects to complete the sale of AMR Services by the end of
the first quarter or early part of the second quarter of 1999. See Note 12 to
the consolidated financial statements for additional information regarding
discontinued operations.
The remaining companies are the AMR Training Group, Americas Ground
Services, Inc. (AGS), AMR Investment Services, Inc. and Airline Management
Services, Inc. (AMS). The AMR Training Group operates the American Airlines
Training & Conference Center and provides a variety of training services to
American and a
1
<PAGE> 3
number of other corporate clients. AGS provides airline ground and cabin service
handling at nine locations in seven countries in the Caribbean and Central and
South America. AMR Investment Services, Inc. serves as an investment advisor to
AMR and other institutional investors. It also manages the American AAdvantage
Funds, which have both institutional shareholders - including pension funds,
financial advisors, corporations and banks - and individual shareholders. As of
December 31, 1998, AMR Investment Services was responsible for management of
approximately $20.4 billion in assets, including direct management of
approximately $7.3 billion in short-term investments. AMS was formed in 1994 to
manage the Company's service contracts with other airlines such as the agreement
to provide a variety of management, technical and administrative services to
Canadian, which the Company signed in 1994.
Additional information regarding business segments is included in Note 15
to the consolidated financial statements.
COMPETITION
AIRLINE GROUP Most major air carriers have developed hub-and-spoke systems and
schedule patterns in an effort to maximize the revenue potential of their
service. American operates four hubs: Dallas/Fort Worth (DFW), Chicago O'Hare,
Miami and San Juan, Puerto Rico. Delta Air Lines and United Airlines also have
hub operations at Dallas/Fort Worth and Chicago O'Hare, respectively.
The American Eagle carriers increase the number of markets the Airline
Group serves by providing connections to American at American's hubs and certain
other major airports. The American Eagle carriers serve smaller markets through
Boston, Dallas/Fort Worth, Chicago, Miami, San Juan, Los Angeles and New York's
John F. Kennedy International Airport. American's competitors also own or have
marketing agreements with regional carriers which provide similar services at
their major hubs.
In addition to its extensive domestic service, American provides
international service to the Caribbean, Canada, Latin America, Europe and the
Pacific. American's operating revenues from foreign operations were
approximately $5.1 billion in 1998 and 1997 and $4.7 billion in 1996. Additional
information about the Company's foreign operations is included in Note 15 to the
consolidated financial statements.
Service over almost all of American's routes is highly competitive.
Currently, any carrier deemed fit by the U.S. Department of Transportation (DOT)
is free to operate scheduled passenger service between any two points within the
U.S. and its possessions. On most of its non-stop routes, American competes with
at least one, and sometimes more than one, major domestic airline including:
America West Airlines, Continental Airlines, Delta Air Lines, Northwest
Airlines, Southwest Airlines, Trans World Airlines, United Airlines and US
Airways. Competition is even greater between cities that require a connection,
where as many as nine airlines may compete via their respective hubs. American
also competes with national, regional, all-cargo, and charter carriers and,
particularly on shorter segments, ground transportation.
On all of its routes, pricing decisions are affected by competition from
other airlines, some of which have cost structures significantly lower than
American's and can therefore operate profitably at lower fare levels. As of
December 31, 1998, approximately 48 percent of American's bookings were impacted
by competition from low-cost carriers. American and its principal competitors
use revenue management systems that permit them to vary the number of discount
seats offered on each flight in an effort to maximize revenues, yet still be
price competitive with low-cost carriers.
In April 1998, American and US Airways announced the creation of a broad
marketing alliance between the two carriers. During 1998, the two carriers
introduced reciprocal benefits to members of both carriers' frequent flyer
programs and access to the carriers' domestic and international airport lounge
facilities. In December 1998, American acquired Reno Air, Inc. (Reno Air). The
Company anticipates that the acquisition of Reno Air will enhance American's
overall network and strengthen American's presence in the western United States.
Also in December 1998, American and Alaska Airlines announced the creation of a
broad marketing alliance between the two carriers. The two carriers intend to
introduce reciprocal benefits to members of both carriers' frequent flyer
programs in April 1999 and initiate code-sharing by Alaska on American-operated
services to and from the West Coast later in 1999.
2
<PAGE> 4
Competition in many international markets is subject to extensive
government regulation. In these markets, American competes with foreign
investor-owned carriers, state-owned carriers and U.S. airlines that have been
granted authority to provide scheduled passenger and cargo service between the
U.S. and various overseas locations. American's operating authority in these
markets is subject to aviation agreements between the U.S. and the respective
countries, and in some cases, fares and schedules require the approval of the
DOT and/or the relevant foreign governments. Because international air
transportation is governed by bilateral or other agreements between the U.S. and
the foreign country or countries involved, changes in U.S. or foreign government
aviation policies could result in the alteration or termination of such
agreements, diminish the value of such route authorities, or otherwise adversely
affect American's international operations. Bilateral agreements between the
U.S. and various foreign countries served by American are subject to frequent
renegotiation. In addition, at most foreign airports, a carrier needs slots
(landing and take-off authorizations) before the carrier can introduce new
service or increase existing service. The availability of such slots is not
assured and can therefore inhibit a carrier's efforts to compete in certain
markets.
The major U.S. carriers have some advantage over foreign competitors in
their ability to generate traffic from their extensive domestic route systems.
In many cases, however, foreign governments, which own and subsidize some of
American's foreign competitors, limit U.S. carriers' rights to carry passengers
beyond designated gateway cities in foreign countries. To improve access to each
other's markets, various U.S. and foreign carriers -- including American -- have
established marketing relationships with other airlines. American currently has
code-sharing programs with Aero California, Air Liberte, Air Pacific, Asiana
Airlines, British Midland, Canadian Airlines, China Airlines, China Eastern
Airlines, Finnair, Grupo TACA, Gulf Air, Hawaiian Airlines, Iberia, Japan
Airlines, LOT Polish Airlines, Qantas Airways, Singapore Airlines, South African
Airways and the TAM Group. Certain of these relationships also include
reciprocity between American and the other airlines' frequent flyer programs. In
addition, the Company expects to implement alliances with other international
carriers, including Aeropostal, Avianca, Aerolineas Argentinas and LanChile,
pending regulatory approval. In the coming years, the Company expects to develop
these code-sharing programs further and to evaluate new alliances with other
international carriers.
During 1998, the Company acquired a 10 percent minority equity interest
in the Argentine holding company Interinvest, S.A., which owns a controlling
interest in the Argentine carriers Aerolineas Argentinas and Austral Lineas
Aereas. In February 1999, the Company agreed to acquire a one percent stake in
Iberia, S.A., which is owned by Sociedad Estatal de Participaciones Industriales
(SEPI), pending regulatory approval.
In September 1998, American, British Airways, Canadian Airlines, Cathay
Pacific Airways and Qantas Airways announced the formation of the global
alliance oneworld(TM). The oneworld alliance links the networks of the five
carriers to enhance service and connections to the destinations served by the
oneworld carriers, including linking the five carriers' frequent flyer programs
and access to the carriers' airport lounge facilities. Oneworld announced the
addition of Finnair and Iberia to the alliance in December 1998 and February
1999, respectively.
In June 1996, American and British Airways announced plans to create a
worldwide alliance. Among other things, the alliance contemplated extensive
code-sharing across both carriers' networks, the combining of passenger and
cargo services on flights between the United States and Europe, and the sharing
of the resulting profits on these services. Regulatory approval of the alliance
has not been obtained. In the interim, however, the carriers' have introduced a
limited reciprocal frequent flyer program and have joined with other carriers in
the formation of the oneworld alliance.
The Airline Group believes that it has several advantages relative to its
competition. Its fleet is efficient and quiet and is one of the youngest fleets
in the U.S. airline industry. It has a comprehensive domestic and international
route structure, anchored by efficient hubs, which permit it to take full
advantage of whatever traffic growth occurs. The Company believes American's
AAdvantage frequent flyer program, which is the largest program in the industry,
and its superior service also give it a competitive advantage.
3
<PAGE> 5
THE SABRE GROUP The Sabre Group competes in electronic travel distribution
primarily against other large and well-established global distribution systems.
Sabre's principal competitors in marketing to travel agents include Amadeus,
Galileo and Worldspan. Each of these competitors offers many products and
services substantially similar to those of The Sabre Group.
Although certain barriers exist for any new provider of electronic
commerce -- barriers such as the need for significant capital investment to
acquire or develop the hardware, software and network facilities necessary to
operate a global distribution system -- The Sabre Group is faced with the
potential of new competitors, particularly as new channels for travel
distribution develop.
The global market to attract and retain agency subscribers is intensely
competitive. Factors affecting competitive success of global distribution
systems include depth and breadth of information, ease of use, reliability,
service and incentives to travel agents and range of products available to
travel providers, travel agents and consumers.
Although distribution through travel agents continues to be the primary
method of travel distribution, new channels of direct distribution to
businesses, consumers and airlines through computer on-line services, the
Internet and private networks are developing rapidly. The adoption of these
tools is currently quite low, but it is growing rapidly. The Sabre Group
believes that it has positioned its Sabre Business Travel Solutions(TM) system
and Travelocity.com(sm) website products to effectively compete in these
emerging distribution channels.
The Sabre Group also competes both against solutions companies and
full-service providers of technology outsourcing, some of which have
considerably greater financial resources than The Sabre Group, and against
smaller companies that offer a limited range of products. Among The Sabre
Group's full-service competitors are Electronic Data Systems, IBM Global
Services, Unisys, Andersen Consulting and Lufthansa Systems. Some of these
competitors have formed strategic alliances with large companies in the travel
industry and The Sabre Group's access to these potential customers is thus
limited. The Sabre Group believes that its competitive position in the travel
and transportation industries is enhanced by its experience in developing
systems for American and other airlines, and by its ability to offer not only
software applications but also systems development, integration and maintenance
and transactions processing services.
REGULATION
GENERAL The Airline Deregulation Act of 1978, as amended, eliminated most
domestic economic regulation of passenger and freight transportation. However,
the DOT and the Federal Aviation Administration (FAA) still exercise certain
regulatory authority over air carriers. The DOT maintains jurisdiction over the
approval of international codeshare agreements, international route authorities
and certain consumer protection matters, such as advertising, denied boarding
compensation, baggage liability and computer reservations systems.
The FAA regulates flying operations generally, including establishing
personnel, aircraft and security standards. As part of that oversight, the FAA
has implemented a number of requirements that American is incorporating into its
maintenance program. These matters relate to, among other things, inspection and
maintenance of aging aircraft, corrosion control, the installation of upgraded
digital flight data recorders, enhanced ground proximity warning systems and
cargo compartment smoke detection and fire suppression systems. Based on its
current implementation schedule, American expects to be in compliance with the
applicable requirements within the required time periods.
The U.S. Department of Justice has jurisdiction over airline antitrust
matters. The U.S. Postal Service has jurisdiction over certain aspects of the
transportation of mail and related services. Labor relations in the air
transportation industry are regulated under the Railway Labor Act, which vests
in the National Mediation Board certain regulatory functions with respect to
disputes between airlines and labor unions relating to union representation and
collective bargaining agreements. To the extent American continues to increase
its alliances with international carriers, American may be subject to certain
regulations of foreign agencies.
4
<PAGE> 6
Legislation has been introduced in Congress that would, if enacted,
provide financial assistance, in the form of guarantees and/or subsidized loans,
to smaller carriers for aircraft purchases. In addition, the Department of
Justice is investigating the competitive practices of major carriers at major
hub airports, including American's practices at DFW. Also, in April 1998, the
DOT issued proposed pricing and capacity rules that would severely limit major
carriers' ability to compete with new entrant carriers. The outcomes of the
proposed legislation, the investigations and the proposed DOT rules are unknown.
However, to the extent that (i) restrictions are imposed upon American's ability
to respond to a competitor, or (ii) competitors have a financial advantage in
the purchase of aircraft because of federal assistance, American's business may
be adversely impacted.
AIRLINE FARES Airlines are permitted to establish their own domestic fares
without governmental regulation, and the industry is characterized by
substantial price competition. Legislation (sometimes referred to as the
"Passengers' Bill of Rights") has been introduced in Congress, however, that
would, if enacted, (i) place various limitations on airline fares and/or (ii)
affect operating practices such as baggage handling and overbooking. To the
extent legislation is enacted that would inhibit American's flexibility with
respect to fares, its revenue management system or other aspects of its customer
service operations, American's financial results could be adversely affected.
The DOT maintains authority over international fares, rates and charges.
International fares and rates are also subject to the jurisdiction of the
governments of the foreign countries which American serves. While air carriers
are required to file and adhere to international fare and rate tariffs,
substantial commissions, overrides and discounts to travel agents, brokers and
wholesalers characterize many international markets.
Fare discounting by competitors has historically had a negative effect on
the Airline Group's financial results because the Airline Group is generally
required to match competitors' fares to maintain passenger traffic. During
recent years, a number of new low-cost airlines have entered the domestic market
and several major airlines, including American, implemented efforts to lower
their cost structures. Further fare reductions, domestic and international, may
occur in the future. If fare reductions are not offset by increases in passenger
traffic, cost reductions or changes in the mix of traffic that improves yields,
the Airline Group's operating results will be negatively impacted.
ELECTRONIC TRAVEL DISTRIBUTION Electronic travel distribution is subject to
regulation in the United States, the European Union, Canada, Australia and New
Zealand. These regulations address the relationships among computer reservation
systems (CRS), airline associates and travel agency subscribers. These
regulations do not currently address relationships with non-airline associates,
but future regulations in the European Union may include rail associates. In
general, these regulations are directed at ensuring fair competition among
travel providers. Among the principles addressed in the current regulations are:
unbiased CRS displays of airline information, fair treatment of airline
associates by CRSs, equal participation by airlines in non-owned CRSs and fair
competition for subscribers. The CRS regulations in the United States and the
European Union are currently being revised, but The Sabre Group does not expect
the revisions to materially adversely affect its operations.
AIRPORT ACCESS In 1968, the FAA issued a rule designating New York John F.
Kennedy, New York LaGuardia, Washington Reagan, Chicago O'Hare and Newark
airports as high density traffic airports. Newark was subsequently removed from
the high density airport classification. The rule limits the number of
Instrument Flight Rule (IFR) operations - take-off and landings - permitted per
hour and requires that a slot support each operation. Recently, the DOT proposed
the elimination of slots at New York John F. Kennedy, New York LaGuardia and
Chicago O'Hare airports. At this time, the probability of such a proposal
becoming effective is unknown and with it, its effect on American. Currently,
the FAA permits the purchasing, selling (except those designated for
international or essential air service), leasing, transferring and trading of
these slots by airlines and others, subject to certain restrictions. Most
foreign airports, including London Heathrow, a major European destination for
American, also have slot allocations. Most foreign authorities do not permit the
purchasing, selling or leasing of slots.
Although the Airline Group is constrained by slots, it currently has
sufficient slot authorizations to operate its existing flights and has generally
been able to obtain slots to expand its operations and change its schedules.
However, there is no assurance that American or American Eagle will be able to
obtain slots for these purposes in the future because, among other factors, slot
allocations are subject to changes in government policies.
5
<PAGE> 7
ENVIRONMENTAL MATTERS The Company is subject to various laws and government
regulations concerning environmental matters and employee safety and health in
the U.S. and other countries. U.S. federal laws that have a particular impact on
the Company include the Airport Noise and Capacity Act of 1990 (ANCA), the Clean
Air Act, the Resource Conservation and Recovery Act, the Clean Water Act, the
Safe Drinking Water Act, and the Comprehensive Environmental Response,
Compensation and Liability Act (CERCLA or the Superfund Act). The Company is
also subject to the oversight of the Occupational Safety and Health
Administration (OSHA) concerning employee safety and health matters. The U.S.
Environmental Protection Agency (EPA), OSHA, and other federal agencies have
been authorized to promulgate regulations that have an impact on the Company's
operations. In addition to these federal activities, various states have been
delegated certain authorities under the aforementioned federal statutes. Many
state and local governments have adopted environmental and employee safety and
health laws and regulations, some of which are similar to federal requirements.
As a part of its continuing safety, health and environmental program, the
Company has maintained compliance with such requirements without any material
adverse effect on its business.
For purposes of noise standards, jet aircraft are rated by categories or
"stages." The ANCA requires the phase-out by December 31, 1999, of Stage II
aircraft operations, subject to certain exceptions. Under final regulations
issued by the FAA in 1991, air carriers are required to reduce, by modification
or retirement, the number of Stage II aircraft in their fleets 75 percent by
December 31, 1998 and 100 percent by December 31, 1999. Alternatively, a carrier
may satisfy the regulations by operating a fleet that is at least 75 percent and
100 percent Stage III by the dates set forth in the preceding sentence,
respectively. At December 31, 1998, approximately 89 percent of American's
active fleet was Stage III, the quietest and most fuel efficient rating
category. American expects to achieve Stage III compliance requirements by the
end of 1999 by retiring or modifying its Boeing 727-200 aircraft not currently
Stage III compliant.
The ANCA recognizes the rights of airport operators with noise problems
to implement local noise abatement programs so long as they do not interfere
unreasonably with interstate or foreign commerce or the national air
transportation system. Authorities in several cities have promulgated aircraft
noise reduction programs, including the imposition of nighttime curfews. The
ANCA generally requires FAA approval of local noise restrictions on Stage III
aircraft first effective after October 1990, and establishes a regulatory notice
and review process for local restrictions on Stage II aircraft first proposed
after October 1990. While American has had sufficient scheduling flexibility to
accommodate local noise restrictions imposed to date, American's operations
could be adversely affected if locally-imposed regulations become more
restrictive or widespread.
American has been identified by the EPA as a potentially responsible
party (PRP) at the Operating Industries, Inc. Superfund Site in California.
American has signed a partial consent decree with respect to this site and is
one of several PRPs named. American's alleged waste disposal volumes are minor
compared to the other PRPs. American has also been identified as a PRP at the
Beede Waste Oil Superfund Site in New Hampshire. American has responded to a
104(e) Request for Information regarding interaction with several companies
related to this Site. In 1998, the EPA named American a de minimis PRP at the
Casmalia Waste Disposal Site in California.
American, along with most other tenants at the San Francisco
International Airport (SFIA), has been ordered by the California Regional Water
Quality Control Board to engage in various studies of potential environmental
contamination at the airport and to undertake remedial measures, if necessary.
SFIA is also seeking to recover its past costs related to the contamination from
the tenants.
The Miami International Airport Authority is currently remediating
various environmental conditions at the Miami International Airport (the
Airport) and funding the remediation costs through landing fee revenues. Future
costs of the remediation effort may be borne by carriers operating at the
Airport, including American, through increased landing fees and/or other charges
since certain of the PRPs are no longer in business. The future increase in
landing fees and/or other charges may be material but cannot be reasonably
estimated due to various factors, including the unknown extent of the remedial
actions that may be required, the proportion of the cost that will ultimately be
recovered from the responsible parties, and uncertainties regarding the
environmental agencies that will ultimately supervise the remedial activities
and the nature of that supervision.
6
<PAGE> 8
American and Executive Airlines, Inc., along with other tenants at the
Luis Munoz Marin International Airport in San Juan, Puerto Rico have been named
as PRPs for environmental claims at the airport.
American Eagle Airlines, Inc. has been notified of its potential
liability under New York law at an inactive hazardous waste site in
Poughkeepsie, New York.
AMR does not expect these matters, individually or collectively, to have
a material impact on its financial position or liquidity.
LABOR
The airline business is labor intensive. Approximately 79 percent of AMR's
employees work in the Airline Group. Wages, salaries and benefits represented
approximately 39 percent of AMR's consolidated operating expenses for the year
ended December 31, 1998.
The majority of American's employees are represented by labor unions and
covered by collective bargaining agreements. American's relations with such
labor organizations are governed by the Railway Labor Act. Under this act, the
collective bargaining agreements among American and these organizations do not
expire but instead become amendable as of a stated date. If either party wishes
to modify the terms of any such agreement, it must notify the other party before
the contract becomes amendable. After receipt of such notice, the parties must
meet for direct negotiations, and if no agreement is reached, either party may
request the National Mediation Board (NMB) to appoint a federal mediator. If no
agreement is reached in mediation, the NMB may determine, at any time, that an
impasse exists, and if an impasse is declared, the NMB proffers binding
arbitration to the parties. Either party may decline to submit to arbitration.
If arbitration is rejected, a 30-day "cooling-off" period commences, following
which the labor organization may strike and the airline may resort to
"self-help," including the imposition of its proposed amendments and the hiring
of replacement workers.
In 1995, American reached agreements with the members of the Association
of Professional Flight Attendants (APFA) and the Transport Workers Union (TWU)
on their labor contracts. American's collective bargaining agreement with the
APFA became amendable on November 1, 1998 and the collective bargaining
agreement with the TWU becomes amendable on March 1, 2001. American exchanged
proposals and commenced negotiations with the APFA on September 2, 1998. Direct
negotiations continue. American's current collective bargaining agreement with
the Allied Pilots Association (APA) was ratified by the APA membership on May 5,
1997. That contract becomes amendable August 31, 2001.
In early February 1999, some members of the APA engaged in certain
activities (increased sick time and declining to fly additional trips) that
resulted in numerous cancellations across American's system. These actions were
taken in response to the acquisition of Reno Air in December 1998. On February
10, 1999, American obtained a temporary restraining order prohibiting the union
from unilaterally taking actions outside the terms allowed under the collective
bargaining agreement. Because of certain actions by the APA and its leaders,
American filed a motion to have the APA and its leaders held in contempt of the
court's temporary restraining order. The court granted that motion on February
13, 1999, and the airline's operations thereafter returned to normal. In an
attempt to resolve the dispute, the Company and the APA have agreed to
non-binding mediation.
The Communications Workers of America (CWA) filed a petition with the NMB
on October 8, 1998, seeking to represent American's passenger service employees,
who currently are not unionized. The mail ballots in the election conducted by
the NMB were counted on December 15, 1998. Forty-one percent of the employees
voted to unionize, short of the 50 percent plus one needed for unionization to
occur. The CWA has challenged the results, claiming that certain of American's
actions during the campaign interfered with the employees' ability to make a
free choice. The CWA has asked that a new election be held. Both sides have
submitted papers in support of their respective positions to the NMB and are
awaiting further action by that agency.
7
<PAGE> 9
The Air Line Pilots Association (ALPA), which represents AMR Eagle
pilots, reached agreement with AMR Eagle effective September 1, 1997, to have
all of the pilots of the Eagle carriers covered by a single collective
bargaining agreement. This agreement lasts until October 31, 2013. The parties
have the right to seek limited changes in 2000, 2004, 2008 and 2012. If the
parties are unable to agree on the limited changes, they also agreed that the
issues would be resolved by interest arbitration, without the exercise of
self-help (such as a strike). The Association of Flight Attendants (AFA), which
represents the flight attendants of the Eagle carriers, reached agreement with
AMR Eagle effective March 2, 1998, to have all flight attendants of the AMR
Eagle carriers covered by a single contract. The agreement becomes amendable on
March 2, 2002. The other union employees at the AMR Eagle carriers are covered
by separate agreements with the TWU; certain of those agreements are currently
in negotiation.
As of December 31, 1998, The Sabre Group had approximately 10,800
full-time employees, excluding contractors. The Sabre Group considers its
current employee relations to be good. None of The Sabre Group employees based
in the United States are represented by a labor union.
FUEL
The Airline Group's operations are significantly affected by the availability
and price of jet fuel. American's fuel costs and consumption for the years 1996
through 1998 were:
<TABLE>
<CAPTION>
Average
Price Per
Gallon, Percent of
Gallons Average Price Excluding AMR's
Consumed Total Cost Per Gallon Fuel Taxes Operating
Year (in millions) (in millions) (in cents) (in cents) Expenses
- ---- ------------- ------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
1996 2,734 1,866 68.2 63.3 12.0
1997 2,773 1,860 67.1 62.1 11.4
1998 2,826 1,551 54.9 50.1 9.2
</TABLE>
The impact of fuel price changes on the Company and its competitors is
dependent upon various factors, including hedging strategies. The benefit of
lower fuel prices may be offset by increased fare competition and lower revenues
for all air carriers. However, due to the competitive nature of the airline
industry, in the event of any increase in the price of jet fuel, there can be no
assurance that American would be able to pass on increased fuel prices to its
customers by increasing fares.
While American does not anticipate a significant reduction in fuel
availability, dependency on foreign imports of crude oil and the possibility of
changes in government policy on jet fuel production, transportation and
marketing make it impossible to predict the future availability of jet fuel. If
there were major reductions in the availability of jet fuel, American's business
would be adversely affected.
FREQUENT FLYER PROGRAM
American established the AAdvantage frequent flyer program (AAdvantage) to
develop passenger loyalty by offering awards to travelers for their continued
patronage. AAdvantage members earn mileage credits for flights on American,
American Eagle and certain other participating airlines, or by utilizing
services of other program participants, including hotels, car rental companies
and bank credit card issuers. American sells mileage credits and related
services to the other companies participating in the program. American reserves
the right to change the AAdvantage program rules, regulations, travel awards and
special offers at any time without notice. American may initiate changes
impacting, for example, participant affiliations, rules for earning mileage
credit, mileage levels and awards, blackout dates and limited seating for travel
awards, and the features of special offers. American reserves the right to end
the AAdvantage program with six months notice.
8
<PAGE> 10
Mileage credits can be redeemed for free, discounted or upgraded travel
on American, American Eagle or participating airlines, or for other travel
industry awards. Once a member accrues sufficient mileage for an award, the
member may request an award certificate from American. Award certificates may be
redeemed up to one year after issuance. Most travel awards are subject to
blackout dates and capacity controlled seating. Most miles earned after July
1989 must be redeemed within three years or they expire.
American accounts for its frequent flyer obligation on an accrual basis
using the incremental cost method. American's frequent flyer liability is
accrued each time a member accumulates sufficient mileage in his or her account
to claim the lowest level of free travel award (25,000 miles) and such award is
expected to be used for free travel. American includes fuel, food, and
reservations/ticketing costs, but not a contribution to overhead or profit, in
the calculation of incremental cost. The cost for fuel is estimated based on
total fuel consumption tracked by various categories of markets, with an amount
allocated to each passenger. Food costs are tracked by market category, with an
amount allocated to each passenger. Reservation/ticketing costs are based on the
total number of passengers, including those traveling on free awards, divided
into American's total expense for these costs. American defers the portion of
revenues received from companies participating in the AAdvantage program related
to the sale of mileage credits and recognizes such revenues over a period
approximating the period during which the mileage credits are used.
At December 31, 1998 and 1997, American estimated that approximately 4.9
million and 4.8 million free travel awards, respectively, were expected to be
redeemed for free travel. In making the estimate of free travel awards, American
has excluded mileage in inactive accounts, mileage related to accounts that has
not yet reached the lowest level of free travel award, and mileage in active
accounts that has reached the lowest level of free travel award but which is not
expected to ever be redeemed for free travel. The liability for the program
mileage that has reached the lowest level of free travel award and is expected
to be redeemed for free travel and deferred revenues for mileage credits sold to
others participating in the program was $695 million and $628 million,
representing 12.3 percent and 11.3 percent of AMR's total current liabilities at
December 31, 1998 and 1997, respectively.
The number of free travel awards used for travel on American was 2.3
million in 1998 and 2.2 million in 1997 and 1996, respectively, representing 8.8
percent of total revenue passenger miles in 1998, 8.6 percent in 1997 and 8.4
percent in 1996. American believes displacement of revenue passengers is minimal
given American's load factors, its ability to manage frequent flyer seat
inventory, and the relatively low ratio of free award usage to revenue passenger
miles.
OTHER MATTERS
SEASONALITY AND OTHER FACTORS The Airline Group's results of operations for any
interim period are not necessarily indicative of those for the entire year,
since the air transportation business is subject to seasonal fluctuations.
Higher demand for air travel has traditionally resulted in more favorable
operating results for the second and third quarters of the year than for the
first and fourth quarters.
The results of operations in the air transportation business have also
significantly fluctuated in the past in response to general economic conditions.
In addition, fare initiatives, fluctuations in fuel prices, labor actions and
other factors could impact this seasonal pattern. Unaudited quarterly financial
data for the two-year period ended December 31, 1998, is included in Note 16 to
the consolidated financial statements.
No material part of the business of AMR and its subsidiaries is dependent
upon a single customer or very few customers. Consequently, the loss of the
Company's largest few customers would not have a materially adverse effect upon
AMR.
INSURANCE American carries insurance for public liability, passenger liability,
property damage and all-risk coverage for damage to its aircraft, in amounts
which, in the opinion of management, are adequate.
OTHER GOVERNMENT MATTERS In time of war or during an unlimited national
emergency or civil defense emergency, American and other major air carriers may
be required to provide airlift services to the Military Airlift Command under
the Civil Reserve Air Fleet program.
9
<PAGE> 11
ITEM 2. PROPERTIES
FLIGHT EQUIPMENT
Owned and leased aircraft operated by American and AMR Eagle at December 31,
1998, included:
<TABLE>
<CAPTION>
Weighted-
Current Average
Seating Capital Operating Age
Equipment Type Capacity Owned Leased Leased Total (Years)
-------------- ----------- ------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
AMERICAN AIRCRAFT
Airbus A300-600R 192/266/267 10 -- 25 35 9
Boeing 727-200 150 64 14 -- 78 22
Boeing 757-200 188 51 14 31 96 6
Boeing 767-200 172 8 -- -- 8 16
Boeing 767-200 Extended Range 165 9 13 -- 22 13
Boeing 767-300 Extended Range 207 20 15 10 45 7
Fokker 100 97 66 5 4 75 6
McDonnell Douglas DC-10-10 237/290/297 13 -- -- 13 21
McDonnell Douglas DC-10-30 271/282 4 -- 1 5 24
McDonnell Douglas MD-11 238/255 11 -- -- 11 6
McDonnell Douglas MD-80 133/139 119 25 116 260 11
------- ------- ------- ------- -----
Total 375 86 187 648 11
======= ======= ======= ======= =====
AMR EAGLE AIRCRAFT
ATR 42 46 18 2 15 35 9
Embraer 145 50 20 -- -- 20 1
Super ATR 64/66 40 -- 3 43 4
Saab 340B 34 29 61 -- 90 7
Saab 340B Plus 34 -- -- 21 21 3
------- ------- ------- ------- -----
Total 107 63 39 209 6
======= ======= ======= ======= =====
</TABLE>
For information concerning the estimated useful lives and residual values
for owned aircraft, lease terms for leased aircraft and amortization relating to
aircraft under capital leases, see Notes 1 and 4 to the consolidated financial
statements.
In April 1995, American announced an agreement to sell 12 of its
McDonnell Douglas MD-11 aircraft to Federal Express Corporation (FedEx). In
addition, in March 1998, the Company exercised its option to sell its remaining
seven MD-11 aircraft to FedEx. Eight aircraft had been delivered as of December
31, 1998. The remaining 11 aircraft will be delivered between 2000 and 2002.
10
<PAGE> 12
Lease expirations for the leased aircraft included in the preceding table
as of December 31, 1998, were:
<TABLE>
<CAPTION>
2004
and
Equipment Type 1999 2000 2001 2002 2003 Thereafter
- -------------- ---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
AMERICAN AIRCRAFT
Airbus A300-600R -- -- -- -- -- 25
Boeing 727-200 2 4 8 - -- --
Boeing 757-200 -- 2 2 2 -- 39
Boeing 767-200 Extended Range -- -- -- - -- 13
Boeing 767-300 Extended Range -- 8 -- 1 -- 16
Fokker 100 -- -- 2 3 -- 4
McDonnell Douglas DC-10-30 -- -- 1 - -- --
McDonnell Douglas MD-80 -- 3 9 14 -- 115
---- ---- ---- ---- ---- ----
2 17 22 20 -- 212
==== ==== ==== ==== ==== ====
AMR EAGLE AIRCRAFT
ATR 42 3 4 7 -- 3 --
Super ATR -- -- 3 -- -- --
Saab 340B -- -- -- -- -- 61
Saab 340B Plus -- -- -- -- -- 21
---- ---- ---- ---- ---- ----
3 4 10 -- 3 82
==== ==== ==== ==== ==== ====
</TABLE>
The table includes leases for 21 Saab 340B Plus aircraft, seven ATR 42
aircraft and three Super ATR aircraft which can be canceled with twelve months
or less notice with certain restrictions.
Substantially all of the Airline Group's aircraft leases include an
option to purchase the aircraft or to extend the lease term, or both, with the
purchase price or renewal rental to be based essentially on the market value of
the aircraft at the end of the term of the lease or at a predetermined fixed
amount.
GROUND PROPERTIES
American leases, or has built as leasehold improvements on leased property, most
of its airport and terminal facilities; certain corporate office, maintenance
and training facilities in Fort Worth, Texas; its principal overhaul and
maintenance base at Tulsa International Airport, Tulsa, Oklahoma; its regional
reservation offices; and local ticket and administration offices throughout the
system. American has entered into agreements with the Tulsa Municipal Airport
Trust; the Alliance Airport Authority, Fort Worth, Texas; and the Dallas/Fort
Worth, Chicago O'Hare, Raleigh/Durham, Nashville, San Juan, New York, and Los
Angeles airport authorities to provide funds for constructing, improving and
modifying facilities and acquiring equipment which are or will be leased to
American. American also utilizes public airports for its flight operations under
lease or use arrangements with the municipalities or governmental agencies
owning or controlling them and leases certain other ground equipment for use at
its facilities. In January 1999, the Company announced its plans to construct a
new terminal facility at New York's John F. Kennedy International Airport, which
is expected to cost approximately $1 billion. The Company expects to begin
construction on this facility in the latter half of 1999.
The Company's data center (the Data Center) is located in an underground
facility in Tulsa, Oklahoma. The land on which the Data Center is located is
leased from the Tulsa Airport Improvements Trust. Sabre and the Company's data
processing services are dependent on the central computer operations and
information processing facility located in the Data Center.
For information concerning the estimated lives and residual values for
owned ground properties, lease terms and amortization relating to ground
properties under capital leases, and acquisitions of ground properties, see
Notes 1, 3 and 4 to the consolidated financial statements.
11
<PAGE> 13
ITEM 3. LEGAL PROCEEDINGS
In January 1985, American announced a new fare category, the "Ultimate
SuperSaver," a discount, advance purchase fare that carried a 25 percent penalty
upon cancellation. On December 30, 1985, a class action lawsuit was filed in
Circuit Court, Cook County, Illinois entitled Johnson vs. American Airlines,
Inc. The Johnson plaintiff alleges that the 10 percent federal excise
transportation tax should have been excluded from the "fare" upon which the 25
percent penalty was assessed. Summary judgment was granted in favor of American
but subsequently reversed and vacated by the Illinois Appellate Court. In August
1997, the Court denied the plaintiffs' motion for class certification. American
is vigorously defending the lawsuit.
In connection with its frequent flyer program, American was sued in two
purported class action cases (Wolens et al v. American Airlines, Inc. and Tucker
v. American Airlines, Inc.) that were consolidated and are currently pending in
the Circuit Court of Cook County, Illinois. The litigation arises from certain
changes made to American's AAdvantage frequent flyer program in May 1988 which
limited the number of seats available to participants traveling on certain
awards. In the consolidated action, the plaintiffs seek to represent all persons
who joined the AAdvantage program before May 1988 and accrued mileage credits
before the seat limitations were introduced and allege that these changes
breached American's contract with AAdvantage members. Plaintiffs seek money
damages and attorney's fees. The complaint originally asserted several state law
claims, however only the plaintiffs' breach of contract claim remains after the
U. S. Supreme Court ruled that the Airline Deregulation Act preempted the other
claims. Although the case has been pending for numerous years, it still is in
its preliminary stages. The court has not ruled on the plaintiffs' motion for
class certification. American is vigorously defending the lawsuit.
Gutterman et al. v. American Airlines, Inc. is also pending in the
Circuit Court of Cook County, Illinois. In December 1993, American announced
that the number of miles required to claim a certain travel award under
American's AAdvantage frequent flyer program would be increased effective
February 1, 1995, giving rise to the Gutterman litigation filed on that same
date. The Gutterman plaintiffs claim that the increase in award mileage level
violated the terms and conditions of the agreement between American and
AAdvantage members. On June 23, 1998, the Court certified the case as a class
action, although to date no notice has been sent to the class. The class
consists of all members who earned miles between January 1, 1992 and February 1,
1995 (the date the change became effective). On July 13, 1998, the Court denied
American's motion for summary judgment as to the claims brought by plaintiff
Steven Gutterman. On July 30, 1998, the plaintiffs filed a motion for summary
judgment as to liability, which motion has not been ruled upon. American is
vigorously defending the lawsuit.
A federal grand jury in Miami is investigating whether American and
American Eagle handled hazardous materials and processed courier shipments,
cargo and excess baggage in accordance with applicable laws and regulations. In
connection with this investigation, federal agents executed a search warrant at
American's Miami facilities on October 22, 1997. Since that time, a number of
employees have testified before the grand jury. In addition, American has been
served with three subpoenas calling for the production of documents relating to
the handling of courier shipments, cargo, excess baggage and hazardous materials
handling and spills. American produced documents responsive to the first two
subpoenas and is in the process of responding to the third subpoena. American
intends to cooperate fully with the government's investigation.
On August 7, 1998, a purported class action was filed against American
Airlines in state court in Travis County, Texas (Boon Ins. Agency v. American
Airlines, Inc., et al.) claiming that the $75 reissuance fee for changes to
non-refundable tickets is an unenforceable liquidated damages clause and seeking
a refund of the fee on behalf of all passengers who paid it, as well as interest
and attorneys' fees. On September 23, 1998, Continental, Delta and America West
were added as defendants to the lawsuit. On February 2, 1999, prior to any
discovery being taken and a class being certified, the court granted the
defendants' motion for summary judgment holding that Plaintiff's claims are
preempted by the Airline Deregulation Act. Plaintiff has filed an appeal of the
dismissal of the lawsuit. American intends to vigorously defend the granting of
the summary judgment on appeal.
12
<PAGE> 14
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders during the
last quarter of its fiscal year ended December 31, 1998.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of AMR as of December 31, 1998, were:
Donald J. Carty Mr. Carty was elected Chairman, President
and Chief Executive Office of AMR and
American in May 1998. He has been
President of American since March 1995.
Prior to that, he served as Executive
Vice President of AMR since October 1989.
Except for two years service as President
of Canadian Pacific Air between March
1985 and March 1987, he has been with the
Company in various finance and planning
positions since 1978. Age 52.
Gerard J. Arpey Mr. Arpey was elected Chief Financial
Officer in March 1995 and Senior Vice
President in April 1992. Prior to that,
he served as Vice President of American
since October 1989. Age 40.
Anne H. McNamara Mrs. McNamara was elected Senior Vice
President and General Counsel in June
1988. She had served as Vice President -
Personnel Resources of American from
January 1988 through May 1988. She was
elected Corporate Secretary of AMR in
1982 and American in 1979 and held those
positions through 1987. Age 51.
Charles D. MarLett Mr. MarLett was elected Corporate
Secretary in January 1988. He joined
American as an attorney in June 1984. Age
44.
There are no family relationships among the executive officers of the
Company named above.
There have been no events under any bankruptcy act, no criminal
proceedings, and no judgments or injunctions material to the evaluation of the
ability and integrity of any director or executive officer during the past five
years.
13
<PAGE> 15
PART II
- --------------------------------------------------------------------------------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's common stock is traded on the New York Stock Exchange (symbol
AMR). The approximate number of record holders of the Company's common stock at
March 12, 1999, was 13,950.
The range of closing market prices for AMR's common stock on the New York
Stock Exchange was:
<TABLE>
<CAPTION>
1998 1997
------------------------------------ ----------------------------------
High Low High Low
--------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
QUARTER ENDED
March 31 $ 73 1/8 $ 61 13/16 $ 44 1/16 $ 39 3/8
June 30 83 1/4 68 15/16 51 40 1/2
September 30 89 1/4 50 58 1/8 46 5/16
December 31 69 15/16 47 1/8 65 15/16 55 1/4
</TABLE>
No cash dividends on common stock were declared for any period during
1998 or 1997. Payment of dividends is subject to the restrictions described in
Note 5 to the consolidated financial statements.
In April 1998, the Company's Board of Directors approved a two-for-one
stock split in the form of a stock dividend, effective on June 9, 1998 for
shareholders of record on May 26, 1998. All share information, including the
market price per share information disclosed above, and earnings per share
amounts have been presented, and where applicable, restated to give effect to
the stock split.
14
<PAGE> 16
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
(in millions, except per share amounts)
- -----------------------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Total operating revenues $19,205 $18,184 $17,364 $16,553 $15,649
Operating income 2,338 1,907 1,807 984 975
Income from continuing operations
before extraordinary loss 1,306 973 1,083 175 230
Net earnings 1,314 985 1,016 162 228
Earnings per common share from
continuing operations before
extraordinary loss and effect of
preferred stock exchange:(1/2)
Basic 7.73 5.45 6.29 1.15 1.14
Diluted 7.48 5.32 5.95 1.14 1.14
Net earnings per common share:(2)
Basic 7.78 5.52 5.90 1.06 2.25
Diluted 7.52 5.39 5.59 1.05 2.25
Total assets 22,303 20,859 20,451 19,462 19,338
Long-term debt, less current
maturities 2,436 2,248 2,737 4,967 5,585
Obligations under capital leases,
less current obligations 1,764 1,629 1,790 2,069 2,275
Obligation for postretirement benefits 1,649 1,573 1,524 1,434 1,253
</TABLE>
(1) The earnings per share computation for the year ended December 31, 1994
includes a $171 million non-cash increase in additional paid-in-capital
resulting from the exchange of outstanding convertible preferred stock
into subordinated convertible debt.
(2) The earnings per share amounts prior to 1998 have been restated to give
effect to the stock split on June 9, 1998.
No dividends were declared on common shares during any of the periods
above.
Information on the comparability of results is included in Management's
Discussion and Analysis and the notes to the consolidated financial statements.
15
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AMR Corporation (AMR or the Company) was incorporated in October 1982. AMR's
principal subsidiary, American Airlines, Inc. (American), was founded in 1934.
Following the announcement of AMR's plans to sell the companies that comprised
the majority of what was previously the Management Services Group, AMR's
operations fall within two major lines of business: the Airline Group and The
Sabre Group. Additional segment information is included in Note 15 to the
consolidated financial statements.
RESULTS OF OPERATIONS
AMR's net earnings in 1998 were $1.3 billion, or $7.78 per common share ($7.52
diluted). These results represent the strongest net earnings ever reported by
AMR for a fiscal year. AMR's net earnings in 1997 were $985 million, or $5.52
per common share ($5.39 diluted). The Company's 1997 results were adversely
affected by (i) a brief strike and the strike threat from members of the Allied
Pilots Association (APA) during the first quarter of 1997, which negatively
impacted the Company's net earnings by an estimated $70 million, and (ii) the
reinstatement of the airline transportation tax in March of 1997.
16
<PAGE> 18
AIRLINE GROUP
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(dollars in millions) Year Ended December 31,
-------------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
Passenger - American Airlines, Inc. $ 14,695 $ 14,310 $ 13,645
- AMR Eagle 1,121 1,017 1,047
Cargo 656 687 682
Other 977 889 837
--------- --------- ---------
17,449 16,903 16,211
OPERATING EXPENSES
Wages, salaries and benefits 5,763 5,480 5,191
Aircraft fuel 1,604 1,923 1,936
Commissions to agents 1,226 1,278 1,252
Depreciation and amortization 1,038 1,038 1,018
Maintenance, materials and repairs 934 861 686
Other operating expenses 4,933 4,754 4,686
--------- --------- ---------
Total operating expenses 15,498 15,334 14,769
--------- --------- ---------
OPERATING INCOME 1,951 1,569 1,442
OTHER EXPENSE (160) (266) (428)
--------- --------- ---------
EARNINGS BEFORE INCOME TAXES
AND EXTRAORDINARY LOSS $ 1,791 $ 1,303 $ 1,014
========= ========= =========
Average number of equivalent employees 92,000 90,600 88,900
OPERATING STATISTICS
AMERICAN AIRLINES JET OPERATIONS
Revenue passenger miles (millions) 108,955 107,026 104,710
Available seat miles (millions) 155,297 153,917 152,886
Cargo ton miles (millions) 1,974 2,032 2,028
Passenger load factor 70.2% 69.5% 68.5%
Breakeven load factor 59.9% 61.0% 60.2%
Passenger revenue yield per passenger mile (cents) 13.49 13.37 13.03
Passenger revenue per available seat mile (cents) 9.46 9.30 8.92
Cargo revenue yield per ton mile (cents) 32.85 33.78 33.14
Operating expenses per available seat mile (cents) 9.25 9.27 8.91
Operating aircraft at year-end 648 641 642
AMR EAGLE
Revenue passenger miles (millions) 2,788 2,553 2,590
Available seat miles (millions) 4,471 4,218 4,431
Passenger load factor 62.4% 60.5% 58.5%
Operating aircraft at year-end 209 199 205
</TABLE>
17
<PAGE> 19
REVENUES
1998 COMPARED TO 1997 Airline Group revenues of $17.4 billion in 1998 were up
$546 million, or 3.2 percent, versus 1997. American's passenger revenues
increased 2.7 percent, or $385 million. The increase in passenger revenues
resulted from a 0.9 percent increase in passenger yield (the average amount one
passenger pays to fly one mile) from 13.37 to 13.49 cents, and a 1.8 percent
increase in passenger traffic. For the year, domestic yields increased 3.1
percent, while Latin American, Pacific and European yields decreased 5.8
percent, 3.9 percent and 1.0 percent, respectively. The decrease in
international yields was due primarily to an increase in industry capacity and a
decline in economic conditions. In 1998, American derived approximately 70
percent of its passenger revenues from domestic operations and approximately 30
percent from international operations.
American's domestic traffic increased 0.7 percent to 74.9 billion revenue
passenger miles (RPMs), while domestic capacity, as measured by available seat
miles (ASMs), decreased 1.4 percent. International traffic grew 4.3 percent to
34.1 billion RPMs on a capacity increase of 6.4 percent. The increase in
international traffic was led by a 17.1 percent increase in the Pacific on
capacity growth of 29.3 percent, a 4.9 percent increase in Latin America on
capacity growth of 6.6 percent and a 1.8 percent increase in Europe on capacity
growth of 2.7 percent.
AMR Eagle's revenues increased $104 million, or 10.2 percent. The
increase in passenger revenues resulted from a 0.9 percent increase in passenger
yield and a 9.2 percent increase in traffic. AMR Eagle's traffic increased to
2.8 billion RPMs while capacity increased 4.5 billion ASMs, up 6.0 percent.
The Airline Group's other revenues increased $88 million, or 9.9 percent,
primarily as a result of increased administrative service charges, higher
employee travel service charges and increased service contracts, primarily
related to ramp and consulting services.
1997 COMPARED TO 1996 Airline Group revenues of $16.9 billion in 1997 were up
$692 million, or 4.3 percent, versus 1996. American's passenger revenues
increased 4.9 percent, or $665 million. The increase in passenger revenues
resulted from a 2.6 percent increase in passenger yield from 13.03 to 13.37
cents, and a 2.2 percent increase in passenger traffic. For the year, domestic
yields increased 1.8 percent, Latin American yields increased 4.5 percent,
European yields increased 3.8 percent and Pacific yields increased 1.0 percent.
In 1997, American derived 69 percent of its passenger revenues from domestic
operations and 31 percent from international operations.
American's domestic traffic increased 2.0 percent to 74.3 billion RPMs,
while domestic capacity increased 0.8 percent. International traffic grew 2.6
percent to 32.7 billion RPMs on a capacity increase of 0.4 percent. The increase
in international traffic was led by a 7.2 percent increase in Latin America on
capacity growth of 5.5 percent. This increase was partially offset by a 1.7
percent decrease in the Pacific on a capacity decline of 2.9 percent and a 1.5
percent decrease in Europe on a capacity decline of 5.3 percent, primarily due
to the cancellation of several routes during 1997.
The Airline Group benefited from several external factors in 1997. First,
a healthy U.S. economy produced strong demand for air travel. Second, industry
capacity grew at a more modest rate than demand, which led to higher industry
load factors and a healthy pricing environment. However, these benefits were
adversely impacted by a brief strike and the strike threat by members of the APA
during the first quarter of 1997, which negatively impacted the Company's net
earnings by an estimated $70 million.
18
<PAGE> 20
OPERATING EXPENSES
1998 COMPARED TO 1997 Airline Group operating expenses of $15.5 billion in 1998
were up $164 million, or 1.1 percent, versus 1997. American's Jet Operations
cost per ASM decreased 0.2 percent to 9.25 cents. Wages, salaries and benefits
increased $283 million, or 5.2 percent, due primarily to an increase in the
average number of equivalent employees, contractual wage rate and seniority
increases that are built into the Company's labor contracts and an increase in
the provision for profit sharing. Fuel expense decreased $319 million, or 16.6
percent, due to an 18.2 percent decrease in American's average price per gallon,
including taxes, partially offset by a 1.9 percent increase in American's fuel
consumption. Commissions to agents decreased 4.1 percent, or $52 million,
despite a 3.2 percent increase in passenger revenues, due to the continued
benefit from the commission rate reduction initiated during September 1997.
Maintenance, materials and repairs expense increased 8.5 percent, or $73
million, due to an increase in airframe and engine maintenance volumes at
American's maintenance bases as a result of the maturing of its fleet. Other
operating expenses increased $179 million, or 3.8 percent, due primarily to
spending on the Company's Year 2000 readiness program, an increase in outsourced
services and higher costs, such as credit card fees, resulting from higher
passenger revenues.
1997 COMPARED TO 1996 Airline Group operating expenses of $15.3 billion in 1997
were up $565 million, or 3.8 percent, versus 1996. American's Jet Operations
cost per ASM increased 4.0 percent to 9.27 cents. Wages, salaries and benefits
increased $289 million, or 5.6 percent, due primarily to an increase in the
average number of equivalent employees, contractual wage rate and seniority
increases that are built into the Company's labor contracts, including a three
percent rate increase granted to pilots effective August 31, 1997, and an
increase in the provision for profit sharing. Fuel expense decreased $13
million, or 0.7 percent, due to a 1.6 percent decrease in American's average
price per gallon, including taxes, partially offset by a 1.4 percent increase in
American's fuel consumption. Commissions to agents increased 2.1 percent, or $26
million, due primarily to increased passenger revenues. This increase was offset
by changes in the Company's travel agency commission payment structure
implemented in September 1997 which lowered the base commission paid to travel
agents from 10 percent to eight percent on all tickets purchased in the U.S. and
Canada for both domestic and international travel. Maintenance, materials and
repairs expense increased 25.5 percent, or $175 million, due to an increase in
airframe and engine maintenance check volumes at American's maintenance bases as
a result of the maturing of its fleet. Other operating expenses increased $68
million, or 1.5 percent, due primarily to an increase in outsourced services,
additional airport security requirements, and higher costs, such as credit card
fees, resulting from higher passenger revenues. Other operating expenses in 1996
included a $26 million charge to write down the value of aircraft interiors.
OTHER EXPENSE
Other expense consists of interest income and expense, interest capitalized and
miscellaneous - net.
1998 COMPARED TO 1997 Interest expense decreased $48 million, or 11.3 percent,
due primarily to scheduled debt repayments of approximately $400 million in
1998. Interest capitalized increased $84 million, to $104 million, due primarily
to the increase in purchase deposits for flight equipment.
1997 COMPARED TO 1996 Interest expense decreased 18.3 percent, or $95 million,
due primarily to scheduled debt repayments and the repurchase and/or retirement
prior to scheduled maturity of approximately $469 million and $1.1 billion of
long-term debt in 1997 and 1996, respectively, and a reduction of $850 million
of American's long-term debt owed to AMR as part of the reorganization of The
Sabre Group. Also, in 1996, the Company's convertible debentures were converted
into AMR common stock, resulting in an $834 million decrease in long-term debt.
Interest capitalized increased $10 million due to additional aircraft purchase
deposits. Interest income increased approximately 29.1 percent, or $30 million,
due primarily to higher investment balances. Miscellaneous - net for 1996
included a $21 million provision for a cash payment representing American's
share of a multi-carrier travel agency class action litigation settlement.
19
<PAGE> 21
THE SABRE GROUP
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(dollars in millions) Year Ended December 31,
---------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
REVENUES $ 2,306 $ 1,789 $ 1,625
OPERATING EXPENSES 1,956 1,476 1,295
------- ------- -------
OPERATING INCOME 350 313 330
OTHER INCOME (EXPENSE) 21 11 (24)
------- ------- -------
EARNINGS BEFORE INCOME TAXES $ 371 $ 324 $ 306
======= ======= =======
Average number of equivalent employees 11,400 8,500 7,900
</TABLE>
REVENUES
1998 COMPARED TO 1997 Revenues for The Sabre Group increased $517 million, or
28.9 percent. Electronic travel distribution revenues increased approximately
$120 million, or 10.0 percent, due to growth in bookings and an overall increase
in the average price per booking. Revenues from information technology solutions
increased approximately $397 million, or 68.4 percent, primarily due to the
services performed under the information technology services agreement with US
Airways, and Year 2000 testing and readiness enhancements for certain AMR units
and Canadian Airlines International Limited (Canadian).
1997 COMPARED TO 1996 Revenues for The Sabre Group increased 10.1 percent, or
$164 million. Electronic travel distribution revenues increased approximately
$99 million, or 8.9 percent, primarily due to growth in booking fees. The growth
in booking fees was due to an increase in booking volumes primarily attributable
to international expansion in Europe and Latin America and an overall increase
in the price per booking charged to associates. Revenues from information
technology solutions increased approximately $65 million, or 12.1 percent.
Revenues from unaffiliated customers increased approximately $39 million due to
an increase in software development, consulting and software license fee
revenues. Revenues from other AMR units increased $24 million due to an increase
in software development revenue and data processing volumes, offset by a
decrease in data network revenue from the sale, in July 1996, of data network
equipment to a third party which began direct billing certain items to American.
OPERATING EXPENSES
1998 COMPARED TO 1997 Operating expenses increased 32.5 percent, or $480
million, due primarily to increases in salaries, benefits and employee-related
costs, subscriber incentive expenses, depreciation and amortization expense and
other operating expenses. Salaries, benefits and employee-related costs
increased due to an increase in the average number of employees necessary to
support The Sabre Group's business growth, and wage and salary increases for
existing employees. Subscriber incentive expenses increased in order to maintain
and expand The Sabre Group's travel agency subscriber base. The increase in
depreciation and amortization expense is primarily due to the acquisition of
information technology assets to support the US Airways' contract, and normal
additions. Other operating expenses increased primarily due to equipment
maintenance costs, other software development expenses related to The Sabre
Group's Year 2000 readiness program, and increased data processing costs, other
services purchased and facility costs.
1997 COMPARED TO 1996 Operating expenses increased 14.0 percent, or $181
million, due primarily to increases in salaries, benefits and employee-related
costs and subscriber incentive expenses. Salaries, benefits and employee-related
costs increased due to an increase in the average number of equivalent employees
necessary to support The Sabre Group's revenue growth, and wage and salary
increases for existing employees. Subscriber incentive expenses increased in
order to maintain and expand The Sabre Group's travel agency subscriber base.
20
<PAGE> 22
OTHER INCOME (EXPENSE)
1998 COMPARED TO 1997 Other income (expense) increased $10 million due primarily
to a favorable court judgment.
1997 COMPARED TO 1996 Other income (expense) increased $35 million due to an
increase in interest income of $17 million due to higher investment balances, an
increase in other income of $13 million primarily due to losses in 1996 from a
subsidiary of The Sabre Group not active in 1997, and a decrease in interest
expense of approximately $6 million primarily due to a lower principal balance
outstanding on the subordinated debenture payable to AMR and lower interest
rates.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided net cash of $3.2 billion in 1998, $2.9 billion in
1997 and $2.7 billion in 1996. The $326 million increase from 1997 to 1998
resulted primarily from an increase in net earnings. The $181 million increase
from 1996 to 1997 resulted primarily from an increase in the air traffic
liability due to higher advanced sales.
Capital expenditures in 1998 totaled $2.7 billion, compared to $1.4
billion in 1997 and $523 million in 1996, and included purchase deposits on new
aircraft orders of $870 million, aircraft acquisitions of approximately $850
million, and purchases of computer-related equipment totaling approximately $360
million. In 1998, American took delivery of 10 jet aircraft - six Boeing
757-200s and four Boeing 767-300ERs. American Eagle took delivery of 20 Embraer
EMB-145s and five Super ATR aircraft. These expenditures, as well as the
expansion of certain airport facilities, were funded primarily with internally
generated cash, except for (i) the Embraer aircraft acquisitions which were
funded through secured debt agreements, and (ii) five Boeing 757-200 aircraft
which were financed through sale-leaseback transactions. During 1998, The Sabre
Group invested approximately $140 million for a 35 percent interest in ABACUS
International Ltd. The Company made acquisitions and other investments of $137
million, which relate primarily to the acquisition of Reno Air in December 1998.
Proceeds from the sale of equipment and property of $293 million in 1998 include
proceeds received upon the delivery of two of American's McDonnell Douglas MD-11
aircraft to Federal Express Corporation (FedEx) in accordance with the 1995
agreement between the two parties, 10 ATR 42 aircraft, and other aircraft
equipment sales.
At December 31, 1998, the Company had commitments to acquire the
following aircraft: 100 Boeing 737-800s, 34 Boeing 777-200IGWs, six Boeing
757-200s, four Boeing 767-300ERs, 75 Embraer EMB-135s, 30 Embraer EMB-145s and
25 Bombardier CRJ-700s. Deliveries of these aircraft commence in 1999 and will
continue through 2005. Future payments, including estimated amounts for price
escalation through anticipated delivery dates for these aircraft and related
equipment, will approximate $2.7 billion in 1999, $2.0 billion in 2000, $1.6
billion in 2001 and an aggregate of approximately $1.5 billion in 2002 through
2005. In addition to these commitments for aircraft, the Company expects to
spend approximately $1.5 billion related to modifications to aircraft,
renovations of -- and additions to -- airport and office facilities, and the
acquisition of various other equipment and assets in 1999, of which
approximately $625 million has been authorized by the Company's Board of
Directors. The Company expects to fund its 1999 capital expenditures from the
Company's existing cash and short-term investments, internally generated cash,
and some new financing depending upon capital market conditions and the
Company's evolving view of its long-term needs.
For the year ended December 31, 1998, a total of approximately 14.3
million shares of the Company's common stock were purchased by the Company under
three separate share repurchase programs at a total cost of approximately $945
million. The Company expects to spend approximately $400 million by the end of
the first quarter of 1999 to complete the $500 million share repurchase program
initiated in October 1998. On March 17, 1999, the Company's Board of Directors
authorized management to repurchase up to an additional $500 million of the
Company's outstanding common stock. Share repurchases may be made from time to
time, depending on market conditions, and may be discontinued at any time.
21
<PAGE> 23
In 1997, the Board of Directors of The Sabre Group approved a stock
repurchase program for The Sabre Group, under which The Sabre Group will
repurchase, subject to certain business and market conditions, up to 1.5 million
shares of The Sabre Group's Class A common stock. During 1998, a total of
approximately 1.4 million shares were purchased by The Sabre Group at a total
cost of approximately $49 million. In addition, on March 16, 1999, the Board of
Directors of The Sabre Group approved an additional stock repurchase program for
The Sabre Group, under which The Sabre Group will repurchase, subject to certain
business and market conditions, up to one million shares of The Sabre Group's
Class A common stock.
At December 31, 1998, the Company owned approximately 3.1 million
depository certificates convertible, subject to certain restrictions, into the
common stock of Equant N.V. (Equant), which completed an initial public offering
in July 1998. As of December 31, 1998, the estimated fair value of these
depository certificates was approximately $210 million, based upon the
publicly-traded market value of Equant common stock. In connection with a
secondary offering of Equant, the Company sold approximately 900,000 depository
certificates in February 1999 for net proceeds of $66 million. The remaining
depository certificates are subject to a final reallocation between the owners
of the certificates during 1999 and thus, the number of certificates owned by
the Company is subject to change.
American has a $1.0 billion credit facility agreement which expires
December 19, 2001. At American's option, interest on the agreement can be
calculated on one of several different bases. For most borrowings, American
would anticipate choosing a floating rate based upon the London Interbank
Offered Rate (LIBOR). At December 31, 1998, no borrowings were outstanding under
the agreement.
AMR (principally American Airlines) historically operates with a working
capital deficit as do most other airline companies. The existence of such a
deficit has not in the past impaired the Company's ability to meet its
obligations as they become due and is not expected to do so in the future.
OTHER INFORMATION
ENVIRONMENTAL MATTERS Subsidiaries of AMR have been notified of potential
liability with regard to several environmental cleanup sites and certain airport
locations. At sites where remedial litigation has commenced, potential liability
is joint and several. AMR's alleged volumetric contributions at these sites are
minimal. AMR does not expect these matters, individually or collectively, to
have a material impact on its results of operations, financial position or
liquidity. Additional information is included in Note 3 to the consolidated
financial statements.
YEAR 2000 READINESS
STATE OF READINESS In 1995, the Company implemented a project (the Year 2000
Project) intended to ensure that hardware and software systems operated by the
Company, including software licensed to or operated for third parties by The
Sabre Group, are designed to operate and properly manage dates beyond December
31, 1999 (Year 2000 Readiness). The Company has assessed (i) the Company's over
1,000 information technology and operating systems that will be utilized after
December 31, 1999 (IT Systems); (ii) non-information technology systems,
including embedded technology, facilities, and other systems (Non-IT Systems);
and (iii) the Year 2000 Readiness of its critical third party service providers.
The Year 2000 Project consists of six phases: (i) awareness, (ii) assessment,
(iii) analysis, design and remediation, (iv) testing and validation, (v) quality
assurance review (to ensure consistency throughout the Year 2000 Project) and
(vi) creation of business continuity strategy, including plans in the event of
Year 2000 failures. In developing the Company's proprietary software analysis,
remediation and testing methodology for Year 2000 Readiness, it studied the best
practices of the Institute of Electrical and Electronics Engineers and the
British Standards Institution.
IT Systems The Company has completed the first three phases of the Year 2000
Project for all of its IT Systems. The Company has completed the testing and
validation phase and quality assurance review phase for 94 percent of its IT
Systems, including its computer reservations and flight operating systems that
perform such "mission critical" functions as passenger bookings, ticketing,
passenger check-in, aircraft weight and balance, flight planning and baggage and
cargo processing. As of February 28, 1999, approximately 38 percent of the IT
Systems (including the computer reservations systems) are already processing
Year 2000 dates correctly.
22
<PAGE> 24
Using dedicated testing environments and applying rigorous test standards,
the Company is actively testing its other IT Systems to determine if they are
Year 2000 ready or if further remediation is necessary. The Company expects to
complete the testing and validation phase and quality assurance review phase for
its remaining IT Systems, and the upgrading of certain hardware and software
that supports its IT Systems by June 30, 1999.
Non-IT Systems The Company has substantially completed the testing and
validation of its critical Non-IT Systems, such as aircraft avionics and flight
simulators, and expects to complete the remainder of the testing and validation
phase and the quality assurance review phase by June 30, 1999. In addition, the
Company expects to complete the quality assurance review phase for substantially
all of its other Non-IT Systems by June 30, 1999. The Company believes that its
business, financial condition, and results of operations would not be materially
adversely affected, and that it has adequate contingency plans to ensure
business continuity if its other Non-IT Systems are not Year 2000 ready.
Third Party Services The Company relies on third party service providers for
many items, such as the Federal Aviation Administration, the Department of
Transportation, airport authorities, telecommunications, electrical power, and
data and credit card transaction processing. Those service providers depend on
their hardware and software systems and on interfaces with the Company's IT
Systems. The Company has polled its critical service providers regarding their
Year 2000 plans and state of readiness. The Company has received responses from
approximately 68 percent of its critical service providers, other than providers
of discretionary services that will not materially adversely affect the
Company's business, financial condition, and results of operations. Most of the
respondees assured the Company that their software and hardware is or will be
Year 2000 ready. To the extent practical, the Company intends to seek
alternatives for third party service providers that have not responded to their
Year 2000 Readiness by June 30, 1999.
COSTS OF YEAR 2000 PROJECT The Company expects to incur significant hardware,
software and labor costs, as well as consulting and other expenses, in its Year
2000 Project. The Company's total estimated cost of the project is approximately
$215 to $250 million, of which approximately $180 million was incurred as of
December 31, 1998. Costs associated with the Year 2000 Project are expensed as
incurred, other than capitalized hardware costs, and have been funded through
cash from operations.
RISKS OF YEAR 2000 NON-READINESS The economy in general, and the travel and
transportation industries in particular, may be adversely affected by risks
associated with the Year 2000. The Company's business, financial condition, and
results of operations could be materially adversely affected if systems that it
operates or systems that are operated by third party service providers upon
which the Company relies are not Year 2000 ready in time. There can be no
assurance that these systems will continue to properly function and interface
and will otherwise be Year 2000 ready. Management believes that its most likely
Year 2000 risks relate to the failure of third parties with whom it has material
relationships to be Year 2000 ready.
BUSINESS CONTINUITY PLANS To the extent practical, the Company is identifying
the most likely Year 2000 failures in an effort to develop and refine plans to
continue its business in the event of failures of the Company's or third
parties' systems to be Year 2000 ready. These plans include performing certain
processes manually; maintaining dedicated staff to be available at crucial dates
to remedy unforeseen problems; installing defensive code to protect real-time
systems from improperly formatted date data supplied by third parties; repairing
or obtaining replacement systems; and reducing or suspending certain aspects of
the Company's services or operations. Because of the pervasiveness and
complexity of the Year 2000 issue, and in particular the uncertainty concerning
the efforts and success of third parties to be Year 2000 ready, the Company will
continue to refine its contingency plans during 1999.
The costs of the project and the date on which the Company plans to complete the
Year 2000 Readiness program are based on management's best estimates, which were
derived utilizing numerous assumptions of future events including the continued
availability of certain resources, third party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved, and actual results could differ materially from these estimates.
Specific factors that might cause such material differences include, but are not
limited to, the availability and cost of personnel trained in this area, the
ability to locate and correct all relevant computer codes, the failure of third
parties to be Year 2000 ready and similar uncertainties.
23
<PAGE> 25
NEW EUROPEAN CURRENCY In January 1999, certain European countries established
fixed conversion rates between their currencies and a new common currency unit
called the "euro". The transition period for the introduction of the euro is
between January 1, 1999 and June 30, 2002. In 1997, the Company implemented a
project intended to ensure that software systems operated by the Company's
businesses as well as software licensed to or operated for third parties by The
Sabre Group were designed to properly handle the euro. The Company completed the
project in 1998.
DALLAS LOVE FIELD In 1968, as part of an agreement between the cities of Fort
Worth and Dallas to build and operate Dallas/Fort Worth Airport (DFW), a bond
ordinance was enacted by both cities (the Bond Ordinance). The Bond Ordinance
required both cities to direct all scheduled interstate passenger operations to
DFW and was an integral part of the bonds issued for the construction and
operation of DFW. In 1979, as part of a settlement to resolve litigation with
Southwest Airlines, the cities agreed to expand the scope of operations allowed
under the Bond Ordinance at Dallas' Love Field. Congress enacted the Wright
Amendment to prevent the federal government from acting inconsistent with this
agreement. The Wright Amendment limited interstate operations at Love Field to
the four states contiguous to Texas (New Mexico, Oklahoma, Arkansas and
Louisiana) and prohibited through ticketing to any destination outside that
perimeter. In 1997, without the consent of either city, Congress amended the
Wright Amendment by (i) adding three states (Kansas, Mississippi and Alabama) to
the perimeter and (ii) removing some federal restrictions on large aircraft
configured with 56 seats or less (the 1997 Amendment). In October 1997, the City
of Fort Worth filed suit in state district court against the City of Dallas and
others seeking to enforce the Bond Ordinance. Fort Worth contends that the 1997
Amendment does not preclude the City of Dallas from exercising its proprietary
rights to restrict traffic at Love Field in a manner consistent with the Bond
Ordinance and, moreover, that Dallas has an obligation to do so. American joined
in this litigation. On October 15, 1998, the state district court granted
summary judgment in favor of Fort Worth and American, which summary judgment is
being appealed to the Fort Worth Court of Appeals. In the same lawsuit, DFW
filed claims alleging that irrespective of whether the Bond Ordinance is
enforceable, the DFW Use Agreement prohibits American and other DFW signatory
airlines from moving any interstate operations to Love Field. These claims
remain unresolved. Dallas filed a separate declaratory judgment action in
federal district court seeking to have the court declare that, as a matter of
law, the 1997 Amendment precludes Dallas from exercising any restrictions on
operations at Love Field. Further, in May 1998, Continental Airlines and
Continental Express filed a lawsuit in federal court seeking a judicial
declaration that the Bond Ordinance cannot be enforced to prevent them from
operating flights from Love Field to Cleveland using regional jets. In December
1998, the Department of Transportation (DOT) issued an order on the federal law
questions concerning the Bond Ordinance, local proprietary powers, DFW's Use
Agreement with DFW carriers such as American, and the Wright and 1997
Amendments, and concluded that the Bond Ordinance was preempted by federal law
and was therefore, not enforceable. The DOT also found that the DFW Use
Agreement did not preclude American from conducting interstate operations at
Love Field. Fort Worth and American have appealed the DOT's order to the Fifth
Circuit Court of Appeals.
As a result of the foregoing, the future of interstate flight operations
at Love Field and American's DFW hub are uncertain. An increase in operations at
Love Field to new interstate destinations could adversely impact American's
business.
In the second half of 1998, American initiated limited intrastate jet
service to Austin from Love Field.
OUTLOOK FOR 1999
During 1998, the Company created and began implementing a new strategic
framework based on four key objectives. The first objective is to invest in and
grow American and American Eagle - consistent with market conditions - to
preserve and enhance the Company's leadership in the U.S. airline industry. The
second objective is to offer the Company's customers the world's most
comprehensive and powerful airline network through a combination of the
industry's strongest domestic route system, the premier regional carrier,
increased international flying and the broadest and best-executed set of airline
alliances. The third objective is to make The Sabre Group the world's leading
provider of information technology for the travel and transportation industries.
The fourth objective is to create a corporate culture within AMR that involves
and excites every employee in all of the Company's businesses. During 1999, the
Company is expected to continue to focus on these four key objectives of the new
strategic plan.
24
<PAGE> 26
AIRLINE GROUP The Company expects 1999 to be another good year for the Airline
Group despite the economic uncertainties, primarily in the international
markets, the deterioration in domestic yields experienced in the fourth quarter
of 1998, the increase in industry capacity both domestically and
internationally, and the activities of the APA in February 1999 that resulted in
numerous cancellations across American's system. American expects that the
downward pressure on domestic yields experienced in the fourth quarter of 1998,
which was primarily due to heavier fare sale activity, a leveling off of the
growth in full fare domestic traffic, and the impact of international yield
decreases on domestic yields, may continue. In 1999, American's total system
capacity is expected to increase by approximately four percent, which includes
domestic growth of 2.5 percent and international growth of approximately 7.5
percent. The recently announced formation of oneworld(TM), the global alliance
linking American's network and frequent flyer program with British Airways,
Canadian Airlines, Cathay Pacific and Qantas - and later this year Finnair and
Iberia - coupled with the expansion of other code-share alliances, the
acquisitions of Reno Air and Business Express, which was completed by American
Eagle in March of 1999, the broad marketing alliances created between American
and US Airways and Alaska Airlines, and the delivery of new jet aircraft at both
American and American Eagle will enable the Airline Group to further strengthen
its network both domestically and internationally during 1999. However, the
Company continues to evaluate the implications of further accelerating the
retirement of certain aircraft in order to keep the Company's capacity growth in
line with general economic conditions.
Pressure to reduce costs will continue, although the volatility of fuel
prices makes any prediction of overall costs very difficult. Excluding fuel, the
Company anticipates an increase in unit costs of about one percent, driven
primarily by higher labor costs associated with the normal seniority and scale
increases in the union contracts and an increase in training costs, landing
fees, airport facility rent expense and various other inflationary pressures.
The increase in costs is partially offset by expected savings in maintenance,
materials and repairs expense on the Company's existing fleet, partially due to
the Company's announcement in late 1998 that it will retire an additional eight
McDonnell Douglas DC-10-10 and two additional Boeing 727-200 aircraft earlier
than anticipated, which will save the Company approximately $40 million during
the next three years in aircraft maintenance and modification costs. The Company
expects to also benefit from maintenance savings associated with new aircraft
deliveries and commission expense savings as a result of changes made in late
1998 to the international commission structure and a decrease in the percentage
of commissionable transactions. Effective January 1, 1999, in order to more
accurately reflect the expected useful life of its aircraft, the Company changed
its estimate of the depreciable lives of certain aircraft types from 20 to 25
years and increased the residual value from five to 10 percent. The impact of
the aircraft depreciation changes is expected to result in an approximate $165
million decrease in 1999 depreciation expense. In addition, the Company will
depreciate its new Boeing 737-800s and Boeing 777-200IGWs over a period of 25
and 30 years, respectively, with a 10 percent residual value.
In early February 1999, some members of the APA engaged in certain
activities (increased sick time and declining to fly additional trips) that
resulted in numerous cancellations across American's system. These actions were
taken in response to the acquisition of Reno Air in December 1998. On February
10, 1999, American obtained a temporary restraining order prohibiting the union
from unilaterally taking actions outside the terms allowed under the collective
bargaining agreement. Because of certain actions by the APA and its leaders,
American filed a motion to have the APA and its leaders held in contempt of the
court's temporary restraining order. The court granted that motion on February
13, 1999, and the airline's operations thereafter returned to normal. In an
attempt to resolve the dispute, the Company and the APA have agreed to
non-binding mediation. The Company estimates that the illegal pilot job action
resulted in a pre-tax earnings impact of approximately $200 to $225 million
during the first quarter of 1999.
THE SABRE GROUP The Company expects continued profitability and revenue growth
for The Sabre Group in 1999. Revenues from The Sabre Group's existing
outsourcing customers, including American, US Airways and Canadian, are expected
to be the same as or less than 1998 revenues as The Sabre Group will have
completed Year 2000 efforts for American and Canadian and most of the migration
services for US Airways. The Company, however, expects strong revenue growth
from outsourcing contracts signed in 1998, new contracts expected in 1999, and
from software development and real-time processing services. Additionally, the
Company expects overall revenue growth from the electronic travel distribution
business to be consistent with prior years. While the Company anticipates a
decline in domestic airline bookings growth in 1999, the Company expects to
compensate for the decline with growth in international bookings, market share
gains worldwide, price increases and revenues from new promotional and marketing
products. The Company expects an improved operating margin for The Sabre Group
in 1999 due to a reduction in its Year 2000 Readiness program activity as the
Year
25
<PAGE> 27
2000 Project is nearing completion. In addition, the Company expects improved
margins on the US Airways contract as the migration services will be completed
in early 1999 and the contract will be moving to steady state. The Company
expects selling, general and administrative expenses for The Sabre Group will
increase in 1999 as a result of sales growth initiatives and increased
administrative requirements to support The Sabre Group's growth.
FORWARD-LOOKING INFORMATION
The preceding discussions under Business and Management's Discussion and
Analysis of Financial Condition and Results of Operations contain various
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended, which represent the Company's expectations or beliefs concerning
future events. When used in this document and in documents incorporated herein
by reference, the words "expects," "plans," "anticipates," and similar
expressions are intended to identify forward-looking statements. Forward-looking
statements include, without limitation, expectations as to results of operations
and financial condition, including changes in capacity, revenues and unit costs,
expectations as to future financing needs, Year 2000 and euro readiness, overall
economic projections and the Company's plans and objectives for future
operations, including plans to develop future code-sharing programs and to
evaluate new alliances. All forward-looking statements in this report are based
upon information available to the Company on the date of this report. The
Company undertakes no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information, future events
or otherwise. Forward-looking statements are subject to a number of factors that
could cause actual results to differ materially from our expectations. The
following factors, in addition to other possible factors not listed, could cause
the Company's actual results to differ materially from those expressed in
forward-looking statements:
UNCERTAINTY OF FUTURE COLLECTIVE BARGAINING AGREEMENTS AND EVENTS The Company's
operations could be adversely affected by failure of the Company to reach
agreement with any labor union representing the Company's employees or by an
agreement with a labor union representing the Company's employees that contains
terms which prevent the Company from competing effectively with other airlines.
In addition, a dispute between the Company and an employee work group (outside
the confines of a collective bargaining agreement) could adversely impact the
Company's operations.
ECONOMIC AND OTHER CONDITIONS The airline industry is affected by changes in
national, regional and local economic conditions, inflation, war or political
instability (or the threat thereof), consumer preferences and spending patterns,
demographic trends, consumer perceptions of airline safety, costs of safety and
security measures, and weather.
COMMODITY PRICES Due to the competitive nature of the airline industry, in the
event of any increase in the price of jet fuel, there can be no assurance that
the Airline Group would be able to pass on increased fuel prices to its
customers by increasing fares.
COMPETITION IN THE AIRLINE INDUSTRY Service over almost all of the Airline
Group's routes is highly competitive. On most of its non-stop routes, the
Airline Group competes with at least one, and usually more than one, major
domestic airline, as well as low-cost carriers. The Airline Group also competes
with national, regional, all-cargo and charter carriers and, particularly on
shorter segments, ground transportation. Pricing decisions are affected by
competition from other airlines. Fare discounting by competitors has
historically had a negative effect on the Airline Group's financial results
because American is generally required to match competitors' fares to maintain
passenger traffic. No assurance can be given that any future fare reduction
would be offset by increases in passenger traffic, a reduction in costs or
changes in the mix of traffic that would improve yields.
COMPETITION FOR THE SABRE GROUP The markets in which The Sabre Group's
electronic travel distribution and information technology solution businesses
competes in are highly competitive. The Sabre Group's electronic travel
distribution business competes primarily against other large and
well-established global distribution systems and is always faced with the
potential of new competitors, particularly as new channels for distribution
develop. The Sabre Group's information technology solutions business competes
against solutions companies, full-service providers of technology outsourcing
and against smaller companies that offer a limited range of products. Increased
competition could cause The Sabre Group to reduce prices, to increase spending
on marketing or product development or to otherwise take actions that might
adversely affect its operating earnings.
26
<PAGE> 28
CHANGING BUSINESS STRATEGY Although it has no current plan to do so, the Company
may change its business strategy in the future and may not pursue some of the
goals stated herein.
GOVERNMENT REGULATION Future results of the Company's operations may vary based
upon any actions which the governmental agencies with jurisdiction over the
Company's operations may take, including the granting and timing of certain
governmental approvals needed for code-sharing alliances and other arrangements
with other airlines, restrictions on competitive practices (e.g., new
regulations which would curtail an airline's ability to respond to a
competitor), the adoption of regulations that impact customer service standards,
and the adoption of more restrictive locally-imposed noise restrictions.
UNCERTAINTY IN INTERNATIONAL OPERATIONS The Company's current international
activities and prospects could be adversely affected by factors such as
reversals or delays in the opening of foreign markets, exchange controls,
currency and political risks, taxation and changes in international government
regulation of the Company's operations.
YEAR 2000 READINESS The Company's operations could be adversely affected to the
extent its systems or the systems of third parties fail to process Year 2000
dates correctly.
27
<PAGE> 29
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
MARKET RISK SENSITIVE INSTRUMENTS AND POSITIONS
The risk inherent in the Company's market risk sensitive instruments and
positions is the potential loss arising from adverse changes in the price of
fuel, foreign currency exchange rates and interest rates as discussed below. The
sensitivity analyses presented do not consider the effects that such adverse
changes may have on overall economic activity, nor do they consider additional
actions management may take to mitigate its exposure to such changes. Actual
results may differ. See Note 6 to the consolidated financial statements for
accounting policies and additional information.
AIRCRAFT FUEL The Company's earnings are affected by changes in the price and
availability of aircraft fuel. In order to provide a measure of control over
price and supply, the Company trades and ships fuel and maintains fuel storage
facilities to support its flight operations. The Company also manages the price
risk of fuel costs primarily utilizing fuel swap and fuel option contracts.
Market risk is estimated as a hypothetical 10 percent increase in the December
31, 1998 and 1997 cost per gallon of fuel. Based on projected 1999 fuel usage,
such an increase would result in an increase to aircraft fuel expense of
approximately $73 million in 1999, net of fuel hedge instruments outstanding at
December 31, 1998. Comparatively, based on projected 1998 fuel usage, such an
increase would have resulted in an increase to aircraft fuel expense of
approximately $110 million in 1998, net of fuel hedge instruments outstanding at
December 31, 1997. The change in market risk is due primarily to the Company
having more hedge instruments outstanding at December 31, 1998 as compared to
December 31, 1997. As of December 31, 1998, the Company had hedged approximately
48 percent of its 1999 fuel requirements and approximately 19 percent of its
2000 fuel requirements, compared to approximately 23 percent of its 1998 fuel
requirements hedged at December 31, 1997.
FOREIGN CURRENCY The Company is exposed to the effect of foreign exchange rate
fluctuations on the U.S. dollar value of foreign currency-denominated operating
revenues and expenses. The Company's largest exposure comes from the British
pound, Japanese yen, and various Latin and South American currencies. The
Company uses options to hedge a portion of its anticipated foreign
currency-denominated net cash flows. The result of a uniform 10 percent
strengthening in the value of the U.S. dollar from December 31, 1998 and 1997
levels relative to each of the currencies in which the Company has foreign
currency exposure would result in a decrease in operating income of
approximately $22 million and $24 million for the years ending December 31, 1999
and 1998, respectively, net of hedge instruments outstanding at December 31,
1998 and 1997, due to the Company's foreign-denominated revenues exceeding its
foreign-denominated expenses. This sensitivity analysis was prepared based upon
projected 1999 and 1998 foreign currency-denominated revenues and expenses as of
December 31, 1998 and 1997. Furthermore, this calculation assumes that each
exchange rate would change in the same direction relative to the U.S. dollar.
INTEREST The Company's earnings are also affected by changes in interest rates
due to the impact those changes have on its interest income from cash and
short-term investments and its interest expense from variable-rate debt
instruments. The Company has variable-rate debt instruments representing
approximately six percent and five percent, respectively, of its total long-term
debt, and interest rate swaps on notional amounts of approximately $1.1 billion
and $1.4 billion, respectively, at December 31, 1998 and 1997. If interest rates
average 10 percent more in 1999 than they did during 1998, the Company's
interest expense would increase by approximately $6 million and interest income
from cash and short-term investments would increase by approximately $12
million. In comparison, at December 31, 1997, the Company estimated that if
interest rates averaged 10 percent more in 1998 than they did during 1997, the
Company's interest expense would have increased by approximately $10 million and
interest income from cash and short-term investments would have increased by
approximately $14 million. These amounts are determined by considering the
impact of the hypothetical interest rates on the Company's variable-rate
long-term debt, interest rate swap agreements, and cash and short-term
investment balances at December 31, 1998 and 1997.
28
<PAGE> 30
Market risk for fixed-rate long-term debt is estimated as the potential
increase in fair value resulting from a hypothetical 10 percent decrease in
interest rates, and amounts to approximately $96 million and $105 million as of
December 31, 1998 and 1997, respectively. The fair values of the Company's
long-term debt were estimated using quoted market prices or discounted future
cash flows based on the Company's incremental borrowing rates for similar types
of borrowing arrangements.
INVESTMENTS The Company is subject to market risk related to its ownership of
approximately 3.1 million depository certificates convertible, subject to
certain restrictions, into the common stock of Equant. The estimated fair value
of these depository certificates was approximately $210 million as of December
31, 1998, based upon the market value of Equant common stock. In February 1999,
in connection with a secondary offering of Equant, AMR sold approximately
900,000 depository certificates for net proceeds of $66 million. The remaining
depository certificates are subject to a final reallocation between the owners
of the certificates during 1999 and thus, the number of certificates owned by
the Company is subject to change.
In addition, the Company holds investments in certain other entities,
primarily foreign airlines, which are subject to market risk. However, the
impact of such market risk on earnings is not significant due to the
immateriality of the carrying value and the geographically diverse nature of
these holdings.
29
<PAGE> 31
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors 31
Consolidated Statements of Operations 32
Consolidated Balance Sheets 34
Consolidated Statements of Cash Flows 36
Consolidated Statements of Stockholders' Equity 37
Notes to Consolidated Financial Statements 38
</TABLE>
30
<PAGE> 32
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AMR Corporation
We have audited the accompanying consolidated balance sheets of AMR
Corporation as of December 31, 1998 and 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for each of the
three years in the period ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of AMR
Corporation at December 31, 1998 and 1997, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1998, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
2121 San Jacinto
Dallas, Texas 75201
January 18, 1999, except for the last
paragraph of Note 2 and the
last paragraph of Note 3, for
which the date is February 22, 1999.
31
<PAGE> 33
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Airline Group:
Passenger - American Airlines, Inc. $ 14,695 $ 14,310 $ 13,645
- AMR Eagle 1,121 1,017 1,047
Cargo 656 687 682
Other 977 889 837
-------- -------- --------
17,449 16,903 16,211
The Sabre Group 2,306 1,789 1,625
Other revenues 119 95 102
Less: Intersegment revenues (669) (603) (574)
-------- -------- --------
Total operating revenues 19,205 18,184 17,364
-------- -------- --------
EXPENSES
Wages, salaries and benefits 6,507 6,056 5,706
Aircraft fuel 1,604 1,923 1,936
Depreciation and amortization 1,287 1,225 1,185
Commissions to agents 1,226 1,278 1,252
Maintenance, materials and repairs 937 863 687
Other rentals and landing fees 875 876 874
Food service 675 677 672
Aircraft rentals 569 574 616
Other operating expenses 3,187 2,805 2,629
-------- -------- --------
Total operating expenses 16,867 16,277 15,557
-------- -------- --------
OPERATING INCOME 2,338 1,907 1,807
OTHER INCOME (EXPENSE)
Interest income 140 140 82
Interest expense (372) (420) (514)
Interest capitalized 104 20 10
Gain on sale of stock by subsidiary -- -- 497
Miscellaneous - net (46) (23) (286)
-------- -------- --------
(174) (283) (211)
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND EXTRAORDINARY LOSS 2,164 1,624 1,596
Income tax provision 858 651 513
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS BEFORE
EXTRAORDINARY LOSS 1,306 973 1,083
INCOME FROM DISCONTINUED OPERATIONS, NET OF
APPLICABLE INCOME TAXES 8 12 22
-------- -------- --------
INCOME BEFORE EXTRAORDINARY LOSS 1,314 985 1,105
EXTRAORDINARY LOSS, NET OF TAX BENEFIT -- -- (89)
-------- -------- --------
NET EARNINGS $ 1,314 $ 985 $ 1,016
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
Continued on next page.
32
<PAGE> 34
AMR CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(in millions, except per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
EARNINGS APPLICABLE TO COMMON SHARES $ 1,314 $ 985 $ 1,016
========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE:
BASIC
Income from continuing operations before
extraordinary loss $ 7.73 $ 5.45 $ 6.29
Discontinued operations 0.05 0.07 0.12
Extraordinary loss -- -- (0.51)
--------- --------- ---------
Net earnings $ 7.78 $ 5.52 $ 5.90
========= ========= =========
DILUTED
Income from continuing operations before
extraordinary loss $ 7.48 $ 5.32 $ 5.95
Discontinued operations 0.04 0.07 0.12
Extraordinary loss -- -- (0.48)
--------- --------- ---------
Net earnings $ 7.52 $ 5.39 $ 5.59
========= ========= =========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
33
<PAGE> 35
AMR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-------------------
1998 1997
------- -------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 95 $ 62
Short-term investments 1,978 2,370
Receivables, less allowance for uncollectible
accounts (1998 - $31; 1997 - $18) 1,543 1,301
Inventories, less allowance for obsolescence
(1998 - $214; 1997 - $203) 596 626
Deferred income taxes 476 406
Other current assets 187 221
------- -------
Total current assets 4,875 4,986
EQUIPMENT AND PROPERTY
Flight equipment, at cost 13,688 13,002
Less accumulated depreciation 4,976 4,459
------- -------
8,712 8,543
Purchase deposits for flight equipment 1,624 754
Other equipment and property, at cost 4,243 3,966
Less accumulated depreciation 2,340 2,190
------- -------
1,903 1,776
------- -------
12,239 11,073
EQUIPMENT AND PROPERTY UNDER CAPITAL LEASES
Flight equipment 3,159 2,980
Other equipment and property 267 273
------- -------
3,426 3,253
Less accumulated amortization 1,279 1,167
------- -------
2,147 2,086
OTHER ASSETS
Route acquisition costs, less accumulated amortization
(1998 - $240; 1997 - $211) 916 945
Airport operating and gate lease rights, less accumulated amortization
(1998 - $161; 1997 - $143) 312 325
Prepaid pension cost 304 382
Other 1,510 1,062
------- -------
3,042 2,714
------- -------
TOTAL ASSETS $22,303 $20,859
======= =======
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
34
<PAGE> 36
AMR CORPORATION
CONSOLIDATED BALANCE SHEETS
(in millions, except shares and par value)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
December 31,
-----------------------
1998 1997
-------- --------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,152 $ 1,028
Accrued salaries and wages 991 879
Accrued liabilities 1,131 1,091
Air traffic liability 2,163 2,044
Current maturities of long-term debt 48 395
Current obligations under capital leases 154 135
-------- --------
Total current liabilities 5,639 5,572
LONG-TERM DEBT, LESS CURRENT MATURITIES 2,436 2,248
OBLIGATIONS UNDER CAPITAL LEASES,
LESS CURRENT OBLIGATIONS 1,764 1,629
OTHER LIABILITIES AND CREDITS
Deferred income taxes 1,491 1,112
Deferred gains 573 610
Postretirement benefits 1,649 1,573
Other liabilities and deferred credits 2,053 1,899
-------- --------
5,766 5,194
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock - $1 par value; shares authorized: 750,000,000;
shares issued: 1998 and 1997 - 182,278,766 182 182
Additional paid-in capital 3,075 3,104
Treasury shares at cost: 1998 - 20,927,692; 1997 - 9,080,832 (1,288) (485)
Accumulated other comprehensive income (4) (4)
Retained earnings 4,733 3,419
-------- --------
6,698 6,216
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 22,303 $ 20,859
======== ========
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
35
<PAGE> 37
AMR CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net earnings $ 1,314 $ 985 $ 1,016
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation 1,006 977 948
Amortization 281 248 237
Deferred income taxes 312 363 217
Gain on disposition of equipment and property (19) (24) --
Gain on sale of stock by subsidiary -- -- (497)
Provisions for losses -- -- 251
Extraordinary loss -- -- 136
Change in assets and liabilities:
Decrease (increase) in receivables (242) 12 (225)
Increase in inventories (35) (41) (66)
Increase in accounts payable
and accrued liabilities 268 117 261
Increase in air traffic liability 119 155 423
Other, net 191 77 (13)
------- ------- -------
Net cash provided by operating activities 3,195 2,869 2,688
CASH FLOW FROM INVESTING ACTIVITIES:
Capital expenditures, including purchase deposits
on flight equipment (2,661) (1,358) (523)
Net decrease (increase) in short-term investments 392 (627) (924)
Proceeds from sale of equipment and property 293 305 257
Acquisitions and other investments (137) -- --
Investment in joint ventures, net (135) -- --
------- ------- -------
Net cash used for investing activities (2,248) (1,680) (1,190)
CASH FLOW FROM FINANCING ACTIVITIES:
Payments on long-term debt and capital lease obligations (547) (648) (2,130)
Repurchase of common stock (994) (740) --
Proceeds from:
Sale-leaseback transactions 270 -- --
Issuance of long-term debt 246 -- --
Exercise of stock options 111 200 25
Sale of stock by subsidiary -- -- 589
------- ------- -------
Net cash used for financing activities (914) (1,188) (1,516)
------- ------- -------
Net increase (decrease) in cash 33 1 (18)
Cash at beginning of year 62 61 79
------- ------- -------
Cash at end of year $ 95 $ 62 $ 61
======= ======= =======
FINANCING ACTIVITIES NOT AFFECTING CASH
Capital lease obligations incurred $ 270 $ -- $ --
======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
36
<PAGE> 38
AMR CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in millions, except shares and per share amounts)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Accumulated
Additional Other
Preferred Common Paid-in Treasury Comprehensive Retained
Stock Stock Capital Stock Income Earnings Total
--------- ------- ---------- -------- ------------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 78 $ 152 $ 2,163 $ -- $ (91) $ 1,418 $ 3,720
Net earnings -- -- -- -- -- 1,016 1,016
Adjustment for minimum pension
liability, net of tax benefit of $13 -- -- -- -- (21) -- (21)
Unrealized loss on investments, net of
tax benefit of $1 -- -- -- -- (2) -- (2)
Reversal of unrealized loss on
investment in Canadian Airlines
International Limited -- -- -- -- 91 -- 91
-------
Total comprehensive income 1,084
Issuance of 27,853,548 shares upon
conversion of convertible
subordinated debentures and
preferred stock, net of conversion
fees and issuance costs (78) 28 867 -- -- -- 817
Issuance of 1,403,656 shares pursuant
to stock option, deferred stock and
restricted stock incentive plans -- 2 45 -- -- -- 47
------- ------- ------- ------- ------- ------- -------
Balance at December 31, 1996 -- 182 3,075 -- (23) 2,434 5,668
Net earnings -- -- -- -- -- 985 985
Adjustment for minimum pension
liability, net of tax expense of $13 -- -- -- -- 19 -- 19
-------
Total comprehensive income 1,004
Issuance of 312,140 shares pursuant to
stock option, deferred stock and
restricted stock incentive plans -- -- 13 -- -- -- 13
Issuance of 11,500,000 stock options
at $5 below market value at date of
grant -- -- 58 -- -- -- 58
Repurchase of 14,086,750 common shares -- -- -- (740) -- -- (740)
Issuance of 5,005,918 shares from
Treasury pursuant to stock option,
deferred stock and restricted stock
incentive plans, net of tax benefit
of $15 -- -- (42) 255 -- -- 213
------- ------- ------- ------- ------- ------- -------
Balance at December 31, 1997 -- 182 3,104 (485) (4) 3,419 6,216
Net earnings and total comprehensive
income -- -- -- -- -- 1,314 1,314
Repurchase of 14,342,008 common shares -- -- -- (944) -- -- (944)
Issuance of 2,495,148 shares from
Treasury pursuant to stock option,
deferred stock and restricted stock
incentive plans, net of tax benefit
of $17 -- -- (29) 141 -- -- 112
------- ------- ------- ------- ------- ------- -------
Balance at December 31, 1998 $ -- $ 182 $ 3,075 $(1,288) $ (4) $ 4,733 $ 6,698
======= ======= ======= ======= ======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
37
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. SUMMARY OF ACCOUNTING POLICIES
BASIS OF PRESENTATION The consolidated financial statements include the accounts
of AMR Corporation (AMR or the Company), its wholly-owned subsidiaries,
including its principal subsidiary American Airlines, Inc. (American), and its
majority-owned subsidiaries, including The Sabre Group Holdings, Inc. (The Sabre
Group). All significant intercompany transactions have been eliminated. The
results of operations for AMR Services, AMR Combs and TeleService Resources have
been reflected in the consolidated statements of operations as discontinued
operations. All share and per share amounts have been restated to give effect to
the stock split on June 9, 1998, where appropriate. Certain amounts from prior
years have been reclassified to conform with the 1998 presentation.
USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles 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.
INVENTORIES Spare parts, materials and supplies relating to flight equipment are
carried at average acquisition cost and are expensed when incurred in
operations. Allowances for obsolescence are provided, over the estimated useful
life of the related aircraft and engines, for spare parts expected to be on hand
at the date aircraft are retired from service, plus allowances for spare parts
currently identified as excess. These allowances are based on management
estimates, which are subject to change.
EQUIPMENT AND PROPERTY The provision for depreciation of operating equipment and
property is computed on the straight-line method applied to each unit of
property, except that major rotable parts, avionics and assemblies are
depreciated on a group basis. The depreciable lives and residual values used for
the principal depreciable asset classifications are:
<TABLE>
<CAPTION>
Residual
Depreciable Life Value
---------------------------- ----------
<S> <C> <C>
Boeing 727-200 (Stage II) December 31, 1999(1) None
Boeing 727-200 (to be converted to Stage III) December 31, 2003(1) None
DC-10 December 31, 2002(1) None
Other American jet aircraft 20 years 5%
Regional jet aircraft 16 years (2)
Other regional aircraft and engines 17 years 10%
Major rotable parts, avionics and assemblies Life of equipment to which 0-10%
applicable
Improvements to leased flight equipment Term of lease None
Buildings and improvements (principally on 10-30 years or term of lease None
leased land)
Furniture, fixtures and other equipment 3-20 years None
Capitalized software 3-10 years None
</TABLE>
(1) Approximate common retirement date.
(2) Depreciated to guaranteed residual value.
Effective January 1, 1999, in order to more accurately reflect the
expected useful life of its aircraft, the Company changed its estimate of the
depreciable lives of certain American aircraft types from 20 to 25 years and
increased the residual value from five to 10 percent. In addition, the Company
will depreciate its new Boeing 737-800s and Boeing 777-200IGWs over a period of
25 and 30 years, respectively, with a 10 percent residual value.
Equipment and property under capital leases are amortized over the term
of the leases or, in the case of certain aircraft, over their expected useful
lives, and such amortization is included in depreciation and amortization. Lease
terms vary but are generally 10 to 25 years for aircraft and seven to 40 years
for other leased equipment and property.
38
<PAGE> 40
1. SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
MAINTENANCE AND REPAIR COSTS Maintenance and repair costs for owned and leased
flight equipment are charged to operating expense as incurred, except engine
overhaul costs incurred by AMR Eagle, which are accrued on the basis of hours
flown.
INTANGIBLE ASSETS Route acquisition costs and airport operating and gate lease
rights represent the purchase price attributable to route authorities, airport
take-off and landing slots and airport gate leasehold rights acquired. These
assets are being amortized on a straight-line basis over 40 years for route
authorities, 25 years for airport take-off and landing slots, and the term of
the lease for airport gate leasehold rights.
CAPITALIZED SOFTWARE In March 1998, the American Institute of Certified Public
Accountants issued Statement of Position No. 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use" (SOP 98-1), effective
for fiscal years beginning after December 15, 1998. SOP 98-1 requires the
capitalization of certain costs incurred during an internal-use development
project. The adoption of SOP 98-1 is not expected to have a material impact on
the Company's financial position or results of operations.
PASSENGER REVENUES Passenger ticket sales are initially recorded as a component
of air traffic liability. Revenue derived from ticket sales is recognized at the
time transportation is provided. However, due to various factors, including the
complex pricing structure and interline agreements throughout the industry,
certain amounts are recognized in revenue using estimates regarding both the
timing of the revenue recognition and the amount of revenue to be recognized.
Actual results could differ from those estimates.
ELECTRONIC TRAVEL DISTRIBUTION REVENUES Revenues for airline travel reservations
are recognized at the time of the booking of the reservation, net of estimated
future cancellations. Revenues for car rental and hotel bookings and other
travel providers are recognized at the time the reservation is used by the
customer. Fees billed on service contracts are recognized as revenue in the
month earned.
INFORMATION TECHNOLOGY SOLUTIONS REVENUES Revenues from information technology
services are recognized in the period earned. Revenues from software license
fees for standard software products are recognized when the software is
delivered, fees are fixed and determinable, no undelivered elements are
essential to the functionality of delivered software and collection is probable.
Revenues on long-term software development and consulting contracts are
recognized under the percentage of completion method of accounting. Losses, if
any, on long-term contracts are recognized when the current estimate of total
contract costs indicates a loss on a contract is probable. Fixed fees for
software maintenance are recognized ratably over the life of the contract.
ADVERTISING COSTS The Company expenses the costs of advertising as incurred.
Advertising expense was $216 million, $204 million and $203 million for the
years ended December 31, 1998, 1997 and 1996, respectively.
FREQUENT FLYER PROGRAM The estimated incremental cost of providing free travel
awards is accrued when such award levels are reached. American sells mileage
credits and related services to companies participating in its frequent flyer
program. The portion of the revenue related to the sale of mileage credits is
deferred and recognized over a period approximating the period during which the
mileage credits are used.
STATEMENTS OF CASH FLOWS Short-term investments, without regard to remaining
maturity at acquisition, are not considered as cash equivalents for purposes of
the statements of cash flows.
STOCK OPTIONS 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) and related Interpretations. Under APB 25,
no compensation expense is recognized for stock option grants if the exercise
price of the Company's stock option grants is at or above the fair market value
of the underlying stock on the date of grant.
39
<PAGE> 41
2. INVESTMENTS
Short-term investments consisted of (in millions):
<TABLE>
<CAPTION>
December 31,
-----------------
1998 1997
------ ------
<S> <C> <C>
Overnight investments and time deposits $ 133 $ 322
Corporate notes 950 921
Asset backed securities 498 428
U. S. Government agency mortgages 169 305
Other 228 394
------ ------
$1,978 $2,370
====== ======
</TABLE>
Short-term investments at December 31, 1998, by contractual maturity
included (in millions):
<TABLE>
<S> <C>
Due in one year or less $ 494
Due after one year through three years 1,470
Due after three years 14
------
$1,978
======
</TABLE>
All short-term investments are classified as available-for-sale and
stated at fair value. Net unrealized gains and losses, net of deferred taxes,
are reflected as an adjustment to stockholders' equity.
At December 31, 1998, the Company owned approximately 3.1 million
depository certificates convertible, subject to certain restrictions, into the
common stock of Equant N.V. (Equant), which completed an initial public offering
in July 1998. As of December 31, 1998, the estimated fair value of these
depository certificates was approximately $210 million, based upon the
publicly-traded market value of Equant common stock. The estimated fair value of
the certificates was not readily determinable as of December 31, 1997. The
carrying value (cost basis) of the Company's investment in the depository
certificates as of December 31, 1998 and 1997 was de minimis.
In connection with a secondary offering of Equant, the Company sold
approximately 900,000 depository certificates in February 1999 for net proceeds
of $66 million. The remaining depository certificates are subject to a final
reallocation between the owners of the certificates during 1999 and thus, the
number of certificates owned by the Company is subject to change.
3. COMMITMENTS AND CONTINGENCIES
At December 31, 1998, the Company had commitments to acquire the
following aircraft: 100 Boeing 737-800s, 34 Boeing 777-200IGWs, six Boeing
757-200s, four Boeing 767-300ERs, 75 Embraer EMB-135s, 30 Embraer EMB-145s and
25 Bombardier CRJ-700s. Deliveries of these aircraft commence in 1999 and will
continue through 2005. Future payments, including estimated amounts for price
escalation through anticipated delivery dates for these aircraft and related
equipment, will approximate $2.7 billion in 1999, $2.0 billion in 2000, $1.6
billion in 2001 and an aggregate of approximately $1.5 billion in 2002 through
2005. In addition to these commitments for aircraft, the Company's Board of
Directors has authorized expenditures of approximately $2.1 billion over the
next five years related to modifications to aircraft, renovations of -- and
additions to -- airport and office facilities, and the acquisition of various
other equipment and assets. AMR expects to spend approximately $625 million of
this authorized amount in 1999.
40
<PAGE> 42
3. COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Miami International Airport Authority is currently remediating
various environmental conditions at the Miami International Airport (the
Airport) and funding the remediation costs through landing fee revenues. Future
costs of the remediation effort may be borne by carriers operating at the
Airport, including American, through increased landing fees and/or other charges
since certain of the potentially responsible parties are no longer in business.
The future increase in landing fees and/or other charges may be material but
cannot be reasonably estimated due to various factors, including the unknown
extent of the remedial actions that may be required, the proportion of the cost
that will ultimately be recovered from the responsible parties, and
uncertainties regarding the environmental agencies that will ultimately
supervise the remedial activities and the nature of that supervision.
In April 1995, American announced an agreement to sell 12 of its
McDonnell Douglas MD-11 aircraft to Federal Express Corporation (FedEx). In
addition, in March 1998, the Company exercised its option to sell its remaining
seven MD-11 aircraft to FedEx. No significant gain or loss is expected to be
recognized as a result of these transactions. Eight aircraft had been delivered
as of December 31, 1998. The remaining 11 aircraft will be delivered between
2000 and 2002. The carrying value of the 11 remaining aircraft American has
committed to sell was approximately $711 million as of December 31, 1998.
AMR and American have included an event risk covenant in approximately
$3.0 billion of debt and lease agreements. The covenant permits the holders of
such instruments to receive a higher rate of return (between 50 and 700 basis
points above the stated rate) if a designated event, as defined, should occur
and the credit rating of the debentures or the debt obligations underlying the
lease agreements is downgraded below certain levels.
Special facility revenue bonds have been issued by certain
municipalities, primarily to purchase equipment and improve airport facilities
which are leased by American. In certain cases, the bond issue proceeds were
loaned to American and are included in long-term debt. Certain bonds have rates
that are periodically reset and are remarketed by various agents. In certain
circumstances, American may be required to purchase up to $437 million of the
special facility revenue bonds prior to scheduled maturity, in which case
American has the right to resell the bonds or to use the bonds to offset its
lease or debt obligations. American may borrow the purchase price of these bonds
under standby letter of credit agreements. At American's option, these letters
of credit are secured by funds held by bond trustees and by approximately $519
million of short-term investments.
In early February 1999, some members of the APA engaged in certain
activities (increased sick time and declining to fly additional trips) that
resulted in numerous cancellations across American's system. These actions were
taken in response to the acquisition of Reno Air in December 1998. In an attempt
to resolve the dispute, the Company and the APA have agreed to non-binding
mediation. These actions adversely impacted the Company's first quarter 1999 net
earnings.
41
<PAGE> 43
4. LEASES
AMR's subsidiaries lease various types of equipment and property,
including aircraft, passenger terminals, equipment and various other facilities.
The future minimum lease payments required under capital leases, together with
the present value of net minimum lease payments, and future minimum lease
payments required under operating leases that have initial or remaining
non-cancelable lease terms in excess of one year as of December 31, 1998, were
(in millions):
<TABLE>
<CAPTION>
Capital Operating
Year Ending December 31, Leases Leases
--------- ---------
<S> <C> <C>
1999 $ 273 $ 1,012
2000 341 951
2001 323 949
2002 274 904
2003 191 919
2004 and subsequent 1,261 12,480
------- -------
2,663(1) $17,215(2)
=======
Less amount representing interest 745
-------
Present value of net minimum lease payments $ 1,918
=======
</TABLE>
(1) Future minimum payments required under capital leases include $192
million guaranteed by AMR relating to special facility revenue bonds
issued by municipalities.
(2) Future minimum payments required under operating leases include $6.1
billion guaranteed by AMR relating to special facility revenue bonds
issued by municipalities.
At December 31, 1998, the Company had 187 jet aircraft and 39 turboprop
aircraft under operating leases, and 86 jet aircraft and 63 turboprop aircraft
under capital leases. The aircraft leases can generally be renewed at rates
based on fair market value at the end of the lease term for one to five years.
Most aircraft leases have purchase options at or near the end of the lease term
at fair market value, but generally not to exceed a stated percentage of the
defined lessor's cost of the aircraft or at a predetermined fixed amount.
Rent expense, excluding landing fees, was $1.2 billion for 1998, 1997 and
1996.
5. INDEBTEDNESS
Long-term debt (excluding amounts maturing within one year) consisted of
(in millions):
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1997
------------- -------------
<S> <C> <C>
8.05% - 10.62% notes due through 2021 $ 865 $ 874
Secured debt due through 2015
(effective rates from 6.317% - 9.957% at December 31, 1998) 857 644
9.0% - 10.20% debentures due through 2021 437 437
6.0% - 7.10% bonds due through 2031 176 176
Variable rate indebtedness due through 2024
(3.55% at December 31, 1998) 86 86
Other 15 31
------------- -------------
Long-term debt, less current maturities $ 2,436 $ 2,248
============= =============
</TABLE>
Maturities of long-term debt (including sinking fund requirements) for
the next five years are: 1999 - $48 million; 2000 - $244 million; 2001 - $451
million; 2002 - $83 million; 2003 - $47 million.
42
<PAGE> 44
5. INDEBTEDNESS (CONTINUED)
During 1996, AMR repurchased and/or retired prior to scheduled maturity
approximately $1.1 billion in face value of long-term debt and capital lease
obligations. Cash from operations provided the funding for the repurchases and
retirements. These transactions resulted in an extraordinary loss of $136
million ($89 million after tax) in 1996.
American has a $1.0 billion credit facility agreement which expires
December 19, 2001. At American's option, interest on the agreement can be
calculated on one of several different bases. For most borrowings, American
would anticipate choosing a floating rate based upon the London Interbank
Offered Rate (LIBOR). At December 31, 1998, no borrowings were outstanding under
the agreement.
Certain debt is secured by aircraft, engines, equipment and other assets
having a net book value of approximately $929 million. In addition, certain of
American's debt and credit facility agreements contain restrictive covenants,
including a minimum net worth requirement, which could limit American's ability
to pay dividends. At December 31, 1998, under the most restrictive provisions of
those debt and credit facility agreements, approximately $2.6 billion of the
retained earnings of American were available for payment of dividends to AMR.
Cash payments for interest, net of capitalized interest, were $277
million, $410 million and $520 million for 1998, 1997 and 1996, respectively.
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
As part of the Company's risk management program, AMR uses a variety of
financial instruments, including interest rate swaps, fuel swap and option
contracts and currency exchange agreements. The Company does not hold or issue
derivative financial instruments for trading purposes.
NOTIONAL AMOUNTS AND CREDIT EXPOSURES OF DERIVATIVES
The notional amounts of derivative financial instruments summarized in
the tables which follow do not represent amounts exchanged between the parties
and, therefore, are not a measure of the Company's exposure resulting from its
use of derivatives. The amounts exchanged are calculated based on the notional
amounts and other terms of the instruments, which relate to interest rates,
exchange rates or other indices.
The Company is exposed to credit losses in the event of non-performance
by counterparties to these financial instruments, but it does not expect any of
the counterparties to fail to meet its obligations. The credit exposure related
to these financial instruments is represented by the fair value of contracts
with a positive fair value at the reporting date, reduced by the effects of
master netting agreements. To manage credit risks, the Company selects
counterparties based on credit ratings, limits its exposure to a single
counterparty under defined guidelines, and monitors the market position of the
program and its relative market position with each counterparty. The Company
also maintains industry-standard security agreements with the majority of its
counterparties which may require the Company or the counterparty to post
collateral if the value of these instruments falls below certain mark-to-market
thresholds. As of December 31, 1998, no collateral was required under these
agreements, and the Company does not expect to post collateral in the near
future.
43
<PAGE> 45
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
INTEREST RATE RISK MANAGEMENT
American enters into interest rate swap contracts to effectively convert
a portion of its fixed-rate obligations to floating-rate obligations. These
agreements involve the exchange of amounts based on a floating interest rate for
amounts based on fixed interest rates over the life of the agreement without an
exchange of the notional amount upon which the payments are based. The
differential to be paid or received as interest rates change is accrued and
recognized as an adjustment of interest expense related to the obligation. The
related amount payable to or receivable from counterparties is included in
current liabilities or assets. The fair values of the swap agreements are not
recognized in the financial statements. Gains and losses on terminations of
interest rate swap agreements are deferred as an adjustment to the carrying
amount of the outstanding obligation and amortized as an adjustment to interest
expense related to the obligation over the remaining term of the original
contract life of the terminated swap agreement. In the event of the early
extinguishment of a designated obligation, any realized or unrealized gain or
loss from the swap would be recognized in income coincident with the
extinguishment.
The following table indicates the notional amounts and fair values of the
Company's interest rate swap agreements (in millions):
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------
1998 1997
---------------------- ----------------------
Notional Notional
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Interest rate swap agreements $1,054 $ 38 $1,410 $ 12
</TABLE>
The fair values represent the amount the Company would receive if the
agreements were terminated at December 31, 1998 and 1997, respectively.
At December 31, 1998, the weighted-average remaining life of the interest
rate swap agreements in effect was 4.2 years. The weighted-average floating
rates and fixed rates on the contracts outstanding were:
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1998 1997
--------------- ---------------
<S> <C> <C>
Average floating rate 5.599% 5.844%
Average fixed rate 6.277% 5.901%
</TABLE>
Floating rates are based primarily on LIBOR and may change significantly,
affecting future cash flows.
FUEL PRICE RISK MANAGEMENT
American enters into fuel swap and option contracts to protect against
increases in jet fuel prices. Under the fuel swap agreements, American receives
or makes payments based on the difference between a fixed price and a variable
price for certain fuel commodities. Under the fuel option agreements, American
pays a premium to cap prices at a fixed level. The changes in market value of
such agreements have a high correlation to the price changes of the fuel being
hedged. Gains or losses on fuel hedging agreements are recognized as a component
of fuel expense when the underlying fuel being hedged is used. Any premiums paid
to enter into option contracts are recorded as a prepaid expense and amortized
to fuel expense over the respective contract periods. Gains and losses on fuel
hedging agreements would be recognized immediately should the changes in the
market value of the agreements cease to have a high correlation to the price
changes of the fuel being hedged. At December 31, 1998, American had fuel
hedging agreements with broker-dealers on approximately two billion gallons of
fuel products, which represents approximately 48 percent of its expected 1999
fuel needs and approximately 19 percent of its expected 2000 fuel needs. The
fair value of the Company's fuel hedging agreements at December 31, 1998,
representing the amount the Company would pay to terminate the agreements,
totaled $108 million.
44
<PAGE> 46
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
FOREIGN EXCHANGE RISK MANAGEMENT
To hedge against the risk of future exchange rate fluctuations on a
portion of American's foreign cash flows, the Company enters into various
currency put option agreements on a number of foreign currencies. The option
contracts are denominated in the same foreign currency in which the projected
foreign cash flows are expected to occur. These contracts are designated and
effective as hedges of probable quarterly foreign cash flows for various periods
through December 31, 1999, which otherwise would expose the Company to foreign
currency risk. Realized gains on the currency put option agreements are
recognized as a component of passenger revenues. At December 31, 1998, the
notional amount related to these options totaled approximately $597 million and
the fair value, representing the amount AMR would receive to terminate the
agreements, totaled approximately $10 million.
The Company has entered into Japanese yen currency exchange agreements to
effectively convert certain lease obligations into dollar-based obligations.
Changes in the value of the agreements due to exchange rate fluctuations are
offset by changes in the value of the yen-denominated lease obligations
translated at the current exchange rate. Discounts or premiums are accreted or
amortized as an adjustment to interest expense over the lives of the underlying
lease obligations. The related amounts due to or from counterparties are
included in other liabilities or other assets. The net fair values of the
Company's currency exchange agreements, representing the amount the Company
would pay to terminate the agreements, were (in millions):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------
1998 1997
---------------------------------- ----------------------------------
Notional Notional
Amount Fair Value Amount Fair Value
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Japanese yen 33.7 billion $ (5) 24.5 billion $ (15)
</TABLE>
The exchange rates on the Japanese yen agreements range from 66.50 to
118.35 yen per U.S. dollar.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of the Company's long-term debt were estimated using
quoted market prices where available. For long-term debt not actively traded,
fair values were estimated using discounted cash flow analyses, based on the
Company's current incremental borrowing rates for similar types of borrowing
arrangements. The carrying amounts and estimated fair values of the Company's
long-term debt, including current maturities, were (in millions):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1998 1997
------------------ -------------------
Carrying Fair Carrying Fair
Value Value Value Value
-------- ------ -------- ------
<S> <C> <C> <C> <C>
8.05% - 10.62% notes $ 875 $ 973 $1,249 $1,372
Secured debt 890 1,013 660 766
9.0% - 10.20% debentures 437 531 437 540
6.0% - 7.10% bonds 176 189 176 194
Variable rate indebtedness 86 86 86 86
Other 20 20 35 36
------ ------ ------ ------
$2,484 $2,812 $2,643 $2,994
====== ====== ====== ======
</TABLE>
All other financial instruments, except for the investment in Equant, are
either carried at fair value or their carrying value approximates fair value.
45
<PAGE> 47
6. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133), which is required to be adopted
in years beginning after June 15, 1999. SFAS 133 permits early adoption as of
the beginning of any fiscal quarter after its issuance. SFAS 133 will require
the Company to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the nature of the hedge, changes in
the fair value of derivatives will either be offset against the change in fair
value of the hedged assets, liabilities, or firm commitments through earnings or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company is currently evaluating the
impact of SFAS 133 to the Company's financial condition or results of
operations.
7. INCOME TAXES
The significant components of the income tax provision were (in
millions):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Current $ 546 $ 288 $ 296
Deferred 312 363 217
------------- ------------- -------------
$ 858 $ 651 $ 513
============= ============= =============
</TABLE>
The income tax provision includes a federal income tax provision of $741
million, $566 million and $452 million and a state income tax provision of $93
million, $71 million and $53 million for the years ended December 31, 1998, 1997
and 1996, respectively.
The income tax provision differed from amounts computed at the statutory
federal income tax rate as follows (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Statutory income tax provision $ 757 $ 568 $ 559
State income tax provision, net 60 46 35
Meal expense 19 21 18
Minority interest 14 12 1
Gain on sale of stock by subsidiary -- -- (174)
Change in valuation allowance (4) -- 67
Other, net 12 4 7
------------ ------------ ------------
Income tax provision $ 858 $ 651 $ 513
============ ============ ============
</TABLE>
The change in valuation allowance in 1998 relates to the utilization of
foreign tax credits. The change in the valuation allowance in 1996 is primarily
attributable to the write-off of AMR's investment in Canadian Airlines
International Limited (Canadian) (see Note 14).
46
<PAGE> 48
7. INCOME TAXES (CONTINUED)
The components of AMR's deferred tax assets and liabilities were (in
millions):
<TABLE>
<CAPTION>
December 31,
---------------------
1998 1997
------- -------
<S> <C> <C>
Deferred tax assets:
Postretirement benefits other than pensions $ 616 $ 580
Alternative minimum tax credit carryforwards 515 862
Rent expense 376 322
Frequent flyer obligation 258 232
Gains from lease transactions 223 234
Other 405 412
Valuation allowance (68) (72)
------- -------
Total deferred tax assets 2,325 2,570
------- -------
Deferred tax liabilities:
Accelerated depreciation and amortization (3,097) (2,963)
Pensions (54) (94)
Other (189) (219)
------- -------
Total deferred tax liabilities (3,340) (3,276)
------- -------
Net deferred tax liability $(1,015) $ (706)
======= =======
</TABLE>
At December 31, 1998, AMR had available for federal income tax purposes
approximately $515 million of alternative minimum tax credit carryforwards which
are available for an indefinite period.
Cash payments for income taxes were $560 million, $423 million and $194
million for 1998, 1997 and 1996, respectively.
8. COMMON AND PREFERRED STOCK
In April 1998, the Company's Board of Directors approved a two-for-one
stock split in the form of a stock dividend, subject to shareholder approval of
an amendment to the Company's Certificate of Incorporation to increase the
number of authorized common shares. On May 20, 1998, the Company's shareholders
approved the amendment, thereby increasing the total number of authorized shares
of all classes of stock to 770 million, of which 20 million are shares of
preferred stock (without par value) and 750 million are shares of common stock
($1 par value). The stock split was effective on June 9, 1998 for shareholders
of record on May 26, 1998. All prior period share and earnings per share amounts
have been restated to give effect to the stock split.
9. STOCK AWARDS AND OPTIONS
Under the 1998 Long Term Incentive Plan, as amended, officers and key
employees of AMR and its subsidiaries may be granted stock options, stock
appreciation rights, restricted stock, deferred stock, stock purchase rights,
other stock-based awards and/or performance-related awards, including cash
bonuses. The total number of common shares authorized for distribution under the
1998 Long Term Incentive Plan is 10,000,000 shares. The 1998 Long Term Incentive
Plan, the successor to the 1988 Long Term Incentive Plan which expired May 18,
1998, will terminate no later than May 21, 2008. Options granted under the 1988
and 1998 Long Term Incentive Plans (collectively, the Plans) are awarded with an
exercise price equal to the fair market value of the stock on date of grant,
become exercisable in equal annual installments over five years following the
date of grant and expire 10 years from the date of grant. Stock appreciation
rights may be granted in tandem with options awarded.
47
<PAGE> 49
9. STOCK AWARDS AND OPTIONS (CONTINUED)
In 1998, 1997 and 1996, the total charge for stock compensation expense
included in wages, salaries and benefits expense was $65 million, $75 million
and $49 million, respectively. No compensation expense was recognized for stock
option grants under the Plans since the exercise price was the fair market value
of the underlying stock on the date of grant.
Stock option activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------------
1998 1997 1996
-------------------------- -------------------------- ---------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
--------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1 3,506,774 $ 38.77 3,663,590 $ 33.59 4,645,560 $ 31.42
Granted 1,216,720 63.01 895,480 52.28 784,950 39.21
Exercised (470,810) 31.82 (985,776) 32.17 (1,161,600) 29.70
Canceled(1) (105,560) 42.34 (66,520) 33.82 (605,320) 31.48
--------- --------- ----------
Outstanding at December 31 4,147,124 $ 46.60 3,506,774 $ 38.77 3,663,590 $ 33.59
========= ========= ==========
</TABLE>
(1) Includes 471,900 options canceled upon conversion to The Sabre Group
stock options for 1996.
The following table summarizes information about the stock options
outstanding at December 31, 1998:
<TABLE>
<CAPTION>
Weighted
Range of Number of Weighted Average Number of Average
Exercise Options Remaining Weighted Average Options Exercise
Prices Outstanding Life (years) Exercise Price Exercisable Price
--------- ----------- ---------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$22-$33 842,424 4.24 $ 30.11 731,564 $ 30.45
$34-$42 1,251,060 6.94 37.81 603,810 37.66
$43-$52 1,072,080 9.19 50.61 182,760 48.67
$58-$73 981,560 9.27 67.58 68,840 58.11
--------- ---------
4,147,124 7.50 $ 46.60 1,586,974 $ 36.49
========= =========
</TABLE>
In May 1997, in conjunction with the labor agreement reached between
American and members of the APA, the Company established the Pilots Stock Option
Plan (The Pilot Plan). The Pilot Plan granted members of the APA the option to
purchase 11.5 million shares of AMR stock at $41.69 per share, $5 less than the
average fair market value of the stock on the date of grant, May 5, 1997. These
shares were exercisable immediately.
Pilot Plan option activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Outstanding at January 1 7,438,220 --
Granted -- 11,500,000
Exercised (1,646,839) (4,061,780)
----------- -----------
Outstanding at December 31 5,791,381 7,438,220
=========== ===========
</TABLE>
The weighted-average grant date fair value of all stock option awards
granted during 1998, 1997 and 1996 was $21.15, $11.00 and $12.90, respectively.
48
<PAGE> 50
9. STOCK AWARDS AND OPTIONS (CONTINUED)
Shares of deferred stock are awarded at no cost to officers and key
employees under the Plans' Career Equity Program and will be issued upon the
individual's retirement from AMR or, in certain circumstances, will vest on a
pro rata basis. Deferred stock activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding at January 1 2,457,190 2,394,662 2,848,116
Granted 185,812 175,500 205,300
Issued (190,911) (67,340) (109,448)
Canceled(1) (50,559) (45,632) (549,306)
---------- ---------- ----------
Outstanding at December 31 2,401,532 2,457,190 2,394,662
========== ========== ==========
</TABLE>
(1) Includes 420,800 shares canceled upon conversion to The Sabre Group
stock options and awards for 1996.
The weighted-average grant date fair value of career equity awards
granted during 1998, 1997 and 1996 was $57.77, $54.98 and $39.64, respectively.
A performance share plan was implemented in 1993 under the terms of which
shares of deferred stock are awarded at no cost to officers and key employees
under the Plans. The fair value of the performance shares granted is equal to
the market price of the Company's stock at the date of grant. The shares vest
over a three-year performance period based upon AMR's ratio of cash flow to
adjusted gross assets. Performance share activity was:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding at January 1 1,737,274 1,679,460 1,648,822
Granted 644,680 808,736 764,614
Issued (205,458) (190,766) (137,008)
Awards settled in cash (522,234) (513,064) (356,176)
Canceled(1) (88,646) (47,092) (240,792)
---------- ---------- ----------
Outstanding at December 31 1,565,616 1,737,274 1,679,460
========== ========== ==========
</TABLE>
(1) Includes 181,102 shares canceled upon conversion to The Sabre Group
stock awards for 1996.
The weighted-average grant date fair value of performance share awards
granted during 1998, 1997 and 1996 was $62.06, $52.28 and $39.41, respectively.
There were approximately 21 million shares of AMR's common stock at
December 31, 1998 reserved for the issuance of stock upon the exercise of
options and the issuance of stock awards.
The Sabre Group has established the 1996 Long Term Incentive Plan (1996
Plan), whereby its officers and other key employees may be granted stock options
and other stock-based awards. Initially, 13 million shares of The Sabre Group's
Class A Common Stock (Sabre Common Stock) were authorized to be issued under the
1996 Plan. At December 31, 1998, approximately five million options for Sabre
Common Stock were outstanding under the 1996 Plan.
49
<PAGE> 51
9. STOCK AWARDS AND OPTIONS (CONTINUED)
In January 1998, in connection with the information technology services
agreement executed between The Sabre Group and US Airways, The Sabre Group
granted two tranches of stock options to US Airways, each to acquire three
million shares of Sabre Common Stock. During certain periods, US Airways may
select an alternative vehicle of substantially equivalent value in place of
receiving stock. The first tranche of options is exercisable during the six
month period ending two years after the transfer of US Airways' information
technology assets, which occurred in January 1998, has an exercise price of $27
per share and is subject to a cap on share price of $90. The second tranche of
options is exercisable during the 10-year period beginning on the fifth
anniversary of the asset transfer date, has an exercise price of $27 per share
and is subject to a cap on share price of $127. During 1998, a long-term
liability and a related deferred asset equal to the number of options
outstanding multiplied by the difference between the exercise price of the
options and the market price of Sabre Common Stock were recorded. The asset and
liability are adjusted based on changes in the market price of Sabre Common
Stock. As of December 31, 1998, the liability relating to these options was $105
million. The deferred asset is being amortized over the 11-year non-cancelable
portion of the agreement.
The Company has adopted the pro forma disclosure features of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123). As required by SFAS 123, pro forma information
regarding net earnings and earnings per share has been determined as if the
Company and The Sabre Group had accounted for its employee stock options and
awards granted subsequent to December 31, 1994 using the fair value method
prescribed by SFAS 123. The fair value for the stock options was estimated at
the date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions for 1998, 1997 and 1996: risk-free interest rates
ranging from 5.01% to 6.70%; dividend yields of 0%; expected stock volatility
ranging from 25.4% to 32.0%; and expected life of the options of 4.5 years for
all Plans, with the exception of The Pilot Plan which was 1.5 years.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. In addition,
because SFAS 123 is applicable only to options and stock-based awards granted
subsequent to December 31, 1994, its pro forma effect will not be fully
reflected until 1999.
The Company's pro forma net earnings and earnings per share assuming the
Company had accounted for its employee stock options using the fair value method
would have resulted in 1998 net earnings of $1,311 million and basic and diluted
earnings per share of $7.76 and $7.51, respectively, and 1997 net earnings of
$960 million and basic and diluted earnings per share of $5.38 and $5.25,
respectively. The pro forma impact of SFAS 123 on the Company's 1996 net
earnings and earnings per share was not material.
10. RETIREMENT BENEFITS
Substantially all employees of American and employees of certain other
subsidiaries are eligible to participate in pension plans. The defined benefit
plans provide benefits for participating employees based on years of service and
average compensation for a specified period of time before retirement. Airline
pilots and flight engineers also participate in defined contribution plans for
which Company contributions are determined as a percentage of participant
compensation.
In October 1997, American spun off the portion of its defined benefit
pension plan applicable to employees of The Sabre Group to the Legacy Pension
Plan, a defined benefit plan established by The Sabre Group effective January 1,
1997. At the date of the spin-off, the net obligation attributable to The Sabre
Group employees participating in American's plan was approximately $20 million.
The Sabre Group also established The Sabre Group Retirement Plan (SGRP), a
defined contribution plan. Upon establishment, substantially all employees of
The Sabre Group under the age of 40 at December 31, 1996 and all new employees
began participating in the SGRP. Costs for the SGRP were $16 million and $11
million in 1998 and 1997, respectively.
50
<PAGE> 52
10. RETIREMENT BENEFITS (CONTINUED)
In addition to pension benefits, other postretirement benefits, including
certain health care and life insurance benefits, are also provided to retired
employees. The amount of health care benefits is limited to lifetime maximums as
outlined in the plan. Substantially all employees of American and employees of
certain other subsidiaries may become eligible for these benefits if they
satisfy eligibility requirements during their working lives.
Certain employee groups make contributions toward funding a portion of
their retiree health care benefits during their working lives. AMR funds
benefits as incurred and makes contributions to match employee prefunding.
The following table provides a reconciliation of the changes in the
plans' benefit obligations and fair value of assets for the years ended December
31, 1998 and 1997, and a statement of funded status as of December 31, 1998 and
1997 (in millions):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
--------------------- ---------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Reconciliation of benefit obligation
Obligation at January 1 $ 5,825 $ 5,166 $ 1,398 $ 1,213
Service cost 224 189 57 48
Interest cost 430 403 103 95
Actuarial loss 330 475 81 109
Benefit payments (464) (408) (66) (67)
Settlements (16) -- -- --
------- ------- ------- -------
Obligation at December 31 $ 6,329 $ 5,825 $ 1,573 $ 1,398
======= ======= ======= =======
Reconciliation of fair value of plan assets
Fair value of plan assets at January 1 $ 5,219 $ 4,617 $ 56 $ 39
Actual return on plan assets 858 977 5 8
Employer contributions 78 33 76 76
Benefit payments (464) (408) (66) (67)
Settlements (16) -- -- --
------- ------- ------- -------
Fair value of plan assets at December 31 $ 5,675 $ 5,219 $ 71 $ 56
======= ======= ======= =======
Funded status
Accumulated benefit obligation (ABO) $ 5,187 $ 4,859 $ 1,573 $ 1,398
Projected benefit obligation (PBO) 6,329 5,825 -- --
Fair value of assets 5,675 5,219 71 56
Funded status at December 31 (654) (606) (1,502) (1,342)
Unrecognized loss (gain) 709 788 (101) (179)
Unrecognized prior service cost 68 63 (46) (52)
Unrecognized transition asset (11) (20) -- --
------- ------- ------- -------
Prepaid (accrued) benefit cost $ 112 $ 225 $(1,649) $(1,573)
======= ======= ======= =======
</TABLE>
At December 31, 1998 and 1997, plan assets of approximately $111 million
and $92 million, respectively, were invested in shares of mutual funds managed
by a subsidiary of AMR.
51
<PAGE> 53
10. RETIREMENT BENEFITS (CONTINUED)
The following tables provide the components of net periodic benefit cost
for the years ended December 31, 1998, 1997 and 1996 (in millions):
<TABLE>
<CAPTION>
Pension Benefits
-----------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Components of net periodic benefit cost
Defined benefit plans:
Service cost $ 224 $ 189 $ 204
Interest cost 430 403 375
Expected return on assets (486) (429) (422)
Amortization of:
Transition asset (11) (11) (11)
Prior service cost 4 4 4
Unrecognized net loss 24 27 16
Settlement loss 6 -- --
----- ----- -----
Net periodic benefit cost for defined benefit
plans 191 183 166
Defined contribution plans 174 153 132
----- ----- -----
Total $ 365 $ 336 $ 298
===== ===== =====
</TABLE>
<TABLE>
<CAPTION>
Other Benefits
-----------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Components of net periodic benefit cost
Service cost $ 57 $ 48 $ 58
Interest cost 103 95 102
Expected return on assets (6) (4) (3)
Amortization of:
Prior service cost (5) (5) (5)
Unrecognized net gain (2) (9) --
----- ----- -----
Net periodic benefit cost $ 147 $ 125 $ 152
===== ===== =====
</TABLE>
The following table provides the amounts recognized in the consolidated
balance sheets as of December 31, 1998 and 1997 (in millions):
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
--------------------- ---------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Prepaid benefit cost $ 297 $ 377 $ -- $ --
Accrued benefit liability (185) (152) (1,649) (1,573)
Additional minimum liability (13) (11) -- --
Intangible asset 7 5 -- --
Accumulated other comprehensive income 6 6 -- --
------- ------- ------- -------
Net amount recognized $ 112 $ 225 $(1,649) $(1,573)
======= ======= ======= =======
</TABLE>
52
<PAGE> 54
10. RETIREMENT BENEFITS (CONTINUED)
The following assumptions were used by the Company in the measurement of
the benefit obligation as of December 31:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted-average assumptions
Discount rate 7.00% 7.25% 7.00% 7.25%
Salary scale 4.32 4.19 -- --
Expected return on plan assets 9.50 9.50 9.50 9.50
</TABLE>
The assumed health care cost trend rate was five percent in 1998 and
1997, decreasing gradually to an ultimate rate of four percent by 2001.
A one percentage point change in the assumed health care cost trend rates
would have the following effects (in millions):
<TABLE>
<CAPTION>
One percent One percent
increase decrease
----------- -----------
<S> <C> <C>
Impact on 1998 service and interest cost $ 23 $ (24)
Impact on postretirement benefit obligation
as of December 31, 1998 $ 141 $(148)
</TABLE>
53
<PAGE> 55
11. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share (in millions, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
NUMERATOR:
Numerator for basic earnings per share
-earnings from continuing operations before
extraordinary loss $ 1,306 $ 973 $ 1,083
Effect of dilutive securities:
Interest upon assumed conversion of
convertible subordinated debentures, net
of tax -- -- 14(a)
Dividends upon assumed conversion of
convertible preferred stock -- -- 1(a)
------- ------- -------
-- -- 15
Numerator for diluted earnings per
share - earnings from continuing operations
before extraordinary loss $ 1,306 $ 973 $ 1,098
======= ======= =======
DENOMINATOR:
Denominator for basic earnings per share -
weighted-average shares 169 178 172
Effect of dilutive securities:
Convertible subordinated debentures -- -- 8
Convertible preferred stock -- -- 1
Employee options and shares 13 14 7
Assumed treasury shares purchased (7) (9) (4)
------- ------- -------
Dilutive potential common shares 6 5 12
Denominator for diluted earnings per share -
adjusted weighted-average shares 175 183 184
======= ======= =======
Basic earnings per share from continuing
operations before extraordinary loss $ 7.73 $ 5.45 $ 6.29
======= ======= =======
Diluted earnings per share from continuing
operations before extraordinary loss $ 7.48 $ 5.32 $ 5.95
======= ======= =======
</TABLE>
(a) Through date of actual conversion
54
<PAGE> 56
12. DISCONTINUED OPERATIONS
In September 1998, the Company announced plans to sell three of the
companies within the Management Services Group that accounted for a substantial
portion of that group's revenues and operating income: AMR Services, AMR Combs
and TeleService Resources. As of December 31, 1998, the Company had reached
agreements to sell all three companies and expects to complete the sales by the
end of the first quarter or early part of the second quarter of 1999. As a
result of the sales, the Company expects to record a significant gain during the
first quarter of 1999.
The results of operations for AMR Services, AMR Combs and TeleService
Resources have been reflected in the consolidated statements of operations as
discontinued operations. The amounts shown are net of income taxes of
approximately $6.7 million, $9.7 million and $14.8 million for 1998, 1997 and
1996, respectively. Revenues from the operations of AMR Services, AMR Combs and
TeleService Resources were $513 million, $517 million and $519 million for 1998,
1997 and 1996, respectively.
13. GAIN ON SALE OF STOCK BY SUBSIDIARY
During October 1996, The Sabre Group completed an initial public offering
of 23,230,000 shares of Sabre Common Stock, representing 17.8 percent of its
economic interest, at $27 per share for net proceeds of approximately $589
million. This transaction resulted in a reduction of the Company's economic
interest in The Sabre Group from 100 percent to 82.2 percent. In accordance with
the Company's policy of recognizing gains or losses on the sale of a
subsidiary's stock based on the difference between the offering price and the
Company's carrying amount of such stock, the Company recorded a $497 million
gain. The issuance of stock by The Sabre Group was not subject to federal income
taxes. In accordance with Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," no income tax expense was recognized on the gain.
14. OTHER INCOME (EXPENSE) - MISCELLANEOUS
Other income (expense) - miscellaneous, net included the following (in
millions):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Minority interest $ (40) $ (36) $ (2)
Canadian Airlines charges -- -- (251)
Litigation settlement/judgment 14 -- (21)
Other, net (20) 13 (12)
----- ----- -----
$ (46) $ (23) $(286)
===== ===== =====
</TABLE>
During 1996, the Company determined that the decline in the value of its
investment in the cumulative mandatorily redeemable convertible preferred stock
of Canadian was not temporary and, in accordance with Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," recorded a $192 million charge to write-off the investment.
Additionally, the Company recorded a charge of $59 million to write-off certain
deferred costs relating to the Company's agreement to provide a variety of
services to Canadian.
55
<PAGE> 57
15. SEGMENT REPORTING
AMR's operations fall within two lines of business: the Airline Group and
The Sabre Group. The Airline Group consists primarily of American, one of the
largest scheduled passenger airlines and air freight carriers in the world, and
AMR Eagle Holding Corporation (AMR Eagle), a separate subsidiary of AMR. At
December 31, 1998, AMR Eagle owns two regional airlines which operate as
"American Eagle", and provide connecting service to American. The Sabre Group
provides electronic distribution of travel through its Sabre(R) computer
reservations system and information technology solutions to the travel and
transportation industries.
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131). SFAS 131 supersedes SFAS 14, "Financial Reporting for Segments of a
Business Enterprise," and requires that a public company report annual and
interim financial and descriptive information about its reportable operating
segments pursuant to criteria that differ from current accounting practice.
Operating segments, as defined, are components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance.
The Company evaluates performance and allocates resources based upon
segment operating income, which is defined as income before interest, other
non-operating income and expense and income taxes. The accounting policies of
the reportable segments are the same as those described in the summary of
significant accounting policies. The Company accounts for substantially all
intersegment transactions at amounts which approximate current market prices.
Financial information by reportable segment is as follows (in millions):
<TABLE>
<CAPTION>
Airline The Sabre
Group Group Total
------- --------- -------
<S> <C> <C> <C>
December 31, 1998
Revenues from external customers $17,396 $ 1,732 $19,128
Intersegment revenues 53 574 627
Operating income 1,951 350 2,301
Depreciation and amortization expense 1,038 248 1,286
Capital expenditures 2,340 320 2,660
Segment assets 19,582 1,927 21,509
December 31, 1997
Revenues from external customers $16,856 $ 1,263 $18,119
Intersegment revenues 47 526 573
Operating income 1,569 313 1,882
Depreciation and amortization expense 1,038 185 1,223
Capital expenditures 1,139 218 1,357
Segment assets 18,708 1,504 20,212
December 31, 1996
Revenues from external customers $16,170 $ 1,125 $17,295
Intersegment revenues 41 500 541
Operating income 1,442 330 1,772
Depreciation and amortization expense 1,018 165 1,183
Capital expenditures 338 184 522
Segment assets 18,519 1,287 19,806
</TABLE>
56
<PAGE> 58
15. SEGMENT REPORTING (CONTINUED)
The following provides a reconciliation of reportable segment revenues,
operating income and assets to the Company's consolidated financial statement
totals (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Revenues
Total external revenues for reportable segments $ 19,128 $ 18,119 $ 17,295
Intersegment revenues for reportable segments 627 573 541
Other revenues (1) 119 95 102
Elimination of intersegment revenues (669) (603) (574)
-------- -------- --------
Total consolidated revenues $ 19,205 $ 18,184 $ 17,364
======== ======== ========
Operating income
Total operating income for reportable segments $ 2,301 $ 1,882 $ 1,772
Other operating income 37 25 35
-------- -------- --------
Total consolidated operating income $ 2,338 $ 1,907 $ 1,807
======== ======== ========
Assets
Total assets for reportable segments $ 21,509 $ 20,212 $ 19,806
Other assets 285 241 241
Unallocated amounts:
Income tax assets 509 406 404
-------- -------- --------
Total consolidated assets $ 22,303 $ 20,859 $ 20,451
======== ======== ========
</TABLE>
(1) Revenues from segments below the quantitative threshold for
determining reportable segments consist primarily of revenues from
AMR Training Group, AMR Investment Services, Inc., Americas Ground
Services and Airline Management Services.
The Company's operating revenues by geographic region are summarized
below (in millions):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Domestic $13,546 $12,651 $11,979
Latin America 2,968 2,915 2,884
Europe 2,247 2,214 2,134
Pacific 444 404 367
------- ------- -------
Total consolidated revenues $19,205 $18,184 $17,364
======= ======= =======
</TABLE>
The Company attributes operating revenues by geographic region based upon
the origin and destination of each flight segment for the Airline Group and
location of customer for The Sabre Group.
The Company's tangible assets consist primarily of flight equipment which
is mobile across geographic markets and, therefore, has not been allocated.
57
<PAGE> 59
16. QUARTERLY FINANCIAL DATA (UNAUDITED)
Unaudited summarized financial data by quarter for 1998 and 1997 (in
millions, except per share amounts):
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
1998 (*)
Operating revenues $ 4,634 $ 4,924 $ 5,046 $ 4,601
Operating income 548 724 732 334
Income from continuing operations 285 408 431 182
Net earnings 290 409 433 182
Earnings per common share:
Basic
From continuing operations 1.65 2.37 2.56 1.12
Net earnings 1.68 2.38 2.57 1.12
Diluted
From continuing operations 1.59 2.29 2.48 1.09
Net earnings 1.62 2.30 2.49 1.09
1997 (*)
Operating revenues $ 4,323 $ 4,614 $ 4,706 $ 4,541
Operating income 340 580 607 380
Income from continuing operations 146 297 322 208
Net earnings 152 302 323 208
Earnings per common share:
Basic
From continuing operations 0.81 1.63 1.83 1.20
Net earnings 0.84 1.66 1.83 1.20
Diluted
From continuing operations 0.79 1.60 1.78 1.16
Net earnings 0.82 1.63 1.78 1.16
</TABLE>
(*) Results for 1997 and the first and second quarters of 1998 have been
restated for discontinued operations. The impact of the restated
amounts was not material to any given quarter.
58
<PAGE> 60
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
- --------------------------------------------------------------------------------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 19, 1999. Information concerning
the executive officers is included in Part I of this report on page 13.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 19, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 19, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference from the Company's definitive proxy statement
for the annual meeting of stockholders on May 19, 1999.
PART IV
- --------------------------------------------------------------------------------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following financial statements and Independent Auditors'
Report are filed as part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors 31
Consolidated Statements of Operations for the Years Ended
December 31, 1998, 1997 and 1996 32-33
Consolidated Balance Sheets at December 31, 1998 and 1997 34-35
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998, 1997 and 1996 36
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996 37
Notes to Consolidated Financial Statements 38-58
</TABLE>
<PAGE> 61
(2) The following financial statement schedule and Independent
Auditors' Report are filed as part of this report:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors 68
Schedule II Valuation and Qualifying Accounts and Reserves 69
</TABLE>
Schedules not included have been omitted because they are not
applicable or because the required information is included in the
consolidated financial statements or notes thereto.
(3) Exhibits required to be filed by Item 601 of Regulation S-K.
(Where the amount of securities authorized to be issued under any
of AMR's long-term debt agreements does not exceed 10 percent of
AMR's assets, pursuant to paragraph (b)(4) of Item 601 of
Regulation S-K, in lieu of filing such as an exhibit, AMR hereby
agrees to furnish to the Commission upon request a copy of any
agreement with respect to such long-term debt.)
<TABLE>
<CAPTION>
EXHIBIT
-------
<S> <C>
3.1 Restated Certificate of Incorporation of AMR, incorporated
by reference to AMR's Registration Statement on Form S-4,
file number 33-55191.
3.2 Bylaws of AMR, amended as of November 18, 1998.
10.1 Employment Agreement among AMR, American Airlines and
Robert L. Crandall, dated January 1, 1988, incorporated by
reference to Exhibit 10(t) to AMR's report on Form 10-Q for
the period ended March 31, 1988; amendments thereto
incorporated by reference to Exhibit 10(ff) to AMR's report
on Form 10-K for the year ended December 31, 1989, Exhibit
10(tt) to AMR's report on Form 10-K for the year ended
December 31, 1990, Exhibit 10(uu) to AMR's report on Form
10-Q for the period ended June 30, 1992, and Exhibit
10(ooo) to AMR's report on Form 10-Q for the period ended
March 31, 1995.
10.2 Amended and Restated Employment Agreement among AMR,
American Airlines and Robert L. Crandall, dated January 21,
1998, incorporated by reference to Exhibit 10.2 to AMR's
report on Form 10-K for the year ended December 31, 1997.
10.3 Compensation and Benefit Agreement relative to the
retirement of Robert L. Crandall, between AMR and Robert L.
Crandall, dated September 18, 1998.
10.4 Irrevocable Executive Trust Agreement, dated as of May 1,
1992, between AMR and Wachovia Bank of North Carolina N.A.,
incorporated by reference to Exhibit 10(vv) to AMR's report
on Form 10-K for the year ended December 31, 1992.
10.5 Deferred Compensation Agreement, dated April 14, 1973, as
amended March 1, 1975, between American and Robert L.
Crandall, incorporated by reference to Exhibit 10(c)(7) to
American's Registration Statement No. 2-76709.
10.6 Form of Executive's Termination Benefits Agreement
incorporated by reference to Exhibit 10(p) to AMR's report
on Form 10-K for the year ended December 31, 1985.
10.7 Management Severance Allowance, dated as of February 23,
1990, for levels 1-4 employees of American Airlines, Inc.,
incorporated by reference to Exhibit 10(oo) to AMR's report
on Form 10-K for the year ended December 31, 1989.
10.8 Management Severance Allowance, dated as of February 23,
1990, for level 5 and above employees of American Airlines,
Inc., incorporated by reference to Exhibit 10(pp) to AMR's
report on Form 10-K for the year ended December 31, 1989.
</TABLE>
60
<PAGE> 62
<TABLE>
<S> <C>
10.9 Description of informal arrangement relating to deferral of
payment of directors' fees, incorporated by reference to
Exhibit 10(c)(11) to American's Registration Statement No.
2-76709.
10.10 Directors Stock Equivalent Purchase Plan, incorporated by
reference to Exhibit 10(gg) to AMR's report on Form 10-K
for the year ended December 31, 1989.
10.11 Directors Stock Incentive Plan dated May 18, 1994, as
amended, incorporated by reference to Exhibit 10.9 to AMR's
report on Form 10-K for the year ended December 31, 1996.
10.13 Deferred Compensation Agreement, dated as of December 27,
1995, between AMR and Howard P. Allen, incorporated by
reference to Exhibit 10(sss) to AMR's report on Form 10-K
for the year ended December 31, 1995.
10.14 Deferred Compensation Agreement, dated as of January 31,
1990, between AMR and Edward A. Brennan, incorporated by
reference to Exhibit 10(hh) to AMR's report on Form 10-K
for the year ended December 31, 1989.
10.15 Deferred Compensation Agreement, dated as of June 1, 1998,
between AMR and Edward A. Brennan.
10.16 Deferred Compensation Agreement, dated as of February 7,
1996, between AMR and Armando M. Codina, incorporated by
reference to Exhibit 10(ttt) to AMR's report on Form 10-K
for the year ended December 31, 1995.
10.17 Deferred Compensation Agreement, dated as of February 10,
1997, between AMR and Armando M. Codina, incorporated by
reference to Exhibit 10.13 to AMR's report on Form 10-K for
the year ended December 31, 1996.
10.18 Deferred Compensation Agreement, dated as of February 19,
1998, between AMR and Armando M. Codina, incorporated by
reference to Exhibit 10.15 to AMR's report on Form 10-K for
the year ended December 31, 1997.
10.19 Deferred Compensation Agreement, dated as of January 13,
1999, between AMR and Armando M. Codina.
10.20 Deferred Compensation Agreement, dated as of February 9,
1996, between AMR and Charles T. Fisher, III, incorporated
by reference to Exhibit 10(uuu) to AMR's report on Form
10-K for the year ended December 31, 1995.
10.21 Deferred Compensation Agreement, dated as of January 30,
1997, between AMR and Charles T. Fisher, III, incorporated
by reference to Exhibit 10.15 to AMR's report on Form 10-K
for the year ended December 31, 1996.
10.22 Deferred Compensation Agreement, dated as of February 19,
1998, between AMR and Charles T. Fisher, III, incorporated
by reference to Exhibit 10.18 to AMR's report on Form 10-K
for the year ended December 31, 1997.
10.23 Deferred Compensation Agreement, dated as of February 16,
1999, between AMR and Charles T. Fisher, III.
</TABLE>
61
<PAGE> 63
<TABLE>
<S> <C>
10.24 Deferred Compensation Agreement, dated as of February 23,
1996, between AMR and Charles H. Pistor, Jr., incorporated
by reference to Exhibit 10(vvv) to AMR's report on Form
10-K for the year ended December 31, 1995.
10.25 Deferred Compensation Agreement, dated as of January 30,
1997, between AMR and Charles H. Pistor, Jr., incorporated
by reference to Exhibit 10.17 to AMR's report on Form 10-K
for the year ended December 31, 1996.
10.26 Deferred Compensation Agreement, dated as of February 19,
1998, between AMR and Charles H. Pistor, Jr., incorporated
by reference to Exhibit 10.21 to AMR's report on Form 10-K
for the year ended December 31, 1997.
10.27 Deferred Compensation Agreement, dated as of January 7,
1999, between AMR and Charles H. Pistor, Jr.
10.28 Deferred Compensation Agreement, dated as of July 16, 1997,
between AMR and Judith Rodin, incorporated by reference to
Exhibit 10.22 to AMR's report on Form 10-K for the year
ended December 31, 1997.
10.29 Deferred Compensation Agreement, dated as of February 19,
1998, between AMR and Judith Rodin, incorporated by
reference to Exhibit 10.23 to AMR's report on Form 10-K for
the year ended December 31, 1997.
10.30 Deferred Compensation Agreement, dated as of January 7,
1999, between AMR and Judith Rodin.
10.31 Description of American's Split Dollar Insurance Program,
dated December 28, 1977, incorporated by reference to
Exhibit 10(c)(1) to American's Registration Statement No.
2-76709.
10.32 AMR Corporation 1988 Long-Term Incentive Plan, incorporated
by reference to Exhibit 10(t) to AMR's report on Form 10-K
for the year ended December 31, 1988.
10.33 Amendment to AMR's 1988 Long-term Incentive Plan dated May
18, 1994, incorporated by reference to Exhibit A to AMR's
definitive proxy statement with respect to the annual
meeting of stockholders held on May 18, 1994.
10.34 AMR Corporation 1998 Long-Term Incentive Plan, as amended.
10.35 Form of Stock Option Agreement for Corporate Officers under
the AMR 1988 Long-Term Incentive Plan, incorporated by
reference to Exhibit 10(rr) to AMR's report on Form 10-K
for the year ended December 31, 1990.
10.36 Current form of Stock Option Agreement under the AMR 1988
Long-Term Incentive Plan, incorporated by reference to
Exhibit 10.28 to AMR's report on Form 10-K for the year
ended December 31, 1997.
10.37 Current form of Stock Option Agreement under the AMR 1998
Long-Term Incentive.
10.38 Form of Career Equity Program Agreement, incorporated by
reference to Exhibit 10(nnn) to AMR's report on Form 10-K
for the year ended December 31, 1994.
10.39 Current Form of Career Equity Program Deferred Stock Award
Agreement for Corporate Officers under the AMR 1988
Long-Term Incentive Plan, incorporated by reference to
Exhibit 10.30 to AMR's report on Form 10-K for the year
ended December 31, 1997.
</TABLE>
62
<PAGE> 64
<TABLE>
<S> <C>
10.40 Current form of Career Equity Program Deferred Stock Award
Agreement for non-officers under the AMR 1988 Long-Term
Incentive Plan, incorporated by reference to Exhibit 10.31
to AMR's report on Form 10-K for the year ended December
31, 1997.
10.41 Current Form of Career Equity Program Deferred Stock Award
Agreement for Corporate Officers under the AMR 1998
Long-Term Incentive Plan.
10.42 Current form of Career Equity Program Deferred Stock Award
Agreement for non-officers under the AMR 1998 Long-Term
Incentive Plan.
10.42(a) Current form of Career Equity Program Deferred Stock
Award Agreement for Senior Officers under the AMR 1998
Long-Term Incentive Plan.
10.43 Form of Guaranty to Career Equity Program under the AMR
1988 Long-Term Incentive Plan, incorporated by reference to
Exhibit 10(ccc) to AMR's report on Form 10-K for the year
ended December 31, 1993.
10.44 Performance Share Program for the years 1994 to 1996 under
the 1988 Long-term Incentive Program, incorporated by
reference to Exhibit 10(lll) to AMR's report on Form 10-K
for the year ended December 31, 1994.
10.45 Performance Share Program for the years 1995 to 1997 under
the 1988 Long-term Incentive Program, incorporated by
reference to Exhibit 10(ooo) to AMR's report on Form 10-K
for the year ended December 31, 1995.
10.46 Performance Share Program for the years 1996 to 1998 under
the 1988 Long-term Incentive Program, incorporated by
reference to Exhibit 10.26 to AMR's report on Form 10-K for
the year ended December 31, 1996.
10.47 Performance Share Program for the years 1997 to 1999 under
the 1988 Long-term Incentive Program, incorporated by
reference to Exhibit 10.27 to AMR's report on Form 10-K for
the year ended December 31, 1996.
10.48 Form of Performance Share Program for the years 1997 to
1999 under the 1988 Long-term Incentive Program,
incorporated by reference to Exhibit 10.37 to AMR's report
on Form 10-K for the year ended December 31, 1997.
10.49 Performance Share Program for the years 1998 to 2000 under
the 1988 Long-term Incentive Program, incorporated by
reference to Exhibit 10.38 to AMR's report on Form 10-K for
the year ended December 31, 1997.
10.50 Performance Share Program for the years 1999 to 2001 under
the 1998 Long-term Incentive Program
10.51 American Airlines, Inc. Supplemental Executive Retirement
Program, as amended January 1997, incorporated by reference
to Exhibit 10.28 to AMR's report on Form 10-K for the year
ended December 31, 1996.
10.52 AMR Corporation 1987 Executive Deferral Plan, as amended
through 1999.
10.53 American Airlines, Inc. 1996 Employee Profit Sharing Plan,
incorporated by reference to Exhibit 10.29 to AMR's report
on Form 10-K for the year ended December 31, 1996.
10.54 American Airlines, Inc. 1997 Employee Profit Sharing Plan,
incorporated by reference to Exhibit 10.30 to AMR's report
on Form 10-K for the year ended December 31, 1996.
</TABLE>
63
<PAGE> 65
<TABLE>
<S> <C>
10.55 American Airlines, Inc. 1998 Employee Profit Sharing Plan,
incorporated by reference to Exhibit 10.43 to AMR's report
on Form 10-K for the year ended December 31, 1997.
10.56 American Airlines, Inc. 1999 Employee Profit Sharing Plan.
10.57 American Airlines, Inc. 1996 Incentive Compensation Plan
for Officers and Key Employees, incorporated by reference
to Exhibit 10(qqq) to AMR's report on Form 10-K for the
year ended December 31, 1995.
10.58 American Airlines, Inc. 1997 Incentive Compensation Plan
for Officers and Key Employees, incorporated by reference
to Exhibit 10.32 to AMR's report on Form 10-K for the year
ended December 31, 1996.
10.59 American Airlines, Inc. 1998 Incentive Compensation Plan
for Officers and Key Employees, incorporated by reference
to Exhibit 10.46 to AMR's report on Form 10-K for the year
ended December 31, 1997.
10.60 American Airlines, Inc. 1999 Incentive Compensation Plan
for Officers and Key Employees.
10.61 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Gerard J.
Arpey, dated May 21, 1998.
10.62 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Robert W.
Baker, dated May 21, 1998.
10.63 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Peter M.
Bowler, dated May 21, 1998.
10.64 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Donald J.
Carty, dated May 21, 1998.
10.65 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Peter J.
Dolara, dated May 21, 1998.
10.66 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Daniel P.
Garton, dated May 21, 1998.
10.67 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Michael W.
Gunn, dated May 21, 1998.
10.68 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Thomas J.
Kiernan, dated May 21, 1998.
10.69 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and David L.
Kruse, dated May 21, 1998.
10.70 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Charles D.
MarLett, dated May 21, 1998.
10.71 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Anne H.
McNamara, dated May 21, 1998.
10.72 Aircraft Sales Agreement by and between American Airlines,
Inc. and Federal Express Corporation, dated April 7, 1995,
incorporated by reference to Exhibit 10(rrr) to AMR's
report on Form 10-K for the year ended December 31, 1995.
Confidential treatment was granted as to a portion of this
document.
</TABLE>
64
<PAGE> 66
<TABLE>
<S> <C>
10.73 Aircraft Purchase Agreement by and between American
Airlines, Inc. and The Boeing Company, dated October 31,
1997, incorporated by reference to Exhibit 10.48 to AMR's
report on Form 10-K for the year ended December 31, 1997.
Confidential treatment was granted as to a portion of this
document.
10.74 Aircraft Purchase Agreement by and between AMR Eagle
Holding Corporation and Bombardier Inc., dated January 31,
1998, incorporated by reference to Exhibit 10.49 to AMR's
report on Form 10-K for the year ended December 31, 1997.
Confidential treatment was granted as to a portion of this
document.
10.75 Aircraft Purchase Agreement by and between AMR Eagle, Inc.
and Embraer-Empresa Brasileira de Aeronautica S.A., dated
December 22, 1997, incorporated by reference to Exhibit
10.50 to AMR's report on Form 10-K for the year ended
December 31, 1997. Confidential treatment was granted as to
a portion of this document.
10.76 Aircraft Purchase Agreement by and between AMR Eagle
Holding Corporation and Embraer-Empresa Brasileira de
Aeronautica S.A., dated September 30, 1998. Confidential
treatment has been requested as to a portion of this
document.
10.77 The Sabre Group, Inc. Long-Term Incentive Plan,
incorporated by reference to Exhibit 10.25 to The Sabre
Group Holdings, Inc.'s Registration Statement on Form S-1,
file number 333-09747.
10.78 The Sabre Group, Inc. Directors' Stock Incentive Plan,
incorporated by reference to Exhibit 10.26 to The Sabre
Group Holdings, Inc.'s Registration Statement on Form S-1,
file number 333-09747.
10.79 Form of Executive Termination Benefits Agreement for The
Sabre Group, Inc., incorporated by reference to Exhibit
10.27 to The Sabre Group Holdings, Inc.'s Registration
Statement on Form S-1, file no. 333-09747.
12 Computation of ratio of earnings to fixed charges for the
years ended December 31, 1994, 1995, 1996, 1997 and 1998
21 Significant subsidiaries of the registrant as of December
31, 1998.
23 Consent of Independent Auditors.
27.1 Financial Data Schedule as of December 31, 1998.
27.2 Restated Financial Data Schedule as of December 31, 1997.
27.3 Restated Financial Data Schedule as of December 31, 1996.
</TABLE>
65
<PAGE> 67
(b) Reports on Form 8-K:
On October 22, 1998, AMR filed a report on Form 8-K relative to a press
release issued to report the Company's third quarter 1998 earnings and
to announce that the Company's board of directors authorized management
to repurchase additional shares of the Company's outstanding common
stock.
On November 19, 1998, AMR filed a report on Form 8-K relative to a press
release issued by American Airlines, Inc. to announce that American Airlines,
Inc. has signed a definitive merger agreement with Reno Air, Inc. to acquire
Reno Air, Inc. for a total cash consideration of $124 million.
On January 21, 1999, AMR filed a report on Form 8-K relative to a press
release issued to report the Company's fourth quarter and full year 1998
earnings.
On February 18, 1999, AMR filed a report on Form 8-K relative to a press
release issued by American Airlines, Inc. to report certain of the estimated
damages it had suffered as a consequence of the illegal job actions of the
Allied Pilots Association.
On February 24, 1999, AMR filed a report on Form 8-K to announce the
completion of the merger of American Airlines, Inc. and Reno Air, Inc.
On March 18, 1999, AMR filed a report on Form 8-K relative to a press
release issued to announce that the Company's board of directors has authorized
management to repurchase up to an additional $500 million of its outstanding
common stock and to report the estimated pre-tax earnings impact of the Allied
Pilots Association illegal job action during the first quarter of 1999.
66
<PAGE> 68
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.
AMR CORPORATION
/s/ Donald J. Carty
- -------------------------------------------------
Donald J. Carty
Chairman, President and Chief Executive Officer
(Principal Executive Officer)
/s/ Gerard J. Arpey
- -------------------------------------------------
Gerard J. Arpey
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
Date: March 19, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates noted:
Directors:
<TABLE>
<S> <C>
/s/ David L. Boren /s/ Ann D. McLaughlin
- --------------------------------------- ---------------------------------------
David L. Boren Ann D. McLaughlin
/s/ Edward A. Brennan /s/ Charles H. Pistor, Jr.
- --------------------------------------- ---------------------------------------
Edward A. Brennan Charles H. Pistor, Jr.
/s/ Armando M. Codina /s/ Joe M. Rodgers
- --------------------------------------- ---------------------------------------
Armando M. Codina Joe M. Rodgers
/s/ Earl G. Graves /s/ Judith Rodin
- --------------------------------------- ---------------------------------------
Earl G. Graves Judith Rodin
/s/ Dee J. Kelly /s/ Maurice Segall
- --------------------------------------- ---------------------------------------
Dee J. Kelly Maurice Segall
</TABLE>
Date: March 19, 1999
67
<PAGE> 69
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
AMR Corporation
We have audited the consolidated financial statements of AMR Corporation as of
December 31, 1998 and 1997, and for each of the three years in the period ended
December 31, 1998, and have issued our report thereon dated January 18, 1999,
except for the last paragraph of Note 2 and the last paragraph of Note 3, for
which the date is February 22, 1999. Our audits also included Schedule II -
Valuation and Qualifying Accounts and Reserves. This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this schedule based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
2121 San Jacinto
Dallas, Texas 75201
January 18, 1999, except for the last
paragraph of Note 2 and the
last paragraph of Note 3, for
which the date is February 22, 1999.
68
<PAGE> 70
AMR CORPORATION
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN MILLIONS)
<TABLE>
<CAPTION>
INCREASES SALES,
BALANCE CHARGED TO WRITE- RETIRE- BALANCE
AT INCOME OFFS MENTS AT
BEGINNING STATEMENT (NET OF AND END OF
OF YEAR ACCOUNTS PAYMENTS RECOVERIES) TRANSFERS YEAR
--------- ---------- -------- ----------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
Allowance for
obsolescence of inventories $203 $ 40 $ -- $ -- $(29) $214
Allowance for
uncollectible accounts 18 24 -- (11) -- 31
Booking fee cancellation
reserve 15 3 -- -- -- 18
Reserves for environmental
remediation costs 14 12 (3) -- -- 23
YEAR ENDED DECEMBER 31, 1997
Allowance for
obsolescence of inventories 212 36 -- -- (45) 203
Allowance for
uncollectible accounts 11 23 -- (16) -- 18
Booking fee cancellation
reserve 14 1 -- -- -- 15
Reserves for environmental
remediation costs 18 -- (4) -- -- 14
YEAR ENDED DECEMBER 31, 1996
Allowance for
obsolescence of inventories 249 23 -- -- (60) 212
Allowance for
uncollectible accounts 16 17 -- (22) -- 11
Booking fee cancellation
reserve 12 2 -- -- -- 14
Reserves for environmental
remediation costs 21 3 (6) -- -- 18
</TABLE>
69
<PAGE> 71
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
3.2 Bylaws of AMR, amended as of November 18, 1998.
10.3 Compensation and Benefit Agreement relative to the
retirement of Robert L. Crandall, between AMR and Robert L.
Crandall, dated September 18, 1998.
10.15 Deferred Compensation Agreement, dated as of June 1, 1998,
between AMR and Edward A. Brennan.
10.19 Deferred Compensation Agreement, dated as of January 13,
1999, between AMR and Armando M. Codina.
10.23 Deferred Compensation Agreement, dated as of February 16,
1999, between AMR and Charles T. Fisher, III.
10.27 Deferred Compensation Agreement, dated as of January 7,
1999, between AMR and Charles H. Pistor, Jr.
10.30 Deferred Compensation Agreement, dated as of January 7,
1999, between AMR and Judith Rodin.
10.34 AMR Corporation 1998 Long-Term Incentive Plan, as amended.
10.37 Current form of Stock Option Agreement under the AMR 1998
Long-Term Incentive.
10.41 Current Form of Career Equity Program Deferred Stock Award
Agreement for Corporate Officers under the AMR 1998
Long-Term Incentive Plan.
10.42 Current form of Career Equity Program Deferred Stock Award
Agreement for non-officers under the AMR 1998 Long-Term
Incentive Plan.
10.42(a) Current form of Career Equity Program Deferred Stock
Award Agreement for Senior Officers under the AMR 1998
Long-Term Incentive Plan.
10.50 Performance Share Program for the years 1999 to 2001 under
the 1998 Long-term Incentive Program
10.52 AMR Corporation 1987 Executive Deferral Plan, as amended
through 1999.
</TABLE>
<PAGE> 72
<TABLE>
<S> <C>
10.56 American Airlines, Inc. 1999 Employee Profit Sharing Plan.
10.60 American Airlines, Inc. 1999 Incentive Compensation Plan
for Officers and Key Employees.
10.61 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Gerard J.
Arpey, dated May 21, 1998.
10.62 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Robert W.
Baker, dated May 21, 1998.
10.63 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Peter M.
Bowler, dated May 21, 1998.
10.64 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Donald J.
Carty, dated May 21, 1998.
10.65 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Peter J.
Dolara, dated May 21, 1998.
10.66 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Daniel P.
Garton, dated May 21, 1998.
10.67 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Michael W.
Gunn, dated May 21, 1998.
10.68 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Thomas J.
Kiernan, dated May 21, 1998.
10.69 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and David L.
Kruse, dated May 21, 1998.
10.70 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Charles D.
MarLett, dated May 21, 1998.
10.71 Amended and Restated Executive Termination Benefits
Agreement between AMR, American Airlines and Anne H.
McNamara, dated May 21, 1998.
</TABLE>
<PAGE> 73
<TABLE>
<S> <C>
10.76 Aircraft Purchase Agreement by and between AMR Eagle
Holding Corporation and Embraer-Empresa Brasileira de
Aeronautica S.A., dated September 30, 1998. Confidential
treatment has been requested as to a portion of this
document.
12 Computation of ratio of earnings to fixed charges for the
years ended December 31, 1994, 1995, 1996, 1997 and 1998
21 Significant subsidiaries of the registrant as of December
31, 1998.
23 Consent of Independent Auditors.
27.1 Financial Data Schedule as of December 31, 1998.
27.2 Restated Financial Data Schedule as of December 31, 1997.
27.3 Restated Financial Data Schedule as of December 31, 1996.
</TABLE>
<PAGE> 1
EXHIBIT 3.2
AMR CORPORATION
BYLAWS
(As amended November 18, 1998)
ARTICLE I
Offices
The registered office of the corporation in the State of Delaware is to
be located in the City of Wilmington, County of New Castle. The corporation may
have other offices within and without the State of Delaware.
ARTICLE II
Meetings of Stockholders
Section l. Annual Meetings. An annual meeting of stockholders to elect
directors and to take action upon such other matters as may properly come before
the meeting shall be held on the third Wednesday in May of each year, or on such
other day, and at such time and at such place, within or without the State of
Delaware, as the board of directors or the chairman of the board may from time
to time fix.
Any stockholder wishing to bring a matter before an annual meeting must
notify the secretary of the corporation of such fact not less than sixty nor
more than ninety days before the date of the meeting. Such notice shall be in
writing and shall set forth the business proposed to be brought before the
meeting, shall identify the stockholder and shall disclose the stockholder's
interest in the proposed business.
<PAGE> 2
Section 2. Special Meetings. A special meeting of stockholders shall be
called by the secretary upon receipt of a request in writing of the board of
directors, the chairman of the board or the president. Any such meeting shall be
held at the principal business office of the corporation unless the board shall
name another place therefor, at the time specified by the body or persons
calling such meeting.
Section 3. Nominees For Election As Director. Nominations for election
as director, other than those made by or at the direction of the board of
directors, must be made by timely notice to the secretary, setting forth as to
each nominee the information required to be included in a proxy statement under
the proxy rules of the Securities and Exchange Commission. If such election is
to occur at an annual meeting of stockholders, notice shall be timely if it
meets the requirements of such proxy rules for proposals of security holders to
be presented at an annual meeting. If such election is to occur at a special
meeting of stockholders, notice shall be timely if received not less than ninety
days prior to such meeting.
Section 4. Notice of Meetings. Written notice of each meeting of
stockholders shall be given which shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by law, such notice shall
be mailed, postage prepaid, to each stockholder entitled to vote at such
meeting, at his address as it appears on the records of the corporation, not
less than ten nor more than sixty days before the date of the meeting. When a
meeting is adjourned to another time or place, notice need not be given of the
adjourned meeting if the time and place thereof are announced at the meeting at
which the adjournment is taken, unless the adjournment is for more than thirty
days or a new record date is
2
<PAGE> 3
fixed for the adjourned meeting, in which case a notice of the adjourned meeting
shall be given to each stockholder of record entitled to vote at the meeting.
Section 5. Chairman and Secretary at Meetings. At any meeting of
stockholders the chairman of the board, or in his absence, the president, or if
neither such person is available, then a person designated by the board of
directors, shall preside at and act as chairman of the meeting. The secretary,
or in his absence a person designated by the chairman of the meeting, shall act
as secretary of the meeting.
Section 6. Proxies. Each stockholder entitled to vote at a meeting of
stockholders may authorize another person or persons to act for him by proxy,
but no such proxy shall be voted or acted upon after three years from its date,
unless the proxy provides for a longer period.
Section 7. Quorum. At all meetings of the stockholders the holders of
one-third of the number of shares of the stock issued and outstanding and
entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum requisite for the election of directors and the transaction
of other business, except as otherwise provided by law or by the certificate of
incorporation or by any resolution of the board of directors creating any series
of Preferred Stock.
If holders of the requisite number of shares to constitute a quorum
shall not be present in person or represented by proxy at any meeting of
stockholders, the stockholders entitled to vote thereat, present in person or
represented by proxy, shall have the power to adjourn the meeting from time to
time until a quorum shall be present or represented. At any such adjourned
meeting at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified.
3
<PAGE> 4
Section 8. Voting. At any meeting of stockholders, except as otherwise
provided by law or by the certificate of incorporation or by any resolution of
the board of directors creating any series of Preferred Stock:
(a) Each holder of record of a share or shares of stock on the record
date for determining stockholders entitled to vote at such meeting shall be
entitled to one vote in person or by proxy for each share of stock so held.
(b) Directors shall be elected by a plurality of the votes cast by the
holders of Common Stock, present in person or by proxy.
(c) Each other question properly presented to any meeting of
stockholders shall be decided by a majority of the votes cast on the question
entitled to vote thereon.
(d) Elections of directors shall be by ballot but the vote upon any
other question shall be by ballot only if so ordered by the chairman of the
meeting or if so requested by stockholders, present in person or represented by
proxy, entitled to vote on the question and holding at least l0% of the shares
so entitled to vote.
Section 9. Action By Written Consent. Any stockholder seeking to act by
written consent of stockholders shall notify the secretary in writing of such
intent and shall request the board of directors to fix a record date for
determining the stockholders entitled to vote by consent. The notice shall
specify the actions sought to be taken and, if the election of one or more
individuals as director is sought, shall include as to each nominee the
information required to be included in a proxy statement under the proxy rules
of the Securities and Exchange Commission. Such record date shall not be more
than ten (10) days after the date upon which the resolution fixing the record
date is adopted by the board of directors.
4
<PAGE> 5
The board of directors shall promptly, but in all events within ten
(10) days after the date on which the written request for fixing a record date
was received by the secretary, adopt a resolution fixing the record date. If no
record date has been fixed by the board of directors within ten (10) days of the
date on which such a request is received, the record date for determining
stockholders entitled to vote by consent, when no prior action by the board of
directors is required by applicable law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken
was delivered to the corporation by delivery to its registered office in the
State of Delaware, its principal place of business, or any officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the board of directors and prior action by
the board of directors is required by applicable law, the record date for
determining stockholders entitled to vote by consent shall be at the close of
business on the date on which the board of directors adopts the resolution
taking such prior action.
Section l0. List of Stockholders. At least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder
shall be prepared. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where
5
<PAGE> 6
the meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof, and may be inspected by
any stockholder who is present.
Section ll. Judges of Election. Whenever a vote at a meeting of
stockholders shall be by ballot, or whenever written consent to action is
sought, the proxies and ballots or consents shall be received and taken charge
of, and all questions touching on the qualification of voters and the validity
of proxies and consents and the acceptance and rejection of votes shall be
decided by two judges of election. In the case of a meeting of stockholders,
such judges of election shall be appointed by the board of directors before or
at the meeting, and if no such appointment shall have been made, then by the
stockholders at the meeting. In the case of a solicitation of consents, such
judges of election shall be appointed by the board of directors on or before the
record date for determining the stockholders entitled to vote by consent, and if
no such appointment shall have been made, then by the chairman of the board or
the president. If for any reason either of the judges of election previously
appointed shall fail to attend or refuse or be unable to serve, a judge of
election in place of any so failing to attend or refusing or unable to serve,
shall be appointed by the board of directors, the stockholders at the meeting,
the chairman of the board or the president.
ARTICLE III
Directors: Number, Election, Etc.
Section l. Number. The board of directors shall consist of such number
of members, not less than three, as the board of directors may from time to time
determine by resolution, plus such additional persons as the holders of the
Preferred Stock may be entitled from time to time, pursuant to the provisions of
any resolution of the board of directors creating any series of Preferred Stock,
to elect to the board of directors.
6
<PAGE> 7
Section 2. Election, Term, Vacancies. Directors shall be elected each
year at the annual meeting of stockholders, except as hereinafter provided, and
shall hold office until the next annual election and until their successors are
duly elected and qualified. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a quorum.
Section 3. Resignation. Any director may resign at any time by giving
written notice of such resignation to the board of directors, the chairman of
the board, the president or the secretary. Any such resignation shall take
effect at the time specified therein or, if no time be specified, upon the
receipt thereof by the board of directors or one of the above-named officers
and, unless specified therein, the acceptance of such resignation shall not be
necessary to make it effective.
Section 4. Removal. Any director may be removed from office at any
time, with or without cause, by a vote of a majority of a quorum of the
stockholders entitled to vote at any regular meeting or at any special meeting
called for the purpose.
Section 5. Fees and Expenses. Directors shall receive such fees and
expenses as the board of directors shall from time to time prescribe.
7
<PAGE> 8
ARTICLE IV
Meetings of Directors
Section l. Regular Meetings. Regular meetings of the board of directors
shall be held at the principal office of the corporation, or at such other place
(within or without the State of Delaware), and at such time, as may from time to
time be prescribed by the board of directors or stockholders. A regular annual
meeting of the board of directors for the election of officers and the
transaction of other business shall be held on the same day as the annual
meeting of the stockholders or on such other day and at such time and place as
the board of directors shall determine. No notice need be given of any regular
meeting.
Section 2. Special Meetings. Special meetings of the board of directors
may be held at such place (within or without the State of Delaware) and at such
time as may from time to time be determined by the board of directors or as may
be specified in the call and notice of any meeting. Any such meeting shall be
held at the call of the chairman of the board, the president, a vice president,
the secretary, or two or more directors. Notice of a special meeting of
directors shall be mailed to each director at least three days prior to the
meeting date, provided that in lieu thereof, notice may be given to each
director personally or by telephone, or dispatched by telegraph, at least one
day prior to the meeting date.
Section 3. Waiver of Notice. In lieu of notice of meeting, a waiver
thereof in writing, signed by the person or persons entitled to said notice
whether before or after the time stated therein, shall be deemed equivalent
thereto. Any director present in person at a meeting of the board of directors
shall be deemed to have waived notice of the time and place of meeting.
8
<PAGE> 9
Section 4. Action Without Meeting. Unless otherwise restricted by the
certificate of incorporation, any action required or permitted to be taken at
any meeting of the board of directors or of any committee thereof may be taken
without a meeting if all members of the board of directors or of such committee,
as the case may be, consent thereto in writing, and the writing or writings are
filed with the minutes of the proceedings of the board of directors or of such
committee.
Section 5. Quorum. At all meetings of the board, one-third of the total
number of directors shall constitute a quorum for the transaction of business.
The act of a majority of the directors present at any meeting at which there is
a quorum shall be the act of the board of directors, except as may be otherwise
specifically provided by law.
If at any meeting there is less than a quorum present, a majority of
those present (or if only one be present, then that one), may adjourn the
meeting from time to time without further notice other than announced at the
meeting until a quorum is present. At such adjourned meeting at which a quorum
is present, any business may be transacted which might have been transacted at
the meeting as originally scheduled.
Section 6. Business Transacted. Unless otherwise indicated in the
notice of meeting or required by law, the certificate of incorporation or bylaws
of the corporation, any and all business may be transacted at any directors'
meeting.
ARTICLE V
Powers of the Board of Directors
The management of all the property and business of the corporation and
the regulation and government of its affairs shall be vested in the board of
directors. In addition to the powers and authorities by these bylaws and the
certificate of incorporation expressly conferred on them, the board
9
<PAGE> 10
of directors may exercise all such powers of the corporation and do all such
lawful acts and things as are not by law, or by the certificate of incorporation
or by these bylaws directed or required to be exercised or done by the
stockholders.
ARTICLE VI
Committees
Section l. Executive Committee. The board of directors may, by
resolution passed by a majority of the whole board, designate an executive
committee, to consist of three or more members. The chief executive officer plus
one other member of the executive committee shall constitute a quorum.
The executive committee shall have and may exercise all the powers and
authority of the board of directors in the management of the business and
affairs of the corporation, with the exception of such powers and authority as
may be specifically reserved to the board of directors by law or by resolution
adopted by the board of directors.
Section 2. Audit Committee. The board of directors may, by resolution
passed by a majority of the whole board, designate an audit committee, to
consist of three or more members, none of the members of which shall be
employees or officers of the corporation. A majority of the members of the audit
committee shall constitute a quorum.
The audit committee shall from time to time review and make
recommendations to the board of directors with respect to the selection of
independent auditors, the fees to be paid such auditors, the adequacy of the
audit and accounting procedures of the corporation, and such other matters as
may be specifically delegated to the committee by the board of directors. In
this connection the audit committee shall, at its request, meet with
representatives of the independent auditors and with the financial officers of
the corporation separately or jointly.
10
<PAGE> 11
Section 3. Compensation Committee. The board of directors may, by
resolution passed by a majority of the whole board, designate a compensation
committee, to consist of three or more members of the board of directors, except
that no member of the compensation committee may (i) be an employee or officer
of the corporation or (ii) maintain a relationship with the Corporation that
would cause such member to be ineligible for membership on the compensation
committee pursuant to rules or regulations adopted by the Securities and
Exchange Commission, the Internal Revenue Service or any other governmental
agency. A majority of the members of the compensation committee shall constitute
a quorum.
The compensation committee shall from time to time review and make
recommendations to the board of directors with respect to the management
remuneration policies of the corporation including but not limited to salary
rates and fringe benefits of elected officers, other remuneration plans such as
incentive compensation, deferred compensation and stock option plans, directors'
compensation and benefits and such other matters as may be specifically
delegated to the committee by the board of directors.
Section 4. Nominating/Governance Committee. The board of directors may,
by resolution passed by a majority of the whole board, designate a nominating
and governance committee, to consist of three or more members, none of the
members of which shall be employees or officers of the corporation. A majority
of the members of the nominating and governance committee shall constitute a
quorum.
The nominating and governance committee shall make recommendations to
the board of directors (i) concerning suitable candidates for election to the
board, (ii) with respect to assignments
11
<PAGE> 12
to board committees, (iii) with respect to promotions, changes and succession
among the senior management of the corporation and (iv) concerning practices and
procedures for the proper and efficient management of the board of directors.
The nominating and governance committee shall perform such other duties as may
be specifically delegated to the committee by the board of directors.
Section 5. Committee Procedure, Seal.
(a) The executive, compensation, nominating and governance and audit
committees shall keep regular minutes of their meetings, which shall be reported
to the board of directors, and shall fix their own rules of procedures.
(b) The executive, compensation, nominating and governance and audit
committees may each authorize the seal of the corporation to be affixed to all
papers which may require it.
(c) In the absence or disqualification of a member of any committee,
the members of that committee present at any meeting and not disqualified from
voting, whether or not constituting a quorum, may unanimously appoint another
member of the board of directors to act at the meeting in the place of such
absent or disqualified member.
Section 6. Special Committees. The board of directors may, from time to
time, by resolution passed by a majority of the whole board, designate one or
more special committees. Each such committee shall have such duties and may
exercise such powers as are granted to it in the resolution designating the
members thereof. Each such committee shall fix its own rules of procedure.
12
<PAGE> 13
ARTICLE VII
Indemnification
Section l. Nature of Indemnity. The corporation shall indemnify any
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative by reason of the fact that he is or
was or has agreed to become a director or officer of the corporation, or is or
was serving or has agreed to serve at the request of the corporation as a
director or officer, of another corporation, partnership, joint venture, trust
or other enterprise, or by reason of any action alleged to have been taken or
omitted in such capacity, and may indemnify any person who was or is a party or
is threatened to be made a party to such an action by reason of the fact that he
is or was or has agreed to become an employee or agent of the corporation, or is
or was serving or has agreed to serve at the request of the corporation as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal action or proceeding had no reasonable cause to believe his
conduct was unlawful; except that in the case of an action or suit by or in the
right of the corporation to procure a judgment in its favor (l) such
indemnification shall be limited to expenses (including attorneys' fees)
actually and reasonably incurred by such person in the defense or settlement of
such action or suit, and (2) no indemnification shall be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable to the corporation unless and only to the extent that the Delaware Court
of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which the Delaware Court of Chancery or
such other court shall deem proper.
13
<PAGE> 14
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
Section 2. Successful Defense. To the extent that a director, officer,
employee or agent of the corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section l
hereof or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
Section 3. Determination That Indemnification Is Proper.
(a) Any indemnification of a director or officer of the corporation
under Section l hereof (unless ordered by a court) shall be made by the
corporation unless a determination is made that indemnification of the director
or officer is not proper in the circumstances because he has not met the
applicable standard of conduct set forth in Section l hereof. Such determination
shall be made, with respect to a director or officer, (1) by a majority vote of
the directors who are not parties to such action, suit or proceeding, even
though less than a quorum, or (2) by a committee of such directors designated by
a majority vote of such directors, even though less than a quorum, or (3) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (4) by the stockholders.
14
<PAGE> 15
(b) Any indemnification of an employee or agent of the corporation (who
is not also a director or officer of the corporation) under Section l hereof
(unless ordered by a court) may be made by the corporation upon a determination
that indemnification of the employee or agent is proper in the circumstances
because such person has met the applicable standard of conduct set forth in
Section l hereof. Such determination, in the case of an employee or agent, may
be made (1) in accordance with the procedures outlined in the second sentence of
Section 3(a), or (2) by an officer of the corporation, upon delegation of such
authority by a majority of the Board of Directors.
Section 4. Advance Payment of Expenses. Expenses (including attorneys'
fees) incurred by a director or officer in defending any civil, criminal,
administrative or investigative action, suit or proceeding shall be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding upon receipt of an undertaking by or on behalf of the director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the corporation as authorized in this Article.
Such expenses (including attorneys' fees) incurred by other employees and agents
may be so paid upon such terms and conditions, if any, as the corporation deems
appropriate. The board of directors may authorize the corporation's counsel to
represent a director, officer, employee or agent in any action, suit or
proceeding, whether or not the corporation is a party to such action, suit or
proceeding.
Section 5. Procedure for Indemnification of Directors or Officers. Any
indemnification of a director or officer of the corporation under Sections l and
2, or advance of costs, charges and expenses of a director or officer under
Section 4 of this Article, shall be made promptly, and in any event within 60
days, upon the written request of the director or officer. If the corporation
fails to respond within 60 days, then the request for indemnification shall be
deemed to be approved. The right to indemnification or advances as granted by
this Article shall be enforceable by the director
15
<PAGE> 16
or officer in any court of competent jurisdiction if the corporation denies such
request, in whole or in part. Such person's costs and expenses incurred in
connection with successfully establishing his right to indemnification, in whole
or in part, in any such action shall also be indemnified by the corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for the advance of costs, charges and expenses under Section 4 of this
Article where the required undertaking, if any, has been received by the
corporation) that the claimant has not met the standard of conduct set forth in
Section l of this Article, but the burden of proving such defense shall be on
the corporation. Neither the failure of the corporation (including its board of
directors or a committee thereof, its independent legal counsel, and its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in Section l of
this Article, nor the fact that there has been an actual determination by the
corporation (including its board of directors or a committee thereof, its
independent legal counsel, and its stockholders) that the claimant has not met
such applicable standard of conduct, shall be a defense to the action or create
a presumption that the claimant has not met the applicable standard of conduct.
Section 6. Survival; Preservation of Other Rights.
The foregoing indemnification provisions shall be deemed to be a
contract between the corporation and each director, officer, employee and agent
who serves in such capacity at any time while these provisions as well as the
relevant provisions of the Delaware Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a
16
<PAGE> 17
"contract right" may not be modified retroactively without the consent of such
director, officer, employee or agent.
The indemnification provided by this Article VII shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person.
Section 7. Insurance. The corporation shall purchase and maintain
insurance on behalf of any person who is or was or has agreed to become a
director or officer of the corporation, or is or was serving at the request of
the corporation as a director or officer of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him or on his behalf in any such capacity, or arising out of
his status as such, whether or not the corporation would have the power to
indemnify him against such liability under the provisions of this Article,
provided that such insurance is available on acceptable terms, which
determination shall be made by a vote of a majority of the entire board of
directors.
Section 8. Savings Clause. If this Article or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director or officer and may
indemnify each employee or agent of the corporation as to costs, charges and
expenses (including attorneys' fees), judgments, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the corporation, to the full extent permitted by any applicable portion
of this Article that shall not have been invalidated and to the full extent
permitted by applicable law.
17
<PAGE> 18
ARTICLE VIII
Officers
Section l. General. The officers of the corporation shall be the
chairman of the board, president, one or more vice presidents (including
executive vice presidents and senior vice presidents), a secretary, a
controller, a treasurer, and such other subordinate officers as may from time to
time be designated and elected by the board of directors.
Section 2. Other Offices. The chairman of the board shall be chosen by
the board of directors from among their own number. The other officers of the
corporation may or may not be directors.
Section 3. Term. Officers of the corporation shall be elected by the
board of directors and shall hold their respective offices during the pleasure
of the board and any officer may be removed at any time, with or without cause,
by a vote of the majority of the directors. Each officer shall hold office from
the time of his appointment and qualification until the next annual election of
officers or until his earlier resignation or removal except that upon election
thereof a shorter term may be designated by the board of directors. Any officer
may resign at any time upon written notice to the corporation.
Section 4. Compensation. The compensation of officers of the
corporation shall be fixed, from time to time, by the board of directors.
Section 5. Vacancy. In case any office becomes vacant by death,
resignation, retirement, disqualification, removal from office, or any other
cause, the board of directors may abolish the office (except that of president,
secretary and treasurer) or elect an officer to fill such vacancy.
18
<PAGE> 19
ARTICLE IX
Duties of Officers
Section l. Chairman of the Board, President. The chairman of the board
shall be the chief executive officer of the corporation. He shall have general
supervisory powers over all other officers, employees and agents of the
corporation for the proper performance of their duties and shall otherwise have
the general powers and duties of supervision and management usually vested in
the chief executive officer of a corporation. The president shall have the
general powers and duties of supervision and management of the corporation as
the chairman shall assign. The chairman of the board shall preside at and act as
chairman of all meetings of the board of directors. The president shall preside
at any meeting of the board of directors in the event of the absence of the
chairman of the board. The offices of chairman of the board and president may be
filled by the same individual.
Section 2. Vice Presidents. Each vice president shall perform such
duties as shall be assigned to him by the board of directors, the chairman of
the board or the president.
Section 3. Secretary. The secretary shall record all proceedings of the
meetings of the corporation, its stockholders and the board of directors and
shall perform such other duties as shall be assigned to him by the board of
directors, the chairman of the board, or the president. Any part or all of the
duties of the secretary may be delegated to one or more assistant secretaries.
Section 4. Controller. The controller shall perform such duties as
shall be assigned to him by the chairman of the board, the president or such
vice president as may be responsible for financial matters. Any or all of the
duties of the controller may be delegated to one or more assistant controllers.
19
<PAGE> 20
Section 5. Treasurer. The treasurer shall, under the direction of the
chairman of the board, the president or such vice president as may be
responsible for financial matters, have the custody of the funds and securities
of the corporation, subject to such regulations as may be imposed by the board
of directors. He shall deposit, or have deposited, all monies and other valuable
effects in the name and to the credit of the corporation in such depositories as
may be designated by the board of directors or as may be designated by the
appropriate officers pursuant to a resolution of the board of directors. He
shall disburse, or have disbursed, the funds of the corporation as may be
ordered by the board of directors or properly authorized officers, taking proper
vouchers therefor. If required by the board of directors he shall give the
corporation bond in such sum and in such form and with such security as may be
satisfactory to the board of directors, for the faithful performance of the
duties of his office. He shall perform such other duties as shall be assigned to
him by the board of directors, the chairman of the board, the president or such
vice president as may be responsible for financial matters. Any or all of the
duties of the treasurer may be delegated to one or more assistant treasurers.
Section 6. Other Officers' Duties. Each other officer shall perform
such duties and have such responsibilities as may be delegated to him by the
superior officer to whom he is made responsible by designation of the chairman
of the board or the president.
Section 7. Absence or Disability. The board of directors or the
chairman of the board may delegate the powers and duties of any absent or
disabled officer to any other officer or to any director for the time being. In
the event of the absence or temporary disability of the chairman of the board,
the president shall assume his powers and duties while he is absent or so
disabled.
20
<PAGE> 21
ARTICLE X
Stock
Section l. Certificates. Certificates of stock of the corporation shall
be signed by, or in the name of the corporation by, the chairman of the board,
the president or a vice president, and by the treasurer or an assistant
treasurer, or the secretary or an assistant secretary of the corporation. If
such certificate is countersigned, (l) by a transfer agent other than the
corporation or its employee, or (2) by a registrar other than the corporation or
its employee, then any other signature on the certificate may be a facsimile. In
case any officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent, or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue.
Section 2. Transfers. Shares of stock shall be transferable on the
books of the corporation by the holder of record thereof in person or by his
attorney upon surrender of such certificate with an assignment endorsed thereon
or attached thereto duly executed and with such proof of authenticity of
signatures as the corporation may reasonably require. The board of directors may
from time to time appoint such transfer agents or registrars as it may deem
advisable and may define their powers and duties. Any such transfer agent or
registrar need not be an employee of the corporation.
Section 3. Record Holder. The corporation may treat the holder of
record of any shares of stock as the complete owner thereof entitled to receive
dividends and vote such shares, and accordingly shall not be bound to recognize
any interest in such shares on the part of any other person, whether or not it
shall have notice thereof.
21
<PAGE> 22
Section 4. Lost and Damaged Certificates. The corporation may issue a
new certificate of stock to replace a certificate alleged to have been lost,
stolen, destroyed or mutilated upon such terms and conditions as the board of
directors may from time to time prescribe.
Section 5. Fixing Record Date. In order that the corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the board of directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action.
ARTICLE XI
Miscellaneous
Section l. Fiscal Year. The fiscal year of the corporation shall begin
upon the first day of January and termi- nate upon the 3lst day of December, in
each year.
Section 2. Stockholder Inspection of Books and Records. The board of
directors from time to time shall determine whether and to what extent and at
what times and places and under what conditions and regulations the accounts and
books of the corporation, or any of them, shall be open to the inspection of a
stockholder and no stockholder shall have any right to inspect any account, book
or document of the corporation except as conferred by statute or authorized by
resolution of the board of directors.
Section 3. Seal. The corporate seal shall be circular in form and have
inscribed thereon the name of the corporation and the words "Corporate Seal,
Delaware."
22
<PAGE> 23
ARTICLE XII
Amendments to Bylaws
Subject to the provisions of any resolution of the board of directors
creating any series of Preferred Stock, the board of directors shall have power
from time to time to make, alter or repeal bylaws, but any bylaws made by the
board of directors may be altered, amended or repealed by the stockholders at
any annual meeting of stockholders, or at any special meeting provided that
notice of such proposed alteration, amendment or repeal is included in the
notice of such special meeting.
23
<PAGE> 1
EXHIBIT 10.3
PERSONAL & CONFIDENTIAL
September 18, 1998
R. L. Crandall
This letter will confirm the mutual agreement between you and the Compensation
Committee of the Board of Directors of AMR Corporation ("AMR" or the "Company")
relating to the compensation and benefit arrangements relative to your
retirement from AMR.
Cash Compensation
Your last day of work was May 20, 1998. You will remain on payroll at your
current annual base salary through December 31, 1998, at which time you will
convert to retiree status.
Incentive Compensation Award
In accordance with the 1998 American Airlines Incentive Compensation Plan, you
will be eligible to receive your target award (100% of base salary through
December 31, 1998), adjusted for Company performance, if awards are paid in 1999
to the senior officers of the Company. The award will be determined by the AMR
Compensation Committee.
Performance Return Award
In accordance with the Career Equity Program, you will be eligible to receive a
1998 Performance Return Payment, to the extent such payments are awarded to
senior officers of the Company in 1998. The amount of your payment will be
determined by the Compensation Committee.
Deferred Compensation
a) Executive Deferral Plan
You elected to defer compensation in 1983, 1984 and 1986. Your balances as of
December 31, 1997 and your payment elections are reflected below:
<TABLE>
<CAPTION>
Balance # of Annual Date Payments
Year @ 12/31/97 Payments Begin
---- -------------- ----------- -------------
<S> <C> <C> <C>
1983 $ 438,569.11 5 March 1, 1999
1984 647,091.52 5 March 1, 1999
1986 720,541.04 5 March 1, 1999
--------------
Total $1,806,201.67
</TABLE>
1
<PAGE> 2
Deferred Compensation (cont'd)
b) 1973 Deferred Compensation Agreement, as amended 1975
Pursuant to the agreement dated April 14, 1973, between you and American
Airlines, American will pay you deferred compensation at a monthly rate of 10%
of your average monthly salary from American during the last three years of your
employment. Such deferred compensation will be paid for a period of 23 months
commencing the first day of the month following the termination of your status
as an officer, i.e., June 1, 1998:
<TABLE>
<S> <C>
Estimated Value as of June 1,1998:
Earnings June 1995-May 1998 $2,258,330
Divided by 36 months $62,731.39
----------
Multiplied by 10% = 23 payments each of: $ 6,273.14
----------
</TABLE>
Stock Based Compensation
a) Rabbi Trust
On February 5, 1998 you made an election in writing (pursuant to Paragraph
1.1(c) of Schedule A of the Amended and Restated Employment Agreement dated
January 21, 1998) to voluntarily defer receipt of the assets contained in the
Rabbi Trust created by the Irrevocable Executive Trust Agreement, as amended and
restated as of May 1, 1992. You elected to be paid on the first business day of
January in 11 consecutive annual installments, commencing January 4, 1999. The
installments will be paid in the following order and amounts: (i) a first
installment of $1,000,000; (ii) nine succeeding installments each of $2,000,000;
and (iii) a final installment equal to the balance due in a lump sum.
b) Stock Options
As of May 1, 1998 you had exercised all of your vested options. The vesting
period for your remaining stock options will be accelerated; however, the
exercise dates for such options will remain the same. You will continue to be
eligible to exercise your options under the Cashless Exercise Program, provided
this program is available to senior officers of the Company. See Exhibit A for
more detailed information concerning your existing stock options.
2
<PAGE> 3
c) Performance Shares
You were granted a target award of 22,500 (pre-split) Performance Shares on July
22, 1996 under the 1996-98 Performance Share Plan. According to the terms of the
Plan, shares will vest on a pro rata basis and will be paid following the end of
the measurement period (12/31/98), provided the performance criteria have been
satisfied. As you will have been on payroll during the entire 36-month
measurement period, you will vest in 100% of the award you otherwise would have
earned, if any, at the end of the measurement period. The actual number of
shares awarded could exceed or be less than your target award based on the
Company's performance.
You were granted a target award of 22,500 (pre-split) Performance Shares on July
21, 1997 under the 1997-99 Performance Share Plan. According to the terms of the
Plan, shares will vest on a pro rata basis and will be paid following the end of
the measurement period (12/31/99) provided the performance criteria have been
satisfied. As you will have been on payroll during 24 months of the 36-month
measurement period, you will vest in 66.7% of the award you otherwise would have
earned, if any, at the end of the measurement period. The actual number of
shares awarded could exceed or be less than your target award based on the
Company's performance.
You were granted a target award of 29,400 (post-split) Performance Shares on
July 15, 1998, under the 1998-00 Performance Share Plan. According to the terms
of the Plan, shares will vest on a pro rata basis and will be paid following the
end of the measurement period (12/31/00), provided the performance criteria have
been satisfied. As you will have been on payroll during 12 months of the
36-month measurement period, you will vest in 33.3% of the award you otherwise
would have earned, if any, at the end of the measurement period. The actual
number of shares awarded could exceed or be less than your target award based on
the Company's performance.
The payment of any award of performance shares is subject to the approval of the
Compensation Committee. See Exhibit A for more detailed information concerning
Performance Shares.
Pension Benefit
You are fully vested in your pension benefits . You will continue to accrue
credited service and pensionable earnings under the Retirement Benefit Plan
(RBP) and the Supplemental Executive Retirement Program (SERP) while you remain
on payroll through December 31, 1998.
You currently do not have an RBP or SERP Pension Benefit Election Form on file.
Since you are within one year of your retirement date, the election of any form
of payment other
3
<PAGE> 4
Pension Benefit (cont'd)
than a spouse's 50% joint & survivor annuity requires a physical examination
showing proof of normal life expectancy. The SERP lump sum option requires both
one year advance notice and proof of normal life expectancy, in addition to a
general waiver and spousal consent. A waiver of the one year notice has been
approved by the Board of Directors.
You will also receive a benefit from Variable Benefit Plan (VBP). The benefit to
be paid from this plan will be based upon the number of units you hold in the
trust fund multiplied by the appropriate unit value. Your VBP benefit value as
of March 31, 1998 was:
<TABLE>
<CAPTION>
VBP Value as of 3/31/98:
- -------------------------
<S> <C>
Number of Units 4,040.170
Unit Value $ 89.095
Lump Sum Value $359,958.95
</TABLE>
Upon retirement, you may withdraw the value of your units or elect to defer
commencement of your benefit until a later date, up to age 65. If you elect to
defer receipt, your units in the plan will increase by 4% per year. Upon
withdrawal, your benefit value will be based on the unit value for the month
prior to the month of your elected withdrawal.
$uper $aver 401(k) Plan
You may continue to participate in the $uper $aver Plan and move investments
among the available funds under the provisions of the plan. However, no further
contributions may be made after your monthly payroll payments cease on December
31, 1998.
Plan provisions allow commencement of distribution upon reaching actual age 59
1/2 or age 55 (if retired), whichever occurs first. Alternatively, you may elect
to leave your funds in your account following your retirement. As such, you may
continue to transfer your funds among the available investment options on a
quarterly basis by giving notice to $uper $aver Plan Headquarters in accordance
with plan procedures. However, you must begin receiving your benefit no later
than actual age 70 1/2 or you will incur a substantial tax penalty under the
current tax laws.
Flexible Benefits/ Retiree Benefits Coverages
a) Health Benefits Coverage
You will continue to be covered under the Flexible Benefits Program in
accordance with plan provisions while you remain on payroll through December 31,
1998. Your benefit pay will continue and deductions will be taken each pay
period based on the options you have elected.
4
<PAGE> 5
Flexible Benefits/ Retiree Benefits Coverages (cont'd)
Upon your retirement on January 1, 1999, you will receive retiree medical
coverage, in accordance with plan provisions at such time, provided you continue
pre-funding for this benefit through December 31, 1998. The Retiree Medical Plan
covers eligible dependents (until you reach age 65) but does not provide dental
or vision care coverages.
b) Supplemental Medical Coverage
You have elected Supplemental Medical Coverage through the Flexible Benefits
Program through December 31, 1998. You may continue to purchase coverages in the
American Airlines Supplemental Medical Plan into retirement by sending a check
for annual premiums due to the Plan administrator.
c) Group Term Life Insurance Coverage
Your Group Term Life Insurance coverage will continue under the Flexible
Benefits Program through December 31, 1998, under the same conditions as your
health coverage. To the extent the conversion privilege continues to be
available to retired employees of the Company, you may convert any group term
life insurance you have been purchasing under the Flexible Benefits Program to
an individual policy by contacting the plan administrator within 30 days after
your retirement.
d) Optional Short Term and Long Term Disability Coverage (STD and LTD)
You did not elect Optional Short Term and Long Term Disability coverages under
the Flexible Benefits Program.
e) Accidental Death and Dismemberment Coverage (AD&D)
You did not elect Accidental Death and Dismemberment coverages under the
Flexible Benefits Program.
f) Management Personal Accident Insurance Coverage
Company paid management personal accident insurance coverage of three times your
annual salary (up to $1,000,000) will continue while you remain on payroll.
Split Dollar Life Insurance Policies
You are provided supplemental life insurance through the Split Dollar Life
program. Your coverage is provided through two policies issued by Massachusetts
Mutual Life Insurance Company. At the beginning of the current policy year,
December 28, 1997, the current benefit payable to your beneficiary is $451,124.
The projected benefit when you reach age 65 and policy is released to you is
$488,332.
5
<PAGE> 6
Split Dollar Life Insurance Policies (cont'd)
The Company will continue to advance the annual premiums on your Split Dollar
Life Insurance policy for the lesser of your lifetime or your attainment of age
65. Upon reaching age 65, the Company will recover the amount of premiums
previously paid in your behalf and release the policy to you. No action will be
required on your part at this time or upon your retirement.
Supplemental Life Insurance
Pursuant to the terms of your employment agreement, you are provided
supplemental life insurance in addition to the coverage provided through the
Group Term and Split Dollar Life insurance programs. Your coverage is provided
through one policy issued by Phoenix Home Life Mutual Insurance Company
(formerly Phoenix Mutual). The current death benefit payable from this policy is
$1,206,095.
Upon retirement, you have the right to assume this policy, without any payment
to the Company, and continue this coverage at your own expense.
Disability Policies
You are provided long term disability benefit coverage by the Company. Your
coverage is provided through two policies issued by the UNUM Life Insurance
Company and one policy issued by the Provident Life & Accident Insurance
Company. Should you become disabled, the annual benefits paid from the above
mentioned policies would be as follows:
<TABLE>
<S> <C>
UNUM $ 132,000
Provident 120,000
----------
Total $ 252,000
==========
</TABLE>
The Company will continue to pay for this disability coverage until you reach
age 65.
Health Care Spending Account
You may file claims for eligible treatment received prior to your retirement for
payment from your Health Care Spending Account. Following your retirement, you
may only use the account if you continue to make contributions, and you may only
continue to make contributions if you purchase continuation (COBRA) coverage.
Otherwise, any balance remaining will be forfeited at the time of your
retirement.
Pass Travel
Through December 31,1998, you will retain you're A-2 travel privileges and D-3
pass allowance, to the extent such privileges continue to be made available to
senior officers and retired officers of the Company.
6
<PAGE> 7
Pass Travel (cont'd)
Upon retirement, you and Jan will be provided Air Travel (formerly Universal Air
Travel Plan) cards which allow unlimited travel in full-fare booking classes (F,
C and Y) on American Airlines and American Eagle only. The company will gross-up
the value of travel reported as imputed income to you to compensate you for the
tax liability.
Tax and Financial Planning
To the extent such benefits continue to be made available to senior officers of
the Company, AMR will continue to pay for your tax and financial planning
services through December 31, 1998.
Leased Automobile
You may continue to use the automobile currently leased by American Airlines for
you through December 31, 1998. You have notified Executive Compensation that you
do not wish American to purchase the automobile and transfer title to you upon
your retirement.
Club Memberships
You may continue to use the company-provided club membership at University Club
through December 31, 1998. Thereafter, your club membership will revert to the
Company. The Company will continue to pay monthly dues on your behalf for your
personal club membership with the Northwood Club through December 31, 2005.
You may continue to use the company-provided club membership at La Cima Club
through December 31, 2005.
Upon retirement AMR will provide you and Jan with lifetime Admirals Club
memberships.
DFW Parking
The DFW Airport Board has agreed that you may retain your current parking
privileges at the DFW Airport, including the transponder and parking tag. You
may retain these privileges indefinitely, for so long as the DFW Airport Board
permits.
Office Space
The Company will provide you with an office and will pay the salary and
associated benefits for an administrative assistant through December 31, 2005.
The office will be of a size and in a location appropriate for an executive of
your expertise and experience. Similarly, the salary and associated benefits for
an administrative assistant will be those appropriate for an executive of your
expertise and experience.
7
<PAGE> 8
Company Property
You may purchase from the company any home office equipment including computer
and fax machine. See Exhibit B for a listing of home office equipment. You may
retain your AMR AT&T Blue Telephone Card through December 31, 2005.
Please return your building entry cards and company identification cards to
Executive Compensation when you convert to retiree status on December 31, 1998.
[Remainder of page intentionally left blank]
8
<PAGE> 9
If you agree with the foregoing, please sign three originals of this letter and
return two of the originals to Tom Kiernan (the other is for your files).
Attest: Very truly yours,
- ------------------------------
Charles D. MarLett Edward A. Brennan
Corporate Secretary Chairman
AMR Corporation Compensation Committee, AMR Corporation
Accepted and Agreed:
- ------------------------------ ---------------------------------------
Robert L. Crandall Date
9
<PAGE> 1
EXHIBIT 10.15
June 1, 1998
Mr. Edward A. Brennan
400 North Michigan Avenue
Suite 400
Chicago, IL 60611
Dear Ed:
I'm enclosing a copy of the deferral agreement that was signed in 1990
pursuant to which you have been deferring your Board compensation.
Under the current arrangement, your deferral will end on December 31, 1999.
Thereafter, your phantom stock units will be converted to cash and paid to you
in a lump-sum.
As we discussed, the amount you've deferred has, over the years, increased
substantially. And, if you wanted to elect a new distribution date and method
there still remains time to do so.
I've composed the attached letter that serves to: (i) defer all cash
compensation you receive as a member of the AMR Board into phantom stock units
(unless you tell us otherwise); (ii) changes the distribution date to the first
to occur of (a) your retirement from the Board or (b) you otherwise leave the
Board; and (iii) change, if you wish, the distribution from a lump-sum payment
to some other arrangement (e.g., payment over "x" years).
If the letter meets with your approval, please sign (remember to complete
the third paragraph concerning distribution) and send one original to me. The
other is for your file.
Thank you and let me know if you have any questions.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Enclosures
P.S. I'm also enclosing a copy of AMR's 1998 proxy statement.
<PAGE> 2
June 2, 1998
Mr. Edward A. Brennan
400 North Michigan Avenue
Suite 400
Chicago, IL 60611
Dear Ed:
This letter will confirm the changes we discussed to your deferral
arrangement.
1. You will continue to defer, pursuant to the Directors? Stock
Equivalent Purchase Plan (the "Plan"), all cash compensation paid to
you as a consequence of your service on the Board of Directors of AMR
Corporation and/or American Airlines, Inc. You may discontinue this
deferral at any time upon written notice to AMR.
2. The Deferral Termination Date (see Article 1.04 of the Plan) will be
the first to occur of: (i) your retirement from the Board or (ii) your
departure from the Board for reasons other than retirement.
3. Please indicate below whether you want the payment to be (i) a
lump-sum payment or (ii) made in installments. If you choose a
lump-sum payment, the first and final distribution will be made in
accordance with Article 4.01(B).
If you choose an installment payment, the distribution will be made in
accordance with Articles 4.01(B) and (C).
I ELECT DISTRIBUTION TO BE MADE AS FOLLOWS [INDICATE A LUMP-SUM
PAYMENT OR INSTALLMENT OVER "X" YEARS]:____________________________ .
4. In the event of your death prior to a full distribution of the Stock
Equivalent Units, the distribution will be made in accordance with
Article 4.01(E) in favor of Lois L. Brennan.
<PAGE> 3
Please indicate your agreement to the foregoing by signing below. This
letter will replace in its entirety that dated January 31, 1990. Capitalized
terms will have the meanings set forth in the Plan, a copy of which is attached
hereto.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Agreed:
- --------------------------
Edward A. Brennan
<PAGE> 1
EXHIBIT 10.19
January 13, 1999
Mr. Armando M. Codina
Chairman
Codina Group, Inc.
Two Alhambra Plaza, PH2
Coral Gables, FL 33134
Dear Armando:
This will confirm the following agreement relating to the deferral of, and
payment of, your directors' fees in 1999:
1. All directors' fees and retainers ("Fees") payable to you in
connection with your service on the boards of directors (including committees of
such boards) of AMR Corporation and American Airlines, Inc. for the period
January 1, 1999, through December 31, 1999, will be deferred and paid to you in
accordance with the following:
2. Fees will be converted to Stock Equivalent Units in accordance with
the Directors' Stock Equivalent Purchase Plan, a copy of which is attached
hereto as Exhibit A.
3. On or before January 31, 2009, all the Stock Equivalent Units will be
converted to cash and paid to you by multiplying the number of Stock Equivalent
Units as of December 31, 2008, by the arithmetic mean of the high and low of AMR
stock ("fair market value") during the immediately preceding calendar month.
4. AMR's obligation to make payments pursuant to paragraph 3 hereof will
not be released or modified by reason of your death. In such event, the number
of Stock Equivalent Units as of your date of death will be multiplied by the
fair market value of AMR stock during the calendar month immediately preceding
your death, and the amount paid to Margarita Codina.
<PAGE> 2
If the foregoing is satisfactory to you, please indicate by signing one of
the originals (two are enclosed) and returning it to me.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Accepted and agreed:
- -------------------------
Armando M. Codina
- -------------------------
Date
<PAGE> 1
EXHIBIT 10.23
February 16, 1999
Mr. Charles T. Fisher, III
Renaissance Center
Tower 100
Suite 3520
Detroit, Michigan 48243
Dear Chick:
This will confirm the following agreement relating to the deferral of, and
payment of, your directors' fees:
1. All directors' fees and retainers payable to you in connection with
your service on the boards of directors (including committees of such boards) of
AMR Corporation ("AMR") and American Airlines, Inc. for the period January 1,
1999, through December 31, 1999, will be paid to you on a deferred basis as set
forth below.
2. Interest will be accrued on the amounts to be paid on a deferred basis
pursuant to paragraph 1 above, from the date such fees would otherwise have been
paid to the date actually paid, at the prime rate which The Chase Manhattan Bank
(National Association) from time to time charges in New York for 90-day loans to
responsible commercial borrowers, such interest to be compounded monthly.
3. The total amount to be paid on a deferred basis plus the aggregate
amount of interest accrued thereon and to accrue on the portion unpaid from time
to time will be paid to you in four installments as follows:
a) on January 1, 2004, 25% of the deferred fees and 25% of the
interest accrued through December 31 of the immediately preceding year;
b) on January 1, 2005, 25% of the deferred fees and 25% of the
interest accrued through December 31 of the immediately preceding year;
c) on January 1, 2006, 25% of the deferred fees and 25% of the
interest accrued through December 31 of the immediately preceding year;
d) on January 1, 2007, 25% of the deferred fees and all interest
accrued and remaining to be paid on such payment date.
<PAGE> 2
4. AMR's obligation to make payments pursuant to paragraph 3 hereof will
not be released or modified by reason of your death. In the event of your death
prior to the payments contemplated by paragraph 3 hereof, the amounts remaining
will be paid to Charles T. Fisher, III, trustee, under the Charles T. Fisher,
III Revocable Living Trust, dated March 24, 1988, as amended.
5. This letter replaces in its entirety that letter dated January 11,
1999, regarding this subject matter.
If the foregoing is satisfactory to you, please indicate by signing and
returning one of the originals of this letter (I?m sending two).
Very truly yours,
Charles D. MarLett
Corporate Secretary
Accepted and agreed:
- -------------------------
Charles T. Fisher, III
- -------------------------
Date
<PAGE> 1
EXHIBIT 10.27
January 7, 1999
Mr. Charles H. Pistor, Jr.
4200 Belclaire
Dallas, Texas 75205
Dear Charlie:
This will confirm the following agreement relating to the deferral of, and
payment of, your directors' fees:
1. All directors' fees and retainers payable to you in connection with
your service on the boards of directors (including committees of such boards) of
AMR Corporation ("AMR") and American Airlines, Inc. for the period January 1,
1999, through December 31, 1999, will be paid to you on a deferred basis as set
forth below.
2. Interest will be accrued on the amounts to be paid on a deferred basis
pursuant to paragraph 1 above, from the date such fees would otherwise have been
paid to the date actually paid, at the prime rate which The Chase Manhattan Bank
(National Association) from time to time charges in New York for 90-day loans to
responsible commercial borrowers, such interest to be compounded monthly.
3. The total amount to be paid on a deferred basis plus the aggregate
amount of interest accrued thereon and to accrue on the portion unpaid from time
to time will be paid to you in four installments as follows:
a) on January 1, 2000, 25% of the deferred fees and 25% of the
interest accrued through December 31 of the immediately preceding year;
b) on January 1, 2001, 25% of the deferred fees and 25% of the
interest accrued through December 31 of the immediately preceding year;
c) on January 1, 2002, 25% of the deferred fees and 25% of the
interest accrued through December 31 of the immediately preceding year; and
d) on January 1, 2003, 25% of the deferred fees and all interest
accrued and remaining to be paid on such payment date.
<PAGE> 2
4. AMR's obligation to make payments pursuant to paragraph 3 hereof will
not be released or modified by reason of your death. In the event of your death
prior to the payments contemplated by paragraph 3 hereof, the amounts remaining
will be paid to Regina Pistor.
If the foregoing is satisfactory to you, please indicate by signing and
returning the enclosed copy of this letter.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Accepted and agreed:
- ----------------------
Charles H. Pistor, Jr.
- ----------------------
Date
<PAGE> 1
EXHIBIT 10.30
January 7, 1999
Judith Rodin, PhD.
President
University of Pennsylvania
100 College Hall
Philadelphia, PA 19104
Dear Judith:
This will confirm the following agreement relating to the deferral of,
and payment of, your directors' fees and retainers in 1999:
1. All directors' fees and retainers (?Fees?) payable to you in
connection with your service on the boards of directors (including committees
of such boards) of AMR Corporation and American Airlines, Inc. for the period
January 1, 1999 through December 31, 1999, will be deferred and paid to you in
accordance with the following:
2. Fees will be converted to Stock Equivalent Units in accordance with
the Directors' Stock Equivalent Purchase Plan, a copy of which is attached
hereto as Exhibit A.
3. Upon your retirement from the Board of Directors of AMR all the
Stock Equivalent Units will be converted to cash and paid to you by multiplying
the number of Stock Equivalent Units as of the date of your retirement by the
arithmetic mean of the high and low of AMR stock ("fair market value") during
the calendar month immediately preceding such retirement date. Such payment
will occur within 30 days of your retirement date.
4. AMR's obligation to make payments pursuant to paragraph 3 hereof
will not be released or modified by reason of your death. In such event, the
number of Stock Equivalent Units as of your date of death will be multiplied by
the fair market value of AMR stock during the calendar month immediately
preceding your death, and the amount paid to the Trustees under your Revocable
Agreement of Trust, dated September 15, 1997, as amended November 3, 1997,
Judith Rodin Settlor and Trustee.
<PAGE> 2
If the foregoing is satisfactory to you, please indicate by signing
and returning the enclosed original of this letter.
Very truly yours,
Charles D. MarLett
Corporate Secretary
Accepted and agreed:
- -------------------------------
Judith Rodin
- -------------------------------
Date
<PAGE> 1
EXHIBIT 10.34
AMR CORPORATION
1998 LONG TERM INCENTIVE PLAN, AS AMENDED
SECTION 1. Purpose, Definitions.
The purpose of the AMR Corporation 1998 Long Term Incentive Plan, as
amended (the "Plan") is to enable AMR Corporation (the "Company") to attract,
retain and reward key employees of the Company and its Subsidiaries and
Affiliates, and strengthen the mutuality of interests between such key
employees and the Company's shareholders, by offering such key employees
performance- based stock incentives and/or other equity interests or
equity-based incentives in the Company, as well as performance-based incentives
payable in cash.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Board as a participating employer under
the Plan, provided that the Company directly or indirectly owns at least twenty
percent (20%) of the combined voting power of all classes of stock of such
entity or at least twenty percent (20%) of the ownership interests in such
entity.
(b) "Board" means the Board of Directors of the Company.
(c) "Book Value" means, as of any given date, on a per share basis (i)
the Stockholders' Equity in the Company as of the end of the immediately
preceding fiscal year as reflected in the Company's audited consolidated
balance sheet, subject to such adjustments as the Committee shall specify,
divided by (ii) the number of then outstanding shares of Stock as of such
year-end date (as adjusted by the Committee for subsequent events).
(d) "Cause" means a felony conviction of a participant or the failure
of a participant to contest prosecution for a felony, or a participant's
willful misconduct or dishonesty, any of which is directly and materially
harmful to the business or reputation of the Company or any Subsidiary or
Affiliate.
(e) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(f) "Committee" means the Committee referred to in Section 2 of the
Plan. If at any time no Committee shall be in office, then the functions of the
Committee specified in the Plan shall be exercised by the Board.
(g) "Company" means AMR Corporation, a corporation organized under the
laws of the State of Delaware, or any successor corporation.
1
<PAGE> 2
(h) "Deferred Stock" means the right to receive Stock at the end of a
specified deferral period pursuant to Section 8.
(i) "Disability" means disability as determined under procedures
established by the Committee for purposes of this Plan.
(j) "Early Retirement" means retirement, with the express consent for
purposes of this Plan of the Company at or before the time of such retirement,
from active employment with the Company and any Subsidiary or Affiliate.
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time, and any successor thereto.
(l) "Fair Market Value" means, as of any given date, unless otherwise
determined by the Committee in good faith, the mean between the highest and
lowest quoted selling price, regular way, of the Stock on the New York Stock
Exchange or, if no such sale of Stock occurs on the New York Stock Exchange on
such date, the fair market value of the Stock as determined by the Committee in
good faith.
(m) "Incentive Stock Option" means any Stock Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422 of
the Code.
(n) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(o) "Normal Retirement" means retirement from active employment with
the Company and any Subsidiary or Affiliate pursuant to the applicable
retirement provisions of the applicable pension plan of such entity.
(p) "Other Stock Based Award" means an award under Section 10 below
that is valued in whole or in part by reference to, or is otherwise based on,
Stock.
(q) "Performance Related Awards" means an award made pursuant to
Section 11 of Restricted Stock or Deferred Stock or Other Stock Based Awards
upon the determination by the Committee that performance objectives established
by the Committee have been attained, in whole or in part.
(r) "Plan" means this AMR Corporation 1998 Long Term Incentive Plan,
as it may be amended from time to time.
(s) "Restricted Stock" means shares of Stock that are subject to
restrictions under Section 7 below.
(t) "Retirement" means Normal or Early Retirement.
2
<PAGE> 3
(u) "Stock" means the Common Stock, $1.00 par value per share, of the
Company.
(v) "Stock Appreciation Right" means the right pursuant to an award
granted under Section 6 below to surrender to the Company all (or a portion) of
a Stock Option in exchange for an amount equal to the difference between: (i)
the Fair Market Value, as of the date such Stock Option (or such portion
thereof) is surrendered, of the shares of Stock covered by such Stock Option
(or such portion thereof), subject, where applicable, to the pricing provisions
in Section 6(b)(ii); and (ii) the aggregate exercise price of such Stock Option
(or such portion thereof).
(w) "Stock Option" or "Option" means any option to purchase shares of
Stock (including Restricted Stock and Deferred Stock, if the Committee so
determines) granted pursuant to Section 5 below.
(x) "Stock Purchase Right" means the right to purchase Stock pursuant
to Section 9.
(y) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns stock
possessing fifty percent (50%) or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain.
In addition, the terms "LTIP Awards," "Performance Criteria", "Change
in Control," "Potential Change in Control" and "Change in Control Price" shall
have the meanings set forth, respectively, in Sections 2, 11(a), 12(b), (c) and
(d) below.
SECTION 2. Administration.
The Plan shall be administered by a committee of not less than two
members of the Board, who shall be appointed by, and serve at the pleasure of,
the Board. In selecting the members of the Committee, the Board shall take into
account the requirements for the members of the Committee to be treated as
"Outside Directors" within the meaning of Section 162(m) of the Code and
"Non-Employee Directors" for purposes of Rule 16b-3, as promulgated under
Section 16 of the Exchange Act. The functions of the Committee specified in the
Plan shall be exercised by the Board, if and to the extent that no Committee
exists which has the authority to so administer the Plan, or to the extent that
the Committee is not comprised solely of Non-Employee Directors for purposes of
Rule 16b-3, as promulgated under Section 16 of the Exchange Act.
The Committee shall have full authority to grant, pursuant to the
terms of the Plan, to officers and other key employees eligible under Section
4: (i) Stock Options and Incentive Stock Options; (ii) Stock Appreciation
Rights; (iii) Restricted Stock; (iv) Deferred Stock; (v) Stock Purchase Rights;
(vi) Other Stock Based Awards; and/or (vii) Performance Related Awards
(collectively, the "LTIP Awards").
3
<PAGE> 4
In particular the Committee shall have the authority:
(a) to select the officers and other key employees of the
Company and its Subsidiaries and Affiliates to whom LTIP Awards may
from time to time be granted hereunder;
(b) to determine whether and to what extent LTIP Awards, or
any combination thereof, are to be granted hereunder to one or more
eligible employees;
(c) subject to the provisions of Sections 3, 5 and 11, to
determine the number of shares to be covered by each such award
granted hereunder;
(d) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including,
but not limited to, the share price and any restriction or limitation,
or any vesting acceleration or waiver of forfeiture restrictions
regarding any Stock Option or other award and/or the shares of Stock
relating thereto, based in each case on such factors as the Committee
shall determine in its sole discretion);
(e) to determine whether, to what extent and under what
circumstances a Stock Option may be settled in cash, Restricted Stock
and/or Deferred Stock under Section 5(k) or 5(1), as applicable,
instead of Stock;
(f) to determine whether, to what extent and under what
circumstances an award of Restricted Stock or Deferred Stock may be
settled in cash;
(g) to determine whether, to what extent and under what
circumstances Option grants and/or other awards under the Plan and/or
other cash awards made by the Company are to be made, and operate, on
a tandem basis vis-a-vis other awards under the Plan and/or cash
awards made outside of the Plan, or on an additive basis;
(h) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to an award
under this Plan shall be deferred either automatically or at the
election of the participant (including providing for and determining
the amount (if any) of any deemed earnings on any deferred amount
during any deferral period);
(i) to determine the terms and restrictions applicable to
Stock Purchase Rights and the Stock purchased by exercising such
Rights;
(j) with respect to an award of Restricted Stock, to
determine whether the right to vote will be granted with such award
and/or whether any dividends declared with respect to such award will
be paid in cash, additional Restricted Stock, Deferred Stock, Other
Stock Based Awards, or not at all;
4
<PAGE> 5
(k) with respect to an award of Deferred Stock, to determine
whether any dividends declared with respect to such award will be paid
in cash, Restricted Stock, additional Deferred Stock, Other Stock
Based Awards, or not at all; and
(l) to determine the terms and conditions pursuant to which
an LTIP Award may vest on a pro rata basis or be terminated.
The Committee shall have the authority: to adopt, alter and repeal
such rules, guidelines and practices governing the Plan as it shall, from time
to time, deem advisable; to interpret the terms and provisions of the Plan and
any award issued under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be made in the Committee's sole discretion and shall be final and
binding on all persons, including the Company and Plan participants.
SECTION 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 5,000,000 shares, plus any shares
remaining available for issuance under the 1988 Long Term Incentive Plan, as
amended, as of the Effective Date hereof. Such shares may consist, in whole or
in part, of authorized and unissued shares or treasury shares.
Subject to Section 6(b)(iv) below, if any shares of Stock that have
been optioned cease to be subject to a Stock Option, or if any such shares of
Stock that are subject to any Restricted Stock or Deferred Stock award, Stock
Purchase Right, Other Stock Based Award or Performance Related Award granted
hereunder or granted under the 1988 Long Term Incentive Plan, as amended, are
forfeited or any such award otherwise terminates without a payment being made
to the participant in the form of Stock or cash equivalent value, such shares
shall again be available for distribution in connection with future awards
under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, stock split or other change in corporate
structure affecting the Stock, such substitution or adjustment shall be made in
the aggregate number of shares reserved for issuance under the Plan, in the
number and option price of shares subject to outstanding Options granted under
the Plan, in the number and purchase price of shares subject to outstanding
Stock Purchase Rights under the Plan, and in the number of shares subject to
other outstanding awards granted under the Plan as may be determined to be
appropriate by the Committee, in its sole discretion, provided that the number
of shares subject to any award shall always be a whole number. Such adjusted
option price shall also be used to determine the amount payable by the Company
upon the exercise of any Stock Appreciation Right associated with any Stock
Option.
5
<PAGE> 6
SECTION 4. Eligibility.
Officers and other key employees of the Company and its Subsidiaries
and Affiliates (but excluding members of the Committee and any person who
serves only as a director) who are responsible for, or contribute to, the
management, growth and/or profitability of the business of the Company and/or
its Subsidiaries and Affiliates are eligible for awards under the Plan.
SECTION 5. Stock Options.
Stock Options may be granted alone, in addition to, or in tandem with,
other awards granted under the Plan. Any Stock Option granted under the Plan
shall be in such form as the Committee may from time to time approve.
Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options; and (ii) Non-Qualified Stock Options.
The Committee shall have the authority to grant to any optionee
Incentive Stock Options, Non-Qualified Stock Options, or both types of Stock
Options (in each case with or without Stock Appreciation Rights); provided
that, in no event shall the number of shares of Stock subject to any Stock
Options granted to any employee during any calendar year exceed 250,000 shares,
as such number may be adjusted pursuant to Section 3.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable:
(a) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Committee at the time of grant;
provided, that such option price may not be less than the Fair Market Value of
the Stock on the date the Stock Option is granted.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercisable more than ten (10) years
after the date the Option is granted.
(c) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by the
Committee; provided, however, that except as determined by the Committee, no
Stock Option shall be exercisable prior to the first anniversary date of the
granting of the Option. If the Committee provides, in its sole discretion, that
any Stock Option is exercisable only in installments, the Committee may waive
such installment exercise provisions at any time in whole or in part, based on
such factors as the Committee shall determine, in its sole discretion.
(d) Method of Exercise. Subject to whatever installment exercise
provisions apply under Section 5(c) and subject to whatever restrictions may be
imposed by the Company, Stock Options may be exercised in whole or in part at
any time during the option period, by giving written notice of exercise to the
Company specifying the number of shares to be purchased.
6
<PAGE> 7
Such notice shall be accompanied by payment in full of the purchase
price. Without limiting the generality of the foregoing, payment of the option
price may be made: (i) in cash or its equivalent; (ii) by exchanging shares of
Stock owned by the optionee (which are not the subject of any pledge or other
security interest), including in the case of a Non-Qualified Stock Option,
Restricted Stock or Deferred Stock subject to an award hereunder (or an award
under the terms of the 1988 Long Term Incentive Plan, as amended); (iii)
through an arrangement with a broker approved by the Company whereby payment of
the exercise price is accomplished with the proceeds of the sale of Stock; or
(iv) by any combination of the foregoing, provided that the combined value of
all cash and cash equivalents paid and the Fair Market Value of any such Stock
so tendered to the Company, valued as of the date of such tender, is at least
equal to such option price.
If payment of the option exercise price of a Non-Qualified Stock
Option is made in whole or in part in the form of Restricted Stock or Deferred
Stock, such Restricted Stock or Deferred Stock (and any replacement shares
relating thereto) shall remain (or be) restricted or deferred, as the case may
be, in accordance with the original terms of the Restricted Stock award or
Deferred Stock award in question, and any additional Stock received upon the
exercise shall be subject to the same forfeiture restrictions or deferral
limitations, unless otherwise determined by the Committee, in its sole
discretion.
No shares of Stock shall be issued upon exercise of a stock option
until full payment therefor has been made. An optionee shall generally have the
rights to dividends or other rights of a shareholder with respect to shares
subject to the Option when the optionee has given written notice of exercise,
has paid in full for such shares, and, if requested, has given the
representation described in Section 15(a).
(e) Transferability of Options. Unless the Committee shall permit (on
such terms and conditions as it shall establish) an Option to be transferred to
a member of the participant's immediate family or to a trust or similar vehicle
for the benefit of such immediate family members, no Option shall be assignable
or transferable except by will or the laws of descent and distribution, and
except to the extent required by law, no right or interest of any participant
shall be subject to any lien, obligation or liability of the participant.
(f) Termination by Death. Subject to Section 5(j), if an optionee's
employment by the Company and any Subsidiary or Affiliate terminates by reason
of death, any Stock Option held by such optionee may thereafter be exercised in
accordance with the terms and conditions established by the Committee.
(g) Termination by Reason of Disability. Subject to Section 5(j), if
an optionee's employment by the Company and any Subsidiary or Affiliate
terminates by reason of Disability, any Stock Option held by such optionee may
thereafter be exercised by the optionee in accordance with the terms and
conditions established by the Committee. In the event of termination of
employment by reason of Disability, if an Incentive Stock Option is exercised
after the expiration of the exercise periods that apply for purposes of Section
422 of the Code, such Stock Option will thereafter be treated as a
Non-Qualified Stock Option.
7
<PAGE> 8
(h) Termination by Reason of Retirement. Subject to Section 5(j), if
an optionee's employment by the Company and any Subsidiary or Affiliate
terminates by reason of Normal or Early Retirement, any Stock Option held by
such optionee may thereafter be exercised by the optionee in accordance with
the terms and conditions established by the Committee. In the event of
termination of employment by reason of Retirement, if an Incentive Stock Option
is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, such Stock Option will thereafter be
treated as a Non-Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee,
if an optionee's employment by the Company or any Subsidiary or Affiliate
terminates for any reason other than death, Disability or Normal or Early
Retirement, the Stock Option shall thereupon terminate.
(j) Incentive Stock Options. Anything in the Plan to the contrary
notwithstanding, no term of this Plan relating to Incentive Stock Options shall
be interpreted, amended or altered, nor shall any discretion or authority
granted under the Plan be so exercised, so as to disqualify the Plan under
Section 422 of the Code, or, without the consent of the optionee(s) affected,
to disqualify any Incentive Stock Option under such Section 422.
(k) Buyout Provisions. The Committee may at any time offer to buy out
for a payment in cash, Stock, Deferred Stock or Restricted Stock, an option
previously granted hereunder, based on such terms and conditions as the
Committee shall establish and communicate to the participant at the time that
such offer is made.
(l) Settlement Provisions. If the option agreement so provides at
grant or is amended after grant, and prior to the exercise, to so provide (with
the optionee's consent), the Committee may require that all or part of the
shares to be issued with respect to the spread value of an exercised Option
take the form of Deferred or Restricted Stock, which shall be valued on the
date of exercise on the basis of the Fair Market Value (as determined by the
Committee) of such Deferred or Restricted Stock determined without regard to
the deferral limitations and/or the forfeiture restrictions involved.
SECTION 6. Stock Appreciation Rights.
(a) Grant and Exercise. Stock Appreciation Rights may be granted in
conjunction with all or part of any Stock Option granted under the Plan. In the
case of a Non-Qualified Stock Option, such rights may be granted either at or
after the time of the grant of such Stock Option. In the case of an Incentive
Stock Option, such rights may be granted only at the time of grant of such
Stock Option.
A Stock Appreciation Right or applicable portion thereof granted with
respect to a given Stock Option shall terminate and no longer be exercisable
upon the termination or exercise of the related Stock Option, subject to such
provisions as the Committee may specify at grant where a Stock Appreciation
Right is granted with respect to less than the full number of shares covered by
a related Stock Option.
8
<PAGE> 9
A Stock Appreciation Right may be exercised by an optionee, subject to
Section 6(b), in accordance with the procedures established by the Committee
for such purposes. Upon such exercise, the optionee shall be entitled to
receive an amount determined in the manner prescribed in Section 6(b). Stock
Options relating to exercised Stock Appreciation Rights shall no longer be
exercisable to the extent that the related Stock Appreciation Rights have been
exercised.
(b) Terms and Conditions. Stock Appreciation Rights shall be subject
to such terms and conditions, not inconsistent with the provisions of the Plan,
as shall be determined from time to time by the Committee, including the
following:
(i) Stock Appreciation Rights shall be exercisable only at
such time or times and to the extent that the Stock Options to which
they relate shall be exercisable in accordance with the provisions of
Section 5 and this Section 6 of the Plan.
(ii) Upon the exercise of a Stock Appreciation Right, an
optionee shall be entitled to receive an amount in cash and/or shares
of Stock equal in value to the excess of the Fair Market Value of one
share of Stock over the option price per share specified in the
related Stock Option multiplied by the number of shares in respect of
which the Stock Appreciation Right shall have been exercised, with the
Committee having the right to determine the form of payment. When
payment is to be made in shares, the number of shares to be paid shall
be calculated on the basis of the Fair Market Value of the shares on
the date of exercise.
(iii) Stock Appreciation Rights shall be transferable only
when and to the extent that the underlying Stock Option would be
transferable under Section 5(e) of the Plan.
(iv) Upon the exercise of a Stock Appreciation Right, the
Stock Option or part thereof to which such Stock Appreciation Right is
related shall be deemed to have been exercised for the purpose of the
limitation set forth in Section 3 of the Plan on the number of shares
of Stock exercised under the Plan, but only to the extent of the
number of shares issued under the Stock Appreciation Right at the time
of exercise based on the value of the Stock Appreciation Right at such
time.
(v) The Committee, in its sole discretion, may provide that,
in the event of a Change in Control and/or a Potential Change in
Control, the amount to be paid upon the exercise of a Stock
Appreciation Right shall be based on the Change in Control Price,
subject to such terms and conditions as the Committee may specify at
grant.
SECTION 7. Restricted Stock
(a) Administration. Shares of Restricted Stock may be issued either
alone, in addition to, or in tandem with, other awards granted under the Plan
and/or awards made outside of the Plan. The Committee shall determine the
eligible persons to whom, and the time or times at which, grants of Restricted
Stock will be made, the number of shares to be awarded, the price (if any) to
9
<PAGE> 10
be paid by the recipient of Restricted Stock (subject to Section 7(b)), the
time or times within which such awards may be subject to forfeiture, and all
other terms and conditions of the awards.
The Committee may condition the grant of Restricted Stock upon the
attainment of specified Performance Criteria or such other factors as the
Committee may determine, in its sole discretion.
The provisions of Restricted Stock awards need not be the same with
respect to each recipient.
(b) Awards and Certificates. The prospective recipient of a Restricted
Stock award shall not have any rights with respect to such award, unless and
until the Company and such recipient have executed an agreement evidencing the
award and the recipient has delivered a fully executed copy thereof to the
Company, and has otherwise complied with the applicable terms and conditions of
such award.
(i) The purchase price for shares of Restricted Stock shall
be equal to or less than their par value and may be zero.
(ii) Awards of Restricted Stock must be accepted within a
reasonable period (or such specific period as the Committee may
specify at grant) after the award date, by executing a Restricted
Stock award agreement and paying whatever price (if any) is required
under Section 7(b)(i).
(iii) Each participant receiving a Restricted Stock award
shall be issued a stock certificate in respect of such shares of
Restricted Stock. Such certificate shall be registered in the name of
such participant, and shall bear an appropriate legend referring to
the terms, conditions, and restrictions applicable to such award.
(iv) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of
any Restricted Stock award, the participant shall have delivered a
stock power, endorsed in blank, relating to the Stock covered by such
award.
(c) Terms and Conditions. The shares of Restricted Stock awarded
pursuant to this Section 7 shall be subject to the following terms and
conditions:
(i) Subject to the provisions of this Plan and the award
agreement, during a period set by the Committee commencing with the
date of such award (the "Restriction Period"), the participant shall
not be permitted to sell, transfer, pledge or assign shares of
Restricted Stock awarded under the Plan. Within these limits and
subject to Sections 7(c)(iv) and/or 7(c)(v), the Committee, in its
sole discretion, may provide for the lapse of such restrictions in
installments and may accelerate or waive such restrictions in whole or
in part, based on service, Performance Criteria and/or such other
factors as the Committee may determine, in its sole discretion.
10
<PAGE> 11
(ii) If and when the Restriction Period expires without a
prior forfeiture of the Restricted Stock subject to such Restriction
Period, certificates for an appropriate number of unrestricted shares
of Stock shall be delivered to the participant promptly (unless the
Committee decides pursuant to Section 2(f) to settle the award in
cash).
(iii) The voting rights and/or dividend rights, if any, of
the Restricted Stock award shall be established by the Committee
pursuant to Section 2(j).
(iv) An award of Restricted Stock, where the Restriction
Period is based on Performance Criteria, shall have a Restriction
Period of at least one (1) year.
(v) An award of Restricted Stock, where the Restriction
Period is based on service, shall have a Restriction Period of at
least three (3) years.
(d) Minimum Value Provisions. In order to better ensure that award
payments actually reflect the performance of the Company and service of the
participant, the Committee may provide, in its sole discretion, for a tandem
performance-based or other award designed to guarantee a minimum value, payable
in cash or Stock to the recipient of a Restricted Stock award, subject to such
Performance Criteria, future service, deferral and other terms and conditions
as may be specified by the Committee.
SECTION 8. Deferred Stock.
(a) Administration. Deferred Stock may be awarded either alone, in
addition to, or in tandem with, other awards granted under the Plan and/or
awards made outside of the Plan. The Committee shall determine the eligible
persons to whom and the time or times at which Deferred Stock shall be awarded,
the number of shares of Deferred Stock to be awarded to any person, the
duration of the period (the "Deferral Period") during which, and the conditions
under which, receipt of the Stock will be deferred, and the other terms and
conditions of the award in addition to those set forth in Section 8(b).
The Committee may condition the grant of Deferred Stock upon the
attainment of specified Performance Criteria or such other factors or criteria
as the Committee shall determine, in its sole discretion.
The provisions of Deferred Stock awards need not be the same with
respect to each recipient.
(b) Terms and Conditions. The shares of Deferred Stock awarded
pursuant to this Section 8 shall be subject to the following terms and
conditions:
(i) Subject to the provisions of this Plan and the award
agreement referred to in Section 8(b)(iv) below, Deferred Stock awards
may not be sold, assigned, transferred, pledged or otherwise
encumbered during the Deferral Period. At the expiration of the
11
<PAGE> 12
Deferral Period (or the Elective Deferral Period referred to in
Section 8(b)(iii), where applicable), stock certificates shall be
delivered to the participant, or his legal representative, in a number
equal to the shares covered by the Deferred Stock award (unless the
Committee decides pursuant to Section 2(f) to settle the award in
cash).
(ii) Subject to Sections 8(b)(vi) and/or 8(b)(vii), the
Committee may accelerate the vesting of all or any part of any
Deferred Stock award and/or waive the deferral limitations in whole or
in part, based on service, Performance Criteria and/or such other
factors as the Committee may determine, in its sole discretion.
(iii) A participant may elect to further defer receipt of an
award (or an installment of an award) for a specified period or until
a specified event (the "Elective Deferral Period"), subject in each
case to such terms as are determined by the Committee, all in its sole
discretion. Subject to any exceptions adopted by the Committee, such
election must generally be made at least twelve (12) months prior to
completion of the Deferral Period for such Deferred Stock award (or
such installment).
(iv) Each award shall be confirmed by, and subject to the
terms of, a Deferred Stock agreement executed by the Company and the
participant.
(v) The dividend rights, if any, of the Deferred Stock award
established by the Committee pursuant to Section 2(k).
(vi) An award of Deferred Stock, where the Deferral Period is
based on Performance Criteria, shall have a Deferral Period of at
least one (1) year.
(vii) An award of Deferred Stock, where the Deferral Period
is based on service, shall have a Deferral Period of at least three
(3) years.
(c) Minimum Value Provisions. In order to better ensure that award
payments actually reflect the performance of the Company and service of the
participant, the Committee may provide, in its sole discretion, for a tandem
performance-based or other award designed to guarantee a minimum value, payable
in cash or Stock to the recipient of a Deferred Stock award, subject to such
Performance Criteria, future service, deferral and other terms and conditions
as may be specified by the Committee.
SECTION 9. Stock Purchase Rights.
(a) Awards and Administration. The Committee may grant eligible
participants Stock Purchase Rights which shall enable such participants to
purchase Stock (including Deferred Stock and Restricted Stock) at price(s)
determined by the Committee at or after grant, in its sole discretion.
12
<PAGE> 13
The Committee shall also impose such deferral, forfeiture and/or other
terms and conditions as it shall determine, in its sole discretion, on such
Stock Purchase Rights or the exercise thereof.
The terms of Stock Purchase Rights awards need not be the same with
respect to each participant.
Each Stock Purchase Right award shall be confirmed by, and be subject
to the terms of, a Stock Purchase Rights agreement.
(b) Exercisability. Stock Purchase Rights shall be exercisable for
such period after grant as is determined by the Committee.
SECTION 10. Other Stock Based Awards.
(a) Administration. Other awards of Stock and other awards that are
valued in whole or in part by reference to, or are otherwise based on, Stock
("Other Stock Based Awards"), including, without limitation, stock purchase
rights, performance shares, convertible preferred stock, convertible
debentures, exchangeable securities and Stock awards or options valued by
reference to Book Value or subsidiary performance, may be granted either alone,
in addition to, or in tandem with, Stock Options, Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Stock Purchase Rights or Performance Related
Awards granted under the Plan and/or cash awards made outside of the Plan.
Subject to the provisions of the Plan, the Committee shall have
authority to determine the persons to whom and the time or times at which such
awards shall be made, the amount of such awards, and all other conditions of
the awards including any dividend and/or voting rights. Subject to Sections
10(b)(iv) and 10(b)(v), the Committee may also provide for the grant of Stock
upon the attainment of specified Performance Criteria or such other factors as
the Committee may determine, in its sole discretion.
The provisions of Other Stock Based Awards need not be the same with
respect to each recipient.
(b) Terms and Conditions. Other Stock Based Awards made pursuant to
this Section 10 shall be subject to the following terms and conditions:
(i) Subject to the provisions of this Plan and the award
agreement referred to in Section 10(b)(ii) below, awards made under
this Section 10 may not be sold, assigned, transferred, pledged or
otherwise encumbered prior to the date on which any shares are issued
or amounts are paid, or, if later, the date on which any applicable
restriction, performance or deferral period lapses. Subject to
Sections 10(b)(iv) and/or 10(b)(v), the Committee, in its sole
discretion, may accelerate the vesting of all or any part of any Other
Stock Based Award, and/or waive any restrictions or deferral
limitations in whole or in
13
<PAGE> 14
part, based on service, Performance Criteria and/or other factors as
the Committee may determine, in its sole discretion.
(ii) Each award under this Section 10 shall be confirmed by,
and subject to the terms of, an agreement or other instrument by the
Company and by the participant.
(iii) Stock (including securities convertible into Stock)
issued on a bonus basis under this Section 10 may be issued for no
cash consideration. Stock (including securities convertible into
Stock) purchased pursuant to a purchase right awarded under this
Section 10 shall be purchased at price(s) determined by the Committee,
in its sole discretion.
(iv) Any Other Stock Based Award that has a Restriction
Period or Deferral Period that is based on Performance Criteria shall
have a Restriction Period or Deferral Period, as the case may be, of
at least one (1) year.
(v) Any Other Stock Based Award that has a Restriction Period
or Deferral Period that is based on service shall have a Restriction
Period or Deferral Period, as the case may be, of at least three (3)
years.
SECTION 11. Performance Related Awards.
(a) Performance Objectives. Notwithstanding anything else contained in
the Plan to the contrary, unless the Committee otherwise determines at the time
of grant, any award of Restricted Stock or Deferred Stock or Other Stock Based
Awards to an officer who is subject to the reporting requirements of Section
16(a) of the Exchange Act other than an award which will vest solely on the
basis of the passage of time, shall become vested, if at all, upon the
determination by the Committee that performance objectives established by the
Committee have been attained, in whole or in part (a "Performance Award"). Such
performance objectives shall be determined over a measurement period or periods
established by the Committee (which period or periods shall not be less than
one (1) year) and related to at least one of the following criteria, which may
be determined solely by reference to the performance of: (i) the Company; (ii)
a Subsidiary; (iii) an Affiliate; (iv) a division or unit of any of the
foregoing or based on comparative performance of any of the foregoing relative
to past performance or to other companies: (A) return on equity; (B) total
shareholder return; (C) revenues; (D) cash flows, revenues and/or earnings
relative to other parameters (e.g., net or gross assets); (E) operating income;
(F) return on investment; (G) changes in the value of the Stock; and (H) return
on assets (the "Performance Criteria"). Excluding Stock Options and/or Stock
Appreciation Rights granted hereunder, the maximum number of shares of Stock
that may be subject to any such Performance Award granted to any key employee
in any calendar year shall not exceed 100,000 shares, as such number may be
adjusted pursuant to Section 3.
(b) Annual Incentive Compensation. The Committee may, in addition to
the Performance Awards described above, pay cash amounts under the Plan or any
other plan or arrangement approved by the Committee, provided such other plan
or arrangement is in conformity with the
14
<PAGE> 15
provisions of this Section 11(b), to any officer of the Company or any
Subsidiary who is subject to the reporting requirements of Section 16(a) of the
Exchange Act upon the achievement, in whole or in part, of performance goals or
objectives established in writing by the Committee with respect to such
performance periods as the Committee shall determine. Any such goals or
objectives shall be based on one or more of the Performance Criteria.
Notwithstanding anything else contained herein to the contrary, the maximum
amount of any such cash payment to any single officer with respect to any
calendar year shall not exceed the lesser of (i) $2,000,000; or (ii) twice the
officer's annual base salary as in effect on the last day of the preceding
fiscal year.
(c) Interpretation. Notwithstanding anything else contained in the
Plan to the contrary, to the extent required to so qualify any Performance
Award as other performance based compensation within the meaning of Section
162(m)(4)(C) of the Code, the Committee shall not be entitled to exercise any
discretion otherwise authorized under the Plan (such as the right to accelerate
vesting without regard to the achievement of the relevant performance
objectives) with respect to such Performance Award if the ability to exercise
such discretion (as opposed to the exercise of such discretion) would cause
such award to fail to qualify as other performance based compensation.
SECTION 12. Change in Control Provisions.
(a) Impact of Event. Notwithstanding the provisions of Sections
7(c)(iv), 7(c)(v), 8(b)(vi), 8(b)(vii), 10(b)(iv), and 10(b)(v), in the event
of:
(i) a "Change in Control" as defined in Section 12(b), or
(ii) a "Potential Change in Control" as defined in Section
12(c), but only if and to the extent so determined by the Committee or
the Board (subject to any right of approval expressly reserved by the
Committee or the Board at the time of such determination):
(A) Any Stock Options awarded under the Plan not previously
exercisable and vested shall become fully exercisable and vested;
(B) The restrictions and deferral limitations applicable to
any Restricted Stock, Deferred Stock, Stock Purchase Rights, Other
Stock Based Awards and Performance Related Awards, in each case to the
extent not already vested under the Plan, shall lapse and such shares
and awards shall be deemed fully vested and any Performance Criteria
shall be deemed met at target; and
(C) The value of all outstanding LTIP Awards to the extent
vested may at the sole discretion of the Committee at or after grant
but prior to any Change in Control, be cashed out on the basis of the
"Change in Control Price" as defined in Section 12(d) as of the date
such Change in Control or such Potential Change in Control is
determined to have occurred or such other date as the Committee may
determine prior to the Change in Control.
15
<PAGE> 16
(b) Definition of "Change in Control". For purposes of Section 12(a),
a "Change in Control" means the happening of any of the following:
(i) When any "person" as defined in Section 3(a)(9) of the
Exchange Act and as used in Sections 13(d) and 14(d) thereof,
including a "group" as defined in Section 13(d) of the Exchange Act
but excluding the Company, any Subsidiary or any employee benefit plan
sponsored or maintained by the Company or any Subsidiary (including
any trustee of such plan acting as trustee), directly or indirectly,
becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act, as amended from time to time), of securities of the
Company representing fifteen percent (15%) or more of the combined
voting power of the Company's then outstanding securities;
(ii) The individuals who, as of the Effective Date of this
Plan, constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board; provided,
however, that any individual becoming a director subsequent to the
Effective Date of the Plan whose election, or nomination for election
by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent
Board, but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of an actual or
threatened election contest with respect to the election or removal of
directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a person other than the Board; or
(iii) Consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all
of the assets of the Company or the acquisition of assets of another
corporation (a "Business Combination"), in each case, unless,
following such Business Combination: (A) all or substantially all of
the individuals and entities who were the beneficial owners,
respectively, of the then outstanding shares of Stock of the Company
and the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election
of directors immediately prior to such Business Combination
beneficially own, directly or indirectly, more than sixty percent
(60%) of, respectively, the then outstanding shares of common stock
and the combined voting power of the then outstanding voting
securities entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a
result of such transaction owns the Company or all or substantially
all of the Company's assets either directly or through one or more
subsidiaries); (B) no person (excluding any employee benefit plan (or
related trust) of the Company or such corporation resulting from such
Business Combination) beneficially owns, directly or indirectly,
fifteen percent (15%) or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such
ownership existed prior to the Business Combination; and (C) at least
a majority of the members of the board of directors of the corporation
resulting from such Business
16
<PAGE> 17
Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Board,
providing for such Business Combination; or
(iv) Approval by the shareholders of the Company of a
complete liquidation or dissolution of the Company.
(c) Definition of Potential Change in Control. For purposes of Section
12(a), a "Potential Change in Control" means the happening of any one of the
following:
(i) The approval by shareholders of an agreement by the
Company, the consummation of which would result in a Change in Control
of the Company as defined in Section 12(b); or
(ii) The acquisition of beneficial ownership, directly or
indirectly, by any entity, person or group (other than the Company or
a Subsidiary or any Company employee benefit plan (including any
trustee of such plan acting as such trustee)) of securities of the
Company representing five percent (5%) or more of the combined voting
power of the Company's outstanding securities and the adoption by the
Board of a resolution to the effect that a Potential Change in Control
of the Company has occurred for purposes of this Plan.
(d) Change in Control Price. For the purposes of this Section 12,
"Change in Control Price" means the highest price per share paid in any
transaction reported on the New York Stock Exchange Composite Index, or paid or
offered in any bona fide transaction related to a potential or actual Change in
Control of the Company at any time during the sixty (60) day period immediately
preceding the occurrence of the Change in Control (or, where applicable, the
occurrence of the Potential Change in Control event), in each case as
determined by the Committee except that, in the case of Incentive Stock Options
and Stock Appreciation Rights relating to Incentive Stock Options, such price
shall be based only on transactions reported for the date on which the optionee
exercises such Stock Appreciation Rights or, where applicable, the date on
which a cashout occurs under Section 12(a)(ii)(C).
SECTION 13. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made which would impair the rights of
an optionee or participant under an LTIP Award theretofore granted, without the
optionee's or participant's consent.
The Committee may amend the terms of any Stock Option or other award
theretofore granted, prospectively or retroactively, but subject to Section 3
above, no such amendment shall impair the rights of any holder without the
holder's consent.
17
<PAGE> 18
Subject to the above provisions, the Board shall have broad authority
to amend the Plan to take into account changes in applicable securities and tax
laws and accounting rules, as well as other developments.
SECTION 14. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive
and deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a
general creditor of the Company. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Stock or payments in lieu of or with respect
to awards hereunder; provided, however, that unless the Committee otherwise
determines with the consent of the affected participant, the existence of such
trusts or other arrangements is consistent with the "unfunded" status of the
Plan.
SECTION 15. General Provisions.
(a) The Committee may require each person purchasing shares pursuant
to a Stock Option or other award under the Plan to represent to and agree with
the Company in writing that the optionee or participant is acquiring the shares
without a view to distribution thereof. The certificates for such shares may
include any legend which the Committee deems appropriate to reflect any
restrictions on transfer.
All certificates for shares of Stock or other securities delivered
under the Plan shall be subject to such stock-transfer orders and other
restrictions as the Committee may deem advisable under the rules, regulations,
and other requirements of the Securities and Exchange Commission, any stock
exchange upon which the Stock is then listed, and any applicable federal or
state securities law, and the Committee may cause a legend or legends to be put
on any such certificates to make appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required, and such arrangements may be either
generally applicable or applicable only in specific cases.
(c) The adoption of the Plan shall not confer upon any employee of the
Company or any Subsidiary or Affiliate any right to continued employment with
the Company or a Subsidiary or Affiliate, as the case may be, nor shall it
interfere in any way with the right of the Company or a Subsidiary or Affiliate
to terminate the employment of any of its employees at any time.
(d) Except as the participant and the Company may otherwise agree, no
later than the date as of which an amount first becomes includible in the gross
income of the participant for federal income tax purposes with respect to any
award under the Plan, the participant shall pay to the Company, or make
arrangements satisfactory to the Committee regarding the payment of, any
18
<PAGE> 19
federal, state, or local taxes of any kind required by law to be withheld with
respect to such amount. Unless otherwise determined by the Committee,
withholding obligations may be settled with Stock, including Stock that is part
of the award that gives rise to the withholding requirement. The obligations of
the Company under the Plan shall be conditional on such payment or
arrangements, and the Company and its Subsidiaries or Affiliates shall, to the
extent permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the participant.
(e) The actual or deemed reinvestment of dividends or dividend
equivalents in additional Restricted Stock (or in Deferred Stock or other types
of Plan awards) at the time of any dividend payment shall only be permissible
if sufficient shares of Stock are available under Section 3 for such
reinvestment (taking into account then outstanding Stock Options, Stock
Purchase Rights and other Plan awards).
(f) The Committee may permit a participant to postpone the delivery of
Stock under any award, including a Stock Option, under the Plan upon such terms
and conditions as the Committee shall determine.
(g) The Plan and all awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of Delaware.
SECTION 16. Effective Date of Plan.
As amended, the Plan shall be effective as of May 21, 1998.
SECTION 17. Term of Plan.
No LTIP Award shall be granted pursuant to the Plan on or after the
tenth anniversary of the date of shareholder approval, but awards granted prior
to such tenth anniversary may extend beyond that date, in accordance with the
terms of such awards.
SECTION 18. Applicability to Grants under 1988 Plan.
The provisions of the Plan relating to stock options, stock
appreciation rights, restricted stock awards, deferred stock awards, stock
purchase rights, other stock-based awards or performance related awards shall
apply to, and govern existing and subsequent stock options, stock appreciation
rights, restricted stock awards, deferred stock awards, stock purchase rights,
other stock-based awards or performance related awards granted under the 1988
Long Term Incentive Plan, as amended.
19
<PAGE> 1
EXHIBIT 10.37
Master Document # ((LOG))
STOCK OPTION
STOCK OPTION granted ((GRANTDATE)), by AMR Corporation, a Delaware
corporation (the "Corporation"), to ((FIRSTNAME)) ((LASTNAME)), employee numbER
((EE)), an employee of the Corporation or one of its Subsidiaries or Affiliates
(the "Optionee").
W I T N E S S E T H:
WHEREAS, the stockholders of the Corporation approved the 1998 Long
Term Incentive Plan at the Corporation's annual meeting held on May 20, 1998
(such plan, as may be amended from time to time, to be referenced the "1998
Plan");
WHEREAS, the l998 Plan provides for the grant of an option to purchase
shares of the Corporation's Common Stock to those individuals selected by the
Committee or, in lieu thereof, the Board of Directors of AMR Corporation (the
"Board"); and
WHEREAS, the Board has determined that the Optionee is eligible under
the Plan and that it is to the advantage and interest of the Corporation to
grant the option provided for herein to the Optionee as an incentive for
Optionee to remain in the employ of the Corporation or one of its Subsidiaries
or Affiliates, and to encourage ownership by the Optionee of the Corporation's
Common Stock, $l par value (the "Common Stock").
NOW, THEREFORE:
l. Option Grant. The Corporation hereby grants to the Optionee a
non-qualified stock option, subject to the terms and conditions hereinafter set
forth, to purchase all or any part of an aggregate of ((OPTIONS)) shares of
Common Stock at a price of $ ((OPTIONPRICE)) per share (being the fair market
value of the Common Stock on the date hereof), exercisable in approximately
equal installments on and after the following dates and with respect to the
following number of shares of Common Stock:
<TABLE>
<CAPTION>
Exercisable On and After Number of Shares
------------------------ ----------------
<S> <C>
((EXDATE1)) ((EXSHRs1))
((EXDATE2)) ((EXSHRs2))
((EXDATE3)) ((EXSHRs3))
((EXDATE4)) ((EXSHRs4))
((EXDATE5)) ((EXSHRs5))
</TABLE>
- 1 -
<PAGE> 2
provided, that in no event shall this option be exercisable in whole or in part
ten years from the date hereof and that the Company shall in no event be
obligated to issue fractional shares. The right to exercise this option and to
purchase the number of shares comprising each such installment shall be
cumulative, and once such right has become exercisable it may be exercised in
whole at any time and in part from time to time until the date of termination
of the Optionee's rights hereunder.
2. Restriction on Exercise. Notwithstanding any other provision
hereof, this option shall not be exercised if at such time such exercise or the
delivery of certificates representing shares of Common Stock purchased pursuant
hereto shall constitute a violation of any provision of any applicable Federal
or State statute, rule or regulation, or any rule or regulation of any
securities exchange on which the Common Stock may be listed.
3. Manner of Exercise. This option may be exercised with respect to
all or any part of the shares of Common Stock then subject to such exercise by
written notice from the Optionee to the Corporation addressed to P.O. Box
6l96l6, Dallas/Fort Worth Airport, Texas 7526l-96l6, Attention: Executive
Compensation. Such notice shall be accompanied (i) by the payment of the option
price in cash or by check or (ii) by whatever other form of payment may be
authorized by the Corporation, and, in the event that at the time of such
exercise the shares of Common Stock as to which this option is exercisable have
not been registered under the Securities Act of l933, shall include a
representation by the Optionee that at the time of such exercise he is
acquiring the shares of Common Stock for investment only and not with a view to
distribution. Subject to compliance by the Optionee with all the terms and
conditions hereof, the Corporation shall promptly thereafter deliver to the
Optionee a certificate or certificates for such shares with all requisite
transfer stamps attached.
4. Termination of Option. This option shall terminate and may no
longer be exercised if (i) the Optionee ceases to be an employee of the
Corporation or one of its Subsidiaries or Affiliates; or (ii) the Optionee
becomes an employee of a Subsidiary that is not wholly owned, directly or
indirectly, by the Corporation; or (iii) the Employee takes a leave of absence
without reinstatement rights, unless otherwise agreed in writing between the
Corporation and the Employee; except that
(a) If the Optionee's employment by the Corporation (and any
Subsidiary or Affiliate) terminates by reason of death, the option may
thereafter be exercised, to the extent such option was exercisable at
the time of death, by the legal representative of the estate or by the
legatee of the Optionee under the will of the Optionee, for a period
of three years from the date of such death or until the expiration of
the stated term of the option, whichever period is the shorter;
- 2 -
<PAGE> 3
(b) If the Optionee's employment by the Corporation (and any
Subsidiary or Affiliate) terminates by reason of Disability, the
option may thereafter be exercised, to the extent it was exercisable
at the time of such disability, for a period of three years from the
date of such disability or until the expiration of the stated term of
such option, whichever period is the shorter; provided, however, that,
if the Optionee dies within such three-year period, any unexercised
portion of the option shall thereafter be exercisable to the extent to
which it was exercisable at the time of death for a period of twelve
months from the date of such death or until the expiration of the
stated term of the option, whichever period is the shorter;
(c) If the Optionee's employment by the Corporation (and any
Subsidiary or Affiliate) terminates by reason of Normal or Early
Retirement, the option may thereafter be exercised, to the extent it
was exercisable at the time of such Retirement, for a period of three
years from the date of such retirement or the expiration of the stated
term of the option, whichever period is the shorter; provided,
however, that, if the Optionee dies within such three-year period, any
unexercised portion of the option shall thereafter be exercisable, to
the extent to which it was exercisable at the time of death, for a
period of twelve months from the date of such death or until the
expiration of the stated term of the option, whichever period is the
shorter; and
(d) If the Optionee's employment by the Corporation (and any
Subsidiary or Affiliate) is involuntarily terminated by the
Corporation or a Subsidiary or Affiliate (as the case may be) without
Cause, the option may thereafter be exercised, to the extent it was
exercisable at the time of termination, for a period of three months
from the date of such termination of employment or until the stated
term of such option, whichever period is shorter.
(e) Change in Control; Potential Change in Control. In the event of a
Change in Control or a Potential Change in Control of the Corporation,
this option shall become exercisable in accordance with the l998 Plan,
or its successor.
- 3 -
<PAGE> 4
5. Adjustments in Common Stock. In the event of any stock dividend,
stock split, merger, consolidation, reorganization, recapitalization or other
change in the corporate structure, appropriate adjustments shall be made by the
Board in the number of shares, class or classes of securities and the price per
share subject to outstanding options and Rights.
6. Non-Transferability of Option. Unless the Committee shall permit
(on such terms and conditions as it shall establish), an Option may not be
transferred except by will or the laws of descent and distribution to the
extent provided herein. During the lifetime of the Optionee this option may be
exercised only by him or her (unless otherwise determined by the Committee).
7. Miscellaneous. This option (a) shall be binding upon and inure to
the benefit of any successor of the Corporation, (b) shall be governed by the
laws of the State of Texas, and any applicable laws of the United States, and
(c) may not be amended except in writing. No contract or right of employment
shall be implied by this option.
If this option is assumed or a new option is substituted therefore
in any corporate reorganization (including, but not limited to, any transaction
of the type referred to in Section 425(a) of the Internal Revenue Code of l986,
as amended), employment by such assuming or substituting corporation or by a
parent corporation or a subsidiary thereof shall be considered for all purposes
of this option to be employment by the Corporation.
8. Securities Law Requirements. The Corporation shall not be required
to issue shares upon the exercise of this option unless and until (a) such
shares have been duly listed upon each stock exchange on which the
Corporation's Stock is then registered; and (b) a registration statement under
the Securities Act of l933 with respect to such shares is then effective.
The Board may require the Optionee to furnish to the Corporation,
prior to the issuance of any shares of Stock in connection with the exercise of
this option, an agreement, in such form as the Board may from time to time deem
appropriate, in which the Optionee represents that the shares acquired by him
upon such exercise are being acquired for investment and not with a view to the
sale or distribution thereof.
- 4 -
<PAGE> 5
9. Option Subject to l998 Plan. This option shall be subject to all
the terms and provisions of the l998 Plan, and the Optionee shall abide by and
be bound by all rules, regulations and determinations of the Board of Directors
of the Corporation now or hereafter made in connection with the administration
of the l998 Plan. Capitalized terms not otherwise defined herein shall have the
meanings set forth for such terms in the l998 Plan.
IN WITNESS WHEREOF, the Corporation has executed this Stock Option as
of the day and year first above written.
AMR Corporation
- ------------------------------ By
Optionee -----------------------------
Charles D. MarLett
Corporate Secretary
- 5 -
<PAGE> 1
EXHIBIT 10.41
Grant #
CAREER EQUITY PROGRAM
DEFERRED STOCK AWARD AGREEMENT
This AGREEMENT made as of ((GRANTDATE)), by and between AMR Corporation, a
Delaware corporation (the "Corporation"), to ((FIRSTNAME)) ((LASTNAME)) (the
"Employee"), employee number ((EE)).
WHEREAS, the 1998 Long Term Incentive Plan was approved by the shareholders
of the Corporation at the Corporation's annual meeting held on May 20, 1998
(such Plan, as may be amended from time to time, to be referenced the "1998
Plan"); and was approved by the shareholders of the Corporation
WHEREAS, pursuant to the Career Equity Program adopted by the Board of
Directors of the Corporation (the "Board"), the Board has determined to make a
Career Equity Program grant to the Employee of Deferred Stock (subject to the
terms of the l998 Plan and this Agreement), as an inducement for the Employee to
remain an employee of the Corporation, and to retain and motivate such Employee
during his employment with the Corporation.
NOW, THEREFORE, the Corporation and the Employee hereby agree as follows:
l. Grant of Award. The Employee is hereby granted as of ((GRANTDATE)),
(the "Grant Date") a Deferred Stock Award (the "Award"), subject to the terms
and conditions hereinafter set forth, with respect to ((SHARES)) shares of
Common Stock, $l.00 par value, of the Corporation ("Stock"). The shares of Stock
covered by the Award shall vest in accordance with Sections 2, 3, 4, 5, and 6
hereof.
2. Vesting - Normal Retirement or Early Retirement. Subject to Section 5,
in the event of the termination of Employee's employment with the Corporation
(or any Subsidiary or Affiliate thereof) on or after the Grant Date due to
Normal Retirement (which is defined as retirement from employment with the
Corporation, or any Subsidiary or Affiliate thereof, at or after age 60), the
shares of Stock covered by the Award shall become fully vested.
In the event of the termination of the Employee's employment with the
Corporation (or any Subsidiary or Affiliate thereof) on or after the Grant Date
due to Early Retirement (which is defined as an early retirement from employment
with the Corporation, or any Subsidiary or Affiliate thereof, at or after age 55
but before age 60), the shares of stock covered by the Award shall vest in
accordance with the following schedule:
1
<PAGE> 2
<TABLE>
<CAPTION>
Percentage of
Award
Age Vested
--- --------------
<S> <C>
55 85%
56 88%
57 9l%
58 94%
59 97%
</TABLE>
Employee will receive prorata vesting for each full month of employment in
partial years.
Share certificates for the number of shares covered by a vested Award
(whether in full or partial) shall be issued and delivered to the Employee on or
about the date of Retirement.
Notwithstanding anything to the contrary contained herein and for the
purposes of this Award, in order to be eligible for the benefits hereunder
associated with Early Retirement, the recipient must be entitled to receive
early retirement pension benefits under the then existing policies of the
Corporation, Subsidiary or Affiliate, as applicable.
3. Vesting - Death or Disability. Subject to Section 5, in the event of
the termination of Employee's employment with the Corporation (or any Subsidiary
or Affiliate thereof) on or after the Grant Date due to the Employee's death or
Disability, the shares of Stock covered by the Award shall vest at a rate of 20%
for each full year of employment with the Corporation (or any Subsidiary or
Affiliate thereof) after the Grant Date (with pro rata vesting for each full
month of employment in partial years). In such case, share certificates for the
number of shares so vested shall be issued and delivered to the Employee (or, in
the event of the Employee's death, the Employee's designated beneficiary for
purposes of the Award, or in the absence of an effective beneficiary
designation, the Employee's estate) within 60 days after the Employee's death or
Disability.
4. Vesting - Termination Not for Cause. If the Employee's employment with
the Corporation (or any Subsidiary or Affiliate thereof) is terminated on or
after the Grant Date by the Corporation (or any Subsidiary or Affiliate thereof)
other than pursuant to Section 5, the shares of Stock covered by the Award shall
vest at a rate of l0% for each full year of employment with the Corporation (or
any Subsidiary or Affiliate thereof) after the Grant Date (with pro rata vesting
for each full month of employment in partial years); provided, that no shares of
Stock shall vest under this Section 4 if the Employee has not been employed for
at least one full year after the Grant Date. Share certificate(s) for the number
of shares that vest pursuant to this
2
<PAGE> 3
Section 4 shall be issued and delivered to the Employee (i) in five equal annual
installments with the first installment being made one year after the date of
such termination, or (ii) in one share certificate, to be issued within 90 days
of the date of such terminate, in each case, at the option of the Corporation;
provided, however, that in the event of such termination, vesting of the shares
under the Award as provided herein may be predicated upon the Employee agreeing
to such terms and conditions as required by the Corporation, including, but not
limited to, non-competition and non-disclosure agreements.
5. Vesting - Termination for Cause; Other. In the event that (a) the
Employee's employment with the Corporation (or any Subsidiary or Affiliate
thereof) is terminated for Cause; or (b) the Employee terminates his employment
with the Corporation, or any Subsidiary or Affiliate thereof, (other than for
reasons of Retirement or Disability); or c) the Employee becomes an employee of
a Subsidiary that is not wholly owned, directly or indirectly, by the
Corporation; or (d) the Employee takes a leave of absence without reinstatement
rights, unless otherwise agreed in writing between the Corporation and the
Employee; or (e) the Employee is no longer a management level employee at the
time his/her employment with the Corporation (or any Subsidiary or Affiliate
thereof) is terminated, then all shares of Stock covered by the Award shall be
forfeited.
6. Vesting - Change in Control; Potential Change in Control. In the event
of a Change in Control or Potential Change in Control of the Corporation, shares
under the Award shall vest in accordance with the l998 Plan or its successor.
7. Elective Deferrals. At any time at least l2 months prior to the date
of the Employee's Retirement, the Employee may elect in writing, subject to
approval by the Corporation, to voluntarily defer the receipt of the shares of
Stock covered by the Award for a specified additional period beyond the date of
the Employee's termination of employment (the "Elective Deferral Period"). Any
shares deferred pursuant to this Section 7 shall be issued to the Employee
within 60 days after the end of the Elective Deferral Period. In the event of
the death of the Employee during the Elective Deferral Period, the shares so
deferred shall be issued to the Employee's designated Beneficiary (or to the
Employee's estate, in the absence of an effective beneficiary designation)
within 60 days after the Board receives written notification of death.
8. Transfer Restrictions. This Award is non-transferable otherwise than
by will or by the laws of descent and distribution, and may not otherwise be
assigned, pledged or hypothecated and shall not be subject to execution,
attachment or similar process. Upon any attempt by the Employee (or the
3
<PAGE> 4
Employee's successor in interest after the Employee's death) to effect any such
disposition, or upon the levy of any such process, the Award shall immediately
become null and void, at the discretion of the Board.
9. Miscellaneous. This Agreement (a) shall be binding upon and inure to
the benefit of any successor of the Corporation, (b) shall be governed by the
laws of the State of Texas and any applicable laws of the United States, and (c)
may not be amended without the written consent of both the Corporation and the
Employee. No contract or right of employment shall be implied by this Agreement.
If this Award is assumed or a new award is substituted therefore in any
corporate reorganization, employment by such assuming or substituting
corporation or by a parent corporation or subsidiary or affiliate thereof shall
be considered for all purposes of this Award to be employment by the
Corporation. In the event Employee does not forward to the Corporation, within
the applicable period, required taxes with respect to any Award distributed
pursuant to this Agreement, the Corporation may withhold from any payments to be
made to the Employee by the Corporation (or any Subsidiary or Affiliate
thereof), an amount(s) equal to such taxes.
l0. Securities Law Requirements. The Corporation shall not be required to
issue shares pursuant to this Award unless and until (a) such shares have been
duly listed upon each stock exchange on which the Corporation's Stock is then
registered; and (b) a registration statement under the Securities Act of l933
with respect to such shares is then effective.
The Board may require the Employee to furnish to the Corporation, prior to
the issuance of any shares of Stock in connection with this Award, an agreement,
in such form as the Board may from time to time deem appropriate, in which the
Employee represents that the shares acquired by him under the Award are being
acquired for investment and not with a view to the sale or distribution thereof.
ll. Incorporation of l998 Plan Provisions. This Agreement is made pursuant
to the l998 Plan and is subject to all of the terms and provisions of the l998
Plan as if the same were fully set forth herein. Capitalized terms not otherwise
defined herein shall have the meanings set forth for such terms in the l998
Plan.
l2. Participation in Long-Term Incentive Plans. If at the time of i)
Employee's Retirement from the Corporation (or any Subsidiary or Affiliate
thereof) or ii), the termination of Employee's employment with the Corporation
(or any Subsidiary or Affiliate thereof) for reasons contemplated by Sections 3
or 4, the Employee has received payment(s) under the terms of a long-term
4
<PAGE> 5
incentive plan(s) adopted by any Subsidiary or Affiliate of the Corporation, the
Employee agrees that in lieu of the shares of Stock that have vested pursuant to
this award, the Employee will receive shares of stock having a fair market value
as of the vesting date equal to the positive difference, if any, between the
fair market value (as of the vesting date) of the shares of Stock that have
vested hereunder and the aggregate nominal value of the payment(s) made under
such long-term incentive plan(s).
13. Payment of Performance Return Payments and Dividend Equivalents;
Voting Rights.
(a) Performance Return Payments. Subject to the terms and conditions set
forth in the attached Schedule A, Performance Return Payments (as defined in
such Schedule A) shall be paid annually on or about the date as may be
designated from time to time by the Board or any committee thereof (the "Payment
Date") on all or a specified portion of the shares of Deferred Stock covered by
this Award, as set forth in such Schedule A, based on: (i) the greater of (y) a
deemed investment rate equal to the Corporation's Rolling Average ROI as defined
and determined in accordance with the terms and conditions set forth in such
Schedule A or (z) 6%; and (ii) the value of the Stock as determined by the
Board, or any committee thereof, pursuant to Schedule A.
In addition, the Employee shall be entitled, subject to the consent of the
Board, to elect to defer receipt of such Performance Return Payments in
accordance with the American Airlines, Inc. 1987 Executive Deferral Plan or its
successor plan.
(b) Dividend Equivalents. The Employee shall also be entitled to payment
of an amount equal to (i) the amount of any dividend declared per share on the
Corporation's Stock after the Grant Date and prior to issuance to, or forfeiture
by, the Employee of the shares of Deferred Stock covered by this Award,
multiplied by (ii) the number of unissued and unforfeited shares of Deferred
Stock covered by this Award, provided (y) that the amount of any such dividend
equivalents shall be offset by the amount of any Performance Return Payments
paid under this Award within the preceding 11 months and (z) that, unless the
Board otherwise decides prior to the dividend payment date, such dividend
equivalent payment shall be automatically deferred and treated as additional
shares of Deferred Stock, subject to the same terms and conditions that apply to
the related shares of Deferred Stock with respect to which such dividend
equivalents were initially payable.
5
<PAGE> 6
(c) Voting and Other Rights. The Employee shall have no ownership rights,
including voting rights, with respect to the shares of Deferred Stock covered by
this Award unless and until shares of stock are actually issued to the Employee.
* * *
EMPLOYEE AMR CORPORATION
- ----------------------------- ----------------------------
C. D. MarLett
Corporate Secretary
6
<PAGE> 7
Schedule A
Performance Return Payments
1. Performance Return Payments may be paid on a percentage of the shares
covered by the Award, such percentage to be established, from time to time,
by the Committee.
2. The price of those shares, if any, subject to Performance Return Payments,
will be as determined by the Board, or any committee thereof, and will
approximate the then existing price of the Stock on the New York Stock
Exchange.
3. The three-year rolling average return of investment of AMR Corporation (the
"ROI"), as referenced in Section 13 of the Agreement, will be calculated as
soon as practical following the end of the Corporation's fiscal year. In
determining ROI, the following definitions will control:
The Measurement Period is the three most recent fiscal years.
AMR is AMR corporation.
COMMITTEE is the AMR Compensation Committee.
PLAN RETURNS is the sum of AMR pre-tax income, interest expense, and any
accounting adjustments or extraordinary or unusual items which may be
included or excluded at the discretion of the Committee and approved by the
Board of Directors of AMR, or a committee thereof.
ADJUSTED INVESTMENT is the sum of AMR's notes payable, current maturities
of long term debt, current maturities on capital leases, non-current long
term debt, non-current capital leases, and stockholders' equity and any
extraordinary or unusual items which may be included or excluded at the
discretion of the Committee and approved by the Board of Directors of AMR,
or a committee thereof.
AVERAGE ADJUSTED INVESTMENT FOR A FISCAL YEAR is (i) the sum of Adjusted
Investment as of December 31 of the immediately prior fiscal year and
Adjusted Investment as of September 30 of the fiscal year for which the ROI
is being calculated (ii) divided by two.
ROI FOR A FISCAL YEAR is Plan Returns for fiscal year divided by Average
Adjusted Investment for the same fiscal year, stated as a percentage.
ROI FOR THE MEASUREMENT PERIOD is the sum of ROI for each year of the
Measurement Period divided by three.
7
<PAGE> 8
4. In the event of an Employee's termination of employment with the
Corporation (and any Subsidiary or Affiliate thereof) for reasons of death,
Disability, or Retirement, Performance Return Payments, if any, which are
paid on or around the first occurrence of the Payment Date after the date
of death, Disability, or Retirement, shall be paid to the Employee (or, in
the event of the Employee's death, the Employee's designated beneficiary
for purposes of the Award, or in the absence of an effective beneficiary
designation, the Employee's estate) at the rate of 8 1/3% for each full or
partial month of employment since the Payment Date of the preceding year.
For the avoidance of doubt, no Performance Return Payments shall be made to
an Employee if the Employee's employment with the Corporation (and any
Subsidiary or Affiliate thereof) terminates for factors set forth in
Section 5 of this Agreement.
8
<PAGE> 1
EXHIBIT 10.42
Grant #
CAREER EQUITY PROGRAM
DEFERRED STOCK AWARD AGREEMENT
This AGREEMENT made as of ((GRANTDATE)), by and between Corporation,
((FIRSTNAME)) ((LASTNAME)) (the "Employee"), employee number ((EE)).
WHEREAS, the stockholders of the Corporation approved the 1998 Long Term
Incentive Plan at the Corporation's annual meeting held on May 20, 1998 (such
Plan, as may be amended from time to time, to be referenced the "1998 Plan); and
was approved by the shareholders of the Corporation
WHEREAS, pursuant to the Career Equity Program adopted by the Board of
Directors of the Corporation (the "Board"), the Board has determined to make a
Career Equity Program grant to the Employee of Deferred Stock (subject to the
terms of the l998 Plan and this Agreement), as an inducement for the Employee to
remain an employee of the Corporation, and to retain and motivate such Employee
during his employment with the Corporation.
NOW, THEREFORE, the Corporation and the Employee hereby agree as follows:
l. Grant of Award. The Employee is hereby granted as of ((GRANTDATE)),
(the "Grant Date") a Deferred Stock Award (the "Award"), subject to the terms
and conditions hereinafter set forth, with respect to ((SHARES)) shares of
Common Stock, $l.00 par value, of the Corporation ("Stock"). The shares of Stock
covered by the Award shall vest in accordance with Sections 2, 3, 4, 5, and 6
hereof.
2. Vesting - Normal Retirement or Early Retirement. Subject to Section 5,
in the event of the termination of Employee's employment with the Corporation
(or any Subsidiary or Affiliate thereof) on or after the Grant Date due to
Normal Retirement (which is defined as retirement from employment with the
Corporation, or any Subsidiary or Affiliate thereof, at or after age 60), the
shares of Stock covered by the Award shall become fully vested.
In the event of the termination of the Employee's employment with the
Corporation (or any Subsidiary or Affiliate thereof) on or after the Grant Date
due to Early Retirement (which is defined as an early retirement from employment
with the Corporation, or any Subsidiary or Affiliate thereof, at or after age 55
but before age 60), the shares of stock covered by the Award shall vest in
accordance with the following schedule:
1
<PAGE> 2
<TABLE>
<CAPTION>
Percentage of
Award
Age Vested
--- --------------
<S> <C>
55 85%
56 88%
57 9l%
58 94%
59 97%
</TABLE>
Employee will receive prorata vesting for each full month of employment in
partial years.
Share certificates for the number of shares covered by a vested Award
(whether in full or partial) shall be issued and delivered to the Employee on or
about the date of Retirement.
Notwithstanding anything to the contrary contained herein and for the
purposes of this Award, in order to be eligible for the benefits hereunder
associated with Early Retirement, the recipient must be entitled to receive
early retirement pension benefits under the then existing policies of the
Corporation, Subsidiary or Affiliate, as applicable.
3. Vesting - Death or Disability. Subject to Section 5, in the event of
the termination of Employee's employment with the Corporation (or any Subsidiary
or Affiliate thereof) on or after the Grant Date due to the Employee's death or
Disability, the shares of Stock covered by the Award shall vest at a rate of 20%
for each full year of employment with the Corporation (or any Subsidiary or
Affiliate thereof) after the Grant Date (with pro rata vesting for each full
month of employment in partial years). In such case, share certificates for the
number of shares so vested shall be issued and delivered to the Employee (or, in
the event of the Employee's death, the Employee's designated beneficiary for
purposes of the Award, or in the absence of an effective beneficiary
designation, the Employee's estate) within 60 days after the Employee's death or
Disability.
4. Vesting - Termination Not for Cause. If the Employee's employment with
the Corporation (or any Subsidiary or Affiliate thereof) is terminated on or
after the Grant Date by the Corporation (or any Subsidiary or Affiliate thereof)
other than pursuant to Section 5, the shares of Stock covered by the Award shall
vest at a rate of l0% for each full year of employment with the Corporation (or
any Subsidiary or Affiliate thereof) after the Grant Date (with pro rata vesting
for each full month of employment in partial years); provided, that no shares of
Stock shall vest under this Section 4 if the Employee has not been employed for
at least one full year after the Grant Date. Share certificate(s) for the number
of shares that vest
2
<PAGE> 3
pursuant to this Section 4 shall be issued and delivered to the Employee (i) in
five equal annual installments with the first installment being made one year
after the date of such termination or (ii) in one share certificate, to be
issued within 90 days of the date of such termination, in each case, at the
option of the Corporation; provided, however, that in the event of such
termination, vesting of the shares under the Award as provided herein may be
predicated upon the Employee agreeing to such terms and conditions as required
by the Corporation, including, but not limited to, non-competition and
non-disclosure agreements.
5. Vesting - Termination for Cause; Other. In the event that (a) the
Employee's employment with the Corporation (or any Subsidiary or Affiliate
thereof) is terminated for Cause; or (b) the Employee terminates his employment
with the Corporation, or any Subsidiary or Affiliate thereof, (other than for
reasons of Retirement or Disability); or c) the Employee becomes an employee of
a Subsidiary that is not wholly owned, directly or indirectly, by the
Corporation; or (d) the Employee takes a leave of absence without reinstatement
rights, unless otherwise agreed in writing between the Corporation and the
Employee; or (e) the Employee is no longer a management level employee at the
time his/her employment with the Corporation (or any Subsidiary or Affiliate
thereof) is terminated, then all shares of Stock covered by the Award shall be
forfeited.
6. Vesting - Change in Control; Potential Change in Control. In the event
of a Change in Control or Potential Change in Control of the Corporation, shares
under the Award shall vest in accordance with the l998 Plan or its successor.
7. Elective Deferrals. At any time at least l2 months prior to the date
of the Employee's Retirement, the Employee may elect in writing, subject to
approval by the Corporation, to voluntarily defer the receipt of the shares of
Stock covered by the Award for a specified additional period beyond the date of
the Employee's termination of employment (the "Elective Deferral Period"). Any
shares deferred pursuant to this Section 7 shall be issued to the Employee
within 60 days after the end of the Elective Deferral Period. In the event of
the death of the Employee during the Elective Deferral Period, the shares so
deferred shall be issued to the Employee's designated Beneficiary (or to the
Employee's estate, in the absence of an effective beneficiary designation)
within 60 days after the Board receives written notification of death.
3
<PAGE> 4
8. Transfer Restrictions. This Award is non-transferable otherwise than
by will or by the laws of descent and distribution, and may not otherwise be
assigned, pledged or hypothecated and shall not be subject to execution,
attachment or similar process. Upon any attempt by the Employee (or the
Employee's successor in interest after the Employee's death) to effect any such
disposition, or upon the levy of any such process, the Award shall immediately
become null and void, at the discretion of the Board.
9. Miscellaneous. This Agreement (a) shall be binding upon and inure to
the benefit of any successor of the Corporation, (b) shall be governed by the
laws of the State of Texas and any applicable laws of the United States, and (c)
may not be amended without the written consent of both the Corporation and the
Employee. No contract or right of employment shall be implied by this Agreement.
If this Award is assumed or a new award is substituted therefore in any
corporate reorganization, employment by such assuming or substituting
corporation or by a parent corporation or subsidiary or affiliate thereof shall
be considered for all purposes of this Award to be employment by the
Corporation. In the event Employee does not forward to the Corporation, within
the applicable period, required taxes with respect to any Award distributed
pursuant to this Agreement, the Corporation may withhold from any payments to be
made to the Employee by the Corporation (or any Subsidiary or Affiliate
thereof), an amount(s) equal to such taxes.
l0. Securities Law Requirements. The Corporation shall not be required to
issue shares pursuant to this Award unless and until (a) such shares have been
duly listed upon each stock exchange on which the Corporation's Stock is then
registered; and (b) a registration statement under the Securities Act of l933
with respect to such shares is then effective.
The Board may require the Employee to furnish to the Corporation, prior to
the issuance of any shares of Stock in connection with this Award, an agreement,
in such form as the Board may from time to time deem appropriate, in which the
Employee represents that the shares acquired by him under the Award are being
acquired for investment and not with a view to the sale or distribution thereof.
ll. Incorporation of l998 Plan Provisions. This Agreement is made pursuant
to the l998 Plan and is subject to all of the terms and provisions of the l998
Plan as if the same were fully set forth herein. Capitalized terms not otherwise
defined herein shall have the meanings set forth for such terms in the l998
Plan.
4
<PAGE> 5
l2. Participation in Long-Term Incentive Plans. If at the time of i)
Employee's Retirement from the Corporation (or any Subsidiary or Affiliate
thereof) or ii), the termination of Employee's employment with the Corporation
(or any Subsidiary or Affiliate thereof) for reasons contemplated by Sections 3
or 4, the Employee has received payment(s) under the terms of a long-term
incentive plan(s) adopted by any Subsidiary or Affiliate of the Corporation, the
Employee agrees that in lieu of the shares of Stock that have vested pursuant to
this award, the Employee will receive shares of stock having a fair market value
as of the vesting date equal to the positive difference, if any, between the
fair market value (as of the vesting date) of the shares of Stock that have
vested hereunder and the aggregate nominal value of the payment(s) made under
such long-term incentive plan(s).
* * *
IN WITNESS HEREOF, the Employee and the Corporation have executed this Career
Equity Grant as of the day and year first above written.
* * * * * * * *
EMPLOYEE AMR CORPORATION
- ----------------------------- ----------------------------
C. D. MarLett
Corporate Secretary
5
<PAGE> 1
EXHIBIT 10.42(a)
Grant #
CAREER EQUITY PROGRAM
DEFERRED STOCK AWARD AGREEMENT
This AGREEMENT made as of ((GRANTDATE)), by and between AMR Corporation, a
Delaware corporation (the "Corporation"), to ((FIRSTNAME)) ((LASTNAME)) (the
"Employee"), employee numBER ((EE)).
WHEREAS, the stockholders of the Corporation approved the 1998 Long Term
Incentive Plan at the Corporation's annual meeting held on May 20, 1998 (such
Plan, as may be amended from time to time, to be referenced the "1998 Plan");
and was approved by the shareholders of the Corporation
WHEREAS, pursuant to the Career Equity Program adopted by the Board of
Directors of the Corporation (the "Board"), the Board has determined to make a
Career Equity Program grant to the Employee of Deferred Stock (subject to the
terms of the l998 Plan and this Agreement), as an inducement for the Employee to
remain an employee of the Corporation, and to retain and motivate such Employee
during his employment with the Corporation.
NOW, THEREFORE, the Corporation and the Employee hereby agree as follows:
l. Grant of Award. The Employee is hereby granted as of ((GRANTDATE1)),
(the "Grant Date") a Deferred Stock Award (the "Award"), subject to the terms
and conditions hereinafter set forth, with respect to ((SHARES)) shares of
Common Stock, $l.00 par value, of the Corporation ("Stock"). The shares of Stock
covered by the Award shall vest in accordance with Sections 2, 3, 4, 5, and 6
hereof.
2. Vesting - Normal Retirement or Early Retirement. Subject to Section 5,
in the event of the termination of Employee's employment with the Corporation
(or any Subsidiary or Affiliate thereof) on or after the Grant Date due to
Normal Retirement (which is defined as retirement from employment with the
Corporation, or any Subsidiary or Affiliate thereof, at or after age 60), the
shares of Stock covered by the Award shall become fully vested.
In the event of the termination of the Employee's employment with the
Corporation (or any Subsidiary or Affiliate thereof) on or after the Grant Date
due to Early Retirement (which is defined as an early retirement from employment
with the Corporation, or any Subsidiary or Affiliate thereof, at or after age 55
but before age 60), the shares of stock covered by the Award shall vest in
accordance with the following schedule:
1
<PAGE> 2
<TABLE>
<CAPTION>
Percentage of
Award
Age Vested
--- --------------
<S> <C>
55 85%
56 88%
57 9l%
58 94%
59 97%
</TABLE>
Employee will receive prorata vesting for each full month of employment in
partial years.
Share certificates for the number of shares covered by a vested Award
(whether in full or partial) shall be issued and delivered to the Employee on or
about the date of Retirement.
Notwithstanding anything to the contrary contained herein and for the
purposes of this Award, in order to be eligible for the benefits hereunder
associated with Early Retirement, the recipient must be entitled to receive
early retirement pension benefits under the then existing policies of the
Corporation, Subsidiary or Affiliate, as applicable.
3. Vesting - Death or Disability. Subject to Section 5, in the event of
the termination of Employee's employment with the Corporation (or any Subsidiary
or Affiliate thereof) on or after the Grant Date due to the Employee's death or
Disability, the shares of Stock covered by the Award shall vest at a rate of 20%
for each full year of employment with the Corporation (or any Subsidiary or
Affiliate thereof) after the Grant Date (with pro rata vesting for each full
month of employment in partial years). In such case, share certificates for the
number of shares so vested shall be issued and delivered to the Employee (or, in
the event of the Employee's death, the Employee's designated beneficiary for
purposes of the Award, or in the absence of an effective beneficiary
designation, the Employee's estate) within 60 days after the Employee's death or
Disability.
4. Vesting - Termination Not for Cause. If the Employee's employment with
the Corporation (or any Subsidiary or Affiliate thereof) is terminated on or
after the Grant Date by the Corporation (or any Subsidiary or Affiliate thereof)
other than pursuant to Section 5, the shares of Stock covered by the Award shall
vest at a rate of l0% for each full year of employment with the Corporation (or
any Subsidiary or Affiliate thereof) after the Grant Date (with pro rata vesting
for each full month of employment in partial years); provided, that no shares of
Stock shall vest under this Section 4 if the Employee has not been employed for
at least one full year after the Grant Date. Share certificate(s) for the number
of shares that vest pursuant to this
2
<PAGE> 3
Section 4 shall be issued and delivered to the Employee (i)in five equal annual
installments with the first installment being made one year after the date of
such termination or (ii) in one share certificate, to be issued within 90 days
of the date of such termination, in each case, at the option of the Corporation;
provided, however, that in the event of such termination, vesting of the shares
under the Award as provided herein may be predicated upon the Employee agreeing
to such terms and conditions as required by the Corporation, including, but not
limited to, non-competition and non-disclosure agreements.
5. Vesting - Termination for Cause; Other. In the event that (a) the
Employee's employment with the Corporation (or any Subsidiary or Affiliate
thereof) is terminated for Cause; or (b) the Employee terminates his employment
with the Corporation, or any Subsidiary or Affiliate thereof, (other than for
reasons of Retirement or Disability); or c) the Employee becomes an employee of
a Subsidiary that is not wholly owned, directly or indirectly, by the
Corporation; or (d) the Employee takes a leave of absence without reinstatement
rights, unless otherwise agreed in writing between the Corporation and the
Employee; or (e) the Employee is no longer a management level employee at the
time his/her employment with the Corporation (or any Subsidiary or Affiliate
thereof)is terminated, then all shares of Stock covered by the Award shall be
forfeited.
6. Vesting - Change in Control; Potential Change in Control. In the event
of a Change in Control or Potential Change in Control of the Corporation, shares
under the Award shall vest in accordance with the l998 Plan or its successor.
7. Elective Deferrals. At any time at least l2 months prior to the date
of the Employee's Retirement, the Employee may elect in writing, subject to
approval by the Corporation, to voluntarily defer the receipt of the shares of
Stock covered by the Award for a specified additional period beyond the date of
the Employee's termination of employment (the "Elective Deferral Period"). Any
shares deferred pursuant to this Section 7 shall be issued to the Employee
within 60 days after the end of the Elective Deferral Period. In the event of
the death of the Employee during the Elective Deferral Period, the shares so
deferred shall be issued to the Employee's designated Beneficiary (or to the
Employee's estate, in the absence of an effective beneficiary designation)
within 60 days after the Board receives written notification of death.
8. Transfer Restrictions. This Award is non-transferable otherwise than
by will or by the laws of descent and distribution, and may not otherwise be
assigned, pledged or hypothecated and shall not be subject to execution,
attachment or similar process. Upon any attempt by the Employee (or the
3
<PAGE> 4
Employee's successor in interest after the Employee's death) to effect any such
disposition, or upon the levy of any such process, the Award shall immediately
become null and void, at the discretion of the Board.
9. Miscellaneous. This Agreement (a) shall be binding upon and inure to
the benefit of any successor of the Corporation, (b) shall be governed by the
laws of the State of Texas and any applicable laws of the United States, and (c)
may not be amended without the written consent of both the Corporation and the
Employee. No contract or right of employment shall be implied by this Agreement.
If this Award is assumed or a new award is substituted therefore in any
corporate reorganization, employment by such assuming or substituting
corporation or by a parent corporation or subsidiary or affiliate thereof shall
be considered for all purposes of this Award to be employment by the
Corporation. In the event Employee does not forward to the Corporation, within
the applicable period, required taxes with respect to any Award distributed
pursuant to this Agreement, the Corporation may withhold from any payments to be
made to the Employee by the Corporation (or any Subsidiary or Affiliate
thereof), an amount(s) equal to such taxes.
l0. Securities Law Requirements. The Corporation shall not be required to
issue shares pursuant to this Award unless and until (a) such shares have been
duly listed upon each stock exchange on which the Corporation's Stock is then
registered; and (b) a registration statement under the Securities Act of l933
with respect to such shares is then effective.
The Board may require the Employee to furnish to the Corporation, prior to
the issuance of any shares of Stock in connection with this Award, an agreement,
in such form as the Board may from time to time deem appropriate, in which the
Employee represents that the shares acquired by him under the Award are being
acquired for investment and not with a view to the sale or distribution thereof.
ll. Incorporation of l998 Plan Provisions. This Agreement is made pursuant
to the l998 Plan and is subject to all of the terms and provisions of the l998
Plan as if the same were fully set forth herein. Capitalized terms not otherwise
defined herein shall have the meanings set forth for such terms in the l998
Plan.
l2. Participation in Long-Term Incentive Plans. If at the time of i)
Employee's Retirement from the Corporation (or any Subsidiary or Affiliate
thereof) or ii), the termination of Employee's employment with the Corporation
(or any Subsidiary or Affiliate thereof) for reasons contemplated by Sections 3
or 4, the Employee has received payment(s) under the terms of a long-term
4
<PAGE> 5
incentive plan(s) adopted by any Subsidiary or Affiliate of the Corporation, the
Employee agrees that in lieu of the shares of Stock that have vested pursuant to
this award, the Employee will receive shares of stock having a fair market value
as of the vesting date equal to the positive difference, if any, between the
fair market value (as of the vesting date) of the shares of Stock that have
vested hereunder and the aggregate nominal value of the payment(s) made under
such long-term incentive plan(s).
13. Payment of Performance Return Payments and Dividend Equivalents;
Voting Rights.
(a) Performance Return Payments. Subject to the terms and conditions set
forth in the attached Schedule A, Performance Return Payments (as defined in
such Schedule A) shall be paid annually on or about the date as may be
designated from time to time by the Board or any committee thereof (the "Payment
Date") on all or a specified portion of the shares of Deferred Stock covered by
this Award, as set forth in such Schedule A, based on: (i) a deemed investment
rate equal to the Corporation's Rolling Average ROI as defined and determined in
accordance with the terms and conditions set forth in such Schedule A ; and (ii)
the value of the Stock as determined by the Board, or any committee thereof,
pursuant to Schedule A.
In addition, the Employee shall be entitled, subject to the consent of the
Board, to elect to defer receipt of such Performance Return Payments in
accordance with the American Airlines, Inc. 1987 Executive Deferral Plan or its
successor plan.
(b) Dividend Equivalents. The Employee shall also be entitled to payment
of an amount equal to (i) the amount of any dividend declared per share on the
Corporation's Stock after the Grant Date and prior to issuance to, or forfeiture
by, the Employee of the shares of Deferred Stock covered by this Award,
multiplied by (ii) the number of unissued and unforfeited shares of Deferred
Stock covered by this Award, provided (y) that the amount of any such dividend
equivalents shall be offset by the amount of any Performance Return Payments
paid under this Award within the preceding 11 months and (z) that, unless the
Board otherwise decides prior to the dividend payment date, such dividend
equivalent payment shall be automatically deferred and treated as additional
shares of Deferred Stock, subject to the same terms and conditions that apply to
the related shares of Deferred Stock with respect to which such dividend
equivalents were initially payable.
5
<PAGE> 6
(c) Voting and Other Rights. The Employee shall have no ownership rights,
including voting rights, with respect to the shares of Deferred Stock covered by
this Award unless and until shares of stock are actually issued to the Employee.
* * *
EMPLOYEE AMR CORPORATION
- ----------------------------- ----------------------------
C. D. MarLett
Corporate Secretary
6
<PAGE> 7
Schedule A
Performance Return Payments
1. Performance Return Payments may be paid on a percentage of the shares
covered by the Award, such percentage to be established, from time to time,
by the Committee.
2. The price of those shares, if any, subject to Performance Return Payments,
will be as determined by the Board, or any committee thereof, and will
approximate the then existing price of the Stock on the New York Stock
Exchange.
3. The five-year rolling average return of investment of AMR Corporation (the
"ROI"), as referenced in Section 13 of the Agreement, will be calculated as
soon as practical following the end of the Corporation's fiscal year. In
determining ROI, the following definitions will control:
The Measurement Period is the five most recent fiscal years.
AMR is AMR corporation.
COMMITTEE is the AMR Compensation Committee.
PLAN RETURNS is the sum of AMR pre-tax income, interest expense, and any
accounting adjustments or extraordinary or unusual items which may be
included or excluded at the discretion of the Committee and approved by the
Board of Directors of AMR, or a committee thereof.
ADJUSTED INVESTMENT is the sum of AMR's notes payable, current maturities
of long term debt, current maturities on capital leases, non-current long
term debt, non-current capital leases, and stockholders' equity and any
extraordinary or unusual items which may be included or excluded at the
discretion of the Committee and approved by the Board of Directors of AMR,
or a committee thereof.
AVERAGE ADJUSTED INVESTMENT FOR A FISCAL YEAR is (i) the sum of Adjusted
Investment as of December 31 of the immediately prior fiscal year and
Adjusted Investment as of September 30 of the fiscal year for which the ROI
is being calculated (ii) divided by two.
ROI FOR A FISCAL YEAR is Plan Returns for fiscal year divided by Average
Adjusted Investment for the same fiscal year, stated as a percentage.
ROI FOR THE MEASUREMENT PERIOD is the sum of ROI for each year of the
Measurement Period divided by five.
7
<PAGE> 8
4. In the event of an Employee's termination of employment with the
Corporation (or any Subsidiary or Affiliate thereof) for reasons of death,
Disability, or Retirement, Performance Return Payments, if any, which are
paid on or around the first occurrence of the Payment Date after the date
of death, Disability, or Retirement, shall be paid to the Employee (or, in
the event of the Employee's death, the Employee's designated beneficiary
for purposes of the Award, or in the absence of an effective beneficiary
designation, the Employee's estate) at the rate of 8 1/3% for each full or
partial month of employment since the Payment Date of the preceding year.
For the avoidance of doubt, no Performance Return Payments shall be made to
an Employee if the Employee's employment with the Corporation (and any
Subsidiary or Affiliate thereof) terminates for factors set forth in
Section 5 of this Agreement.
8
<PAGE> 1
EXHIBIT 10.50
AMR CORPORATION
1999 - 2001 PERFORMANCE SHARE PLAN
FOR OFFICERS AND KEY EMPLOYEES
Purpose
The purpose of the 1999 - 2001 AMR Corporation Performance Share Plan ("Plan")
for Officers and Key Employees is to provide greater incentive to officers and
key employees of AMR Corporation ("AMR" or "the Corporation"), to achieve the
highest level of individual performance, and to meet or exceed specified goals
which will contribute to the success of the Corporation.
Definitions
This Plan has been approved by the Committee under the terms and conditions of
the 1998 Long Term Incentive Plan, as amended ("LTIP"). Capitalized terms not
otherwise defined in the Plan or the award agreement for performance shares
between the Corporation and the employee, will have the meanings set forth in
the LTIP.
For purposes of the Plan, the following definitions will control:
"AMR" is defined as AMR Corporation.
"Committee" is defined as the Compensation Committee of the AMR Board of
Directors.
"Adjusted Earnings/(Loss)" is defined as the sum of the Corporation's
consolidated earnings/(loss) applicable to common shares, preferred dividends,
American Airlines Inc. ("American") aircraft rental expense - net of the Related
Tax Impact, and the Corporation's Net Interest Expense - net of the Related Tax
Impact, less: Calculated Amortization of Operating Leases - net of the Related
Tax Impact. For purposes of the determination of Adjusted Earnings/(Loss), the
Corporation's Net Interest Expense shall be reduced by an amount equal to the
Net Interest Expense of any consolidated non-wholly owned subsidiary multiplied
by the percentage of such subsidiary's common stock held by non-affiliates of
AMR.
1
<PAGE> 2
Definitions (Continued)
"Net Cash Flow" is defined as the sum of Adjusted Earnings/(Loss), the
Corporation's depreciation and amortization expense, Calculated Amortization of
Operating Leases, and any accounting adjustments or extraordinary or unusual
items (net of the Related Tax Impact) or other non-cash items which may be added
or deducted at the discretion of the Committee and approved by the AMR Board of
Directors. For purposes of the determination of Net Cash Flow, depreciation and
amortization expense shall be reduced by an amount equal to the depreciation and
amortization expense of any consolidated non-wholly owned subsidiary multiplied
by the percentage of such subsidiary's common stock held by non-affiliates of
AMR.
"Plan Average Net Cash Flow" is defined as the sum of the Net Cash Flow amounts
for all of the fiscal years in the measurement period divided by three.
"Adjusted Gross Assets" is defined as the Corporation's consolidated total
assets plus accumulated depreciation on equipment and property plus accumulated
amortization on equipment and property under capital leases plus the Capitalized
Value of Operating Leases, less: AMR's cash, short-term investments, Accident
Receivables and minority interest in "Subsidiary Adjusted Gross Assets"
(determined by multiplying "Subsidiary Adjusted Gross Assets" by the percentage
of such subsidiary's common stock held by non-affiliates of AMR).
"Accident Receivables" is defined as amounts recorded as receivables from
insurance carriers related to significant accident losses, and for which an
offsetting liability has been recorded.
"Subsidiary Adjusted Gross Assets" is defined as any non-wholly owned
subsidiary's total assets, plus accumulated depreciation on equipment and
property, plus accumulated amortization on equipment and property under capital
leases, less: cash, short term investments and Accident Receivables.
"Capitalized Value of Operating Leases" is defined as the initial present value
of the lease payments required under American's aircraft operating leases over
the initial stated lease term, calculated using a discount rate of Prime plus
one percent.
"Prime" is defined as the base rate on Corporate Loans posted by at least 75% of
the 30 largest U.S. banks which is published daily in the Wall Street Journal.
"Net Interest Expense" is defined as interest expense, less: interest income.
"Calculated Amortization of Operating Leases" is defined as the amortization
expense associated with Capitalized Value of Operating Leases and is determined
by the straight-line method of amortization over the lease term.
2
<PAGE> 3
Definitions (Continued)
"Related Tax Impact" of an adjustment is defined as the amount of that
adjustment multiplied by the Corporation's estimated marginal tax rate for the
relevant year.
"Measurement Period" is defined as the three year period beginning January 1,
1999 and ending December 31, 2001.
"Average Adjusted Gross Assets" is Adjusted Gross Assets as of December 31 of a
given year during the measurement period, plus Adjusted Gross Assets as of
December 31 of the prior fiscal year, divided by two.
"Plan Average Adjusted Gross Assets" is the sum of Average Adjusted Gross Assets
for each of the years during the measurement period divided by three.
"Cash Flow Return on Gross Assets" is defined as Plan Average Net Cash Flow
divided by Plan Average Adjusted Gross Assets.
"Comparison Airlines" shall consist of Delta Air Lines Inc., Southwest Airlines
Inc., UAL Corp., and US Airways Group, Inc.
Unless otherwise indicated, the sources for all of the financial data specified
above are the applicable Annual Reports on Form 10-K filed by the Corporation.
Accumulation of Shares
The number of shares under the Plan to be distributed to individual participants
is based on the applicable award agreement between the Corporation and the
Employee and is determined by (i) the Corporation's Cash Flow Return on Gross
Assets ("CFROGA"), and (ii) the Corporation's relative rank among the Comparison
Airlines with regard to CFROGA. The accumulation of shares is specified below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
GRANTED SHARES - PERCENT OF TARGET
AMR'S CFROGA
- --------------------------------------------------------------------------------
AMR's > = 5.70% > = 6.80% > = 7.90%
Ranking < 5.70% and < 6.80% and < 7.90% and < 8.60% > = 8.60%
- ------- ------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
1st 75% 100% 125% 150% 175%
2nd 50% 75% 100% 125% 150%
3rd 25% 50% 75% 100% 125%
4th 0% 25% 50% 75% 100%
5th 0% 0% 25% 50% 75%
- --------------------------------------------------------------------------------
</TABLE>
3
<PAGE> 4
Administration
The Committee shall have authority to administer and interpret the Plan,
establish administrative rules, approve eligible participants, and take any
other action necessary for the proper operation of the Plan. In computing CFROGA
of the Comparison Airlines, the Committee may include or exclude special or
non-recurring items. The amount, if any, of the fund shall be computed by the
General Auditor of American based on a certification of CFROGA by American's
independent auditors. A summary of awards under the Plan shall be provided to
the Board of Directors at the first regular meeting following determination of
the awards. The Committee may determine to pay a cash equivalent in lieu of the
stock award.
General
Neither this Plan nor any action taken hereunder shall be construed as giving
any employee or participant the right to be retained in the employ of American
or an Affiliate.
Nothing in the Plan shall be deemed to give any employee any right,
contractually or otherwise, to participate in the Plan or in any benefits
hereunder, other than the right to receive an award as may have been expressly
awarded by the Committee.
In the event of any act of God, war, natural disaster, aircraft grounding,
revocation of operating certificate, terrorism, strike, lockout, labor dispute,
work stoppage, fire, epidemic or quarantine restriction, act of government,
critical materials shortage, or any other act beyond the control of the Company,
whether similar or dissimilar, (each a "Force Majeure Event"), which Force
Majeure Event affects the Company or its Subsidiaries or its Affiliates, the
Board of Directors of the Company, at its sole discretion, may (i) terminate or
(ii) suspend, delay, defer (for such period of time as the Board may deem
necessary), or substitute any awards due currently or in the future under the
Plan, including, but not limited to, any awards that have accrued to the benefit
of participants but have not yet been paid.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees (i) not to disclose any trade secrets of, or other
confidential/restricted information of, American, to any unauthorized party and,
(ii) not to make any unauthorized use of such trade secrets or confidential or
restricted information during his or her employment with American or after such
employment is terminated, and (iii) not to solicit any current employees of
American or any subsidiaries of AMR Corporation to join the employee at his or
her new place of employment after his or her employment with American is
terminated.
The Board of Directors may amend, suspend, or terminate the Plan at any time.
4
<PAGE> 1
EXHIBIT 10.52
AMR CORPORATION
1987 EXECUTIVE DEFERRAL PLAN
(AS AMENDED THROUGH 1999)
MASTER PLAN DOCUMENT
JANUARY 1, 1987
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Article Subject
- ------------------- ---------------------------------------------------------------------------------------
<S> <C>
1 Definitions
2 Eligibility
3 Deferral Commitments
4 Effect on Other Benefits
5 Establishment of Account/Crediting of Interest
6 Benefit
7 Survivor Benefits
8 Termination of Employment
9 Beneficiary
10 Leave of Absence
11 Employer Liability
12 No Guarantee of Continuing Employment
13 Termination, Amendment or Modification of Plan
14 Restriction on Alienation of Benefits
15 Early Withdrawal
16 Administration of the Plan
17 Miscellaneous
18 Trust
</TABLE>
<PAGE> 3
1987 EXECUTIVE DEFERRAL PLAN
OF
AMR CORPORATION
PURPOSE
The purpose of this Plan is to provide specified benefits to key
employees who contribute materially to the growth, development and business
success of AMR Corporation and its subsidiaries.
The Plan is intended to be a "top hat plan" within the meaning of
sections 201((2), 301(a)(3) and 401(a)(2) of the Employee Retirement Income
Security Act of 1974, as amended, and accordingly, all terms hereof shall be
construed in a manner consistent with such provisions.
ARTICLE 1
DEFINITIONS
For purposes hereof, unless otherwise clearly apparent from the
context, the following phrases or terms shall have the following indicated
meanings:
1.1 ACCOUNT BALANCE shall consist of Deferrals and the earnings
credited thereon pursuant to Article 5, less any withdrawals.
1.2 AGREEMENT shall mean the form of written agreement entered into
by and between an Employer and a Participant with respect to the Plan. Each
Agreement executed by a Participant shall provide within the context of the
Master Plan Document for the Benefit to which such Participant is entitled under
the Plan.
1.3 ANNIVERSARY DATE shall be the last day of a Plan year.
1.4 BENEFIT shall mean the amount paid under the Plan.
1.5 BENEFICIARY shall mean the person of persons or the estate of
Participant named (pursuant to Article 10) to receive any benefits under this
Plan upon the death of a Participant.
1.6 COMMITTEE shall mean the committee appointed to manage and
administer the Plan in accordance with the provisions of this Master Plan
Document.
1.7 COMPANY shall mean AMR Corporation, its subsidiaries and the
successors of each.
1.8 COVERED COMPENSATION shall mean that portion of a Participant's
Gross Salary, Performance Return(s), Performance Share(s), and Incentive(s)
eligible for Deferral.
1.9 DEFERRAL(S) shall mean the amount or amounts of Covered
Compensation that a Participant elects to defer pursuant to the Plan.
1.10 DISTRIBUTION DATE shall mean the date that the Participant
chose in the Agreement to begin receiving the Benefit.
1.11 EFFECTIVE DATE shall be January 1, 1987.
2
<PAGE> 4
1.12 EMPLOYER shall mean the Company or subsidiary having one or
more Executives.
1.13 EXECUTIVE shall mean any person in the regular full-time
employment of the Company or any of its subsidiaries (as determined by the then
existing personnel policies and practices of the Company or affiliate or
subsidiary) who has been determined by the Committee to be eligible for
participation in the Plan.
1.14 GROSS SALARY will mean the yearly salary and commissions paid
to an Executive, excluding, Incentive(s), overtime, and non-monetary awards, for
employment services to the Employer.
1.15 INCENTIVE(S) shall mean payment pursuant to any incentive,
commission, profit sharing, or other bonus payment plan sponsored by the
Employer.
1.16 MASTER PLAN DOCUMENT is this document setting forth the
provisions of the Plan.
1.17 PARTICIPANT shall mean any Executive who elects to participate
in the Plan, signs an Agreement and is accepted into the Plan.
1.18 PERFORMANCE RETURN(S) shall be the proceeds that the
Participant could receive during a Plan Year as a Performance Return on Career
Equity pursuant to the Participant's career equity contract.
1.19 PERFORMANCE SHARE(S) shall be the cash equivalent proceeds that
the Participant could receive during a Plan Year pursuant to the Performance
Share Program.
1.20 PLAN shall mean this 1987 Executive Deferral Plan of AMR
Corporation, which shall be evidenced by this Master Plan Document and by each
Agreement.
1.21 PLAN YEAR shall begin on January 1 of each year.
1.22 RETIREMENT shall mean achievement of retiree status with the
Employer (as determined by the then existing personnel policies of the
Employer).
1.23 TERMINATION OF EMPLOYMENT or TERMINATION shall mean the ceasing
of employment, voluntarily or involuntarily, excluding Retirement or death.
ARTICLE 2
ELIGIBILITY
2.1 The Committee shall have the sole discretion to determine those
individuals who are eligible to become Participants in the Plan.
3
<PAGE> 5
2.2 To become a Participant, the Executive shall complete, execute,
and return to the Committee an Agreement and comply with any further conditions
as many be established by the Committee.
ARTICLE 3
DEFERRAL COMMITMENTS
3.1 Elections to defer Covered Compensation must be made and
received by the Committee by September 15 of the Plan Year prior to the Plan
Year in which the Deferral will actually begin.
3.2 The minimum annual Deferral shall be: either one hundred percent
(100%) of, or a minimum of five thousand dollars ($5,000) from, Gross Salary;
either one hundred percent (100%) of, or a minimum of five thousand dollars
($5,000) from, Incentives; either one hundred percent (100%) of, or a minimum of
five thousand dollars ($5,000) from, Performance Returns; or either one hundred
percent (100%) of, or a minimum of five thousand dollars ($5,000) from,
Performance Shares.
3.3 The maximum annual Deferral shall be 100% of Covered
Compensation per Plan Year, excluding FICA and other deductions required by law.
3.4 Deferrals from the Participant's Gross Salary shall be deducted
in equal amounts for each pay period during the Plan Year.
3.5 Deferrals from the Participant's Incentives, Performance
Returns, or Performance Shares shall be deducted at the time of the Incentive
payment, Performance Return, or Performance Share payment.
3.6 A Participant shall be fully vested in his or her Account
Balance at all times.
3.7 The minimum Deferral period is two (2) years.
ARTICLE 4
EFFECT ON OTHER BENEFITS
4.1 Deferrals shall not reduce benefits from any other employee
benefit plan of the Employer that is based on a Participant's Gross Salary,
except that Deferrals shall not constitute compensation for purposes of
calculating pension benefits or allowable deductions under the Employer's
section 401(k) plan (the $uper $aver Plan) unless and until distributed. This
includes, but is not limited to, life insurance and disability benefits.
ARTICLE 5
ESTABLISHING OF ACCOUNT AND CREDITING OF EARNINGS
5.1 The Employer shall establish on its books an account for each
Participant in the Plan.
4
<PAGE> 6
5.2 Each such account shall constitute only a bookkeeping entry by
the Employer for purposes of facilitating the computation of Benefits.
5.3 Account Balances shall be adjusted monthly as though they were
invested pursuant to the Participant's direction under rules established by the
Committee among the investment funds chosen by the Committee. The earnings rate
for a partial month shall be prorated.
ARTICLE 6
BENEFIT PAYMENT
6.1 Subject to Section 6.5, the Employer will pay the Benefit from
the Participant's Account Balance beginning on the Distribution Date time and in
the manner specified by the Participant in the Agreement.
6.2 If the Participant has failed to specify the manner in which the
Benefit shall be distributed, payment of the Benefit shall be in a lump sum as
soon as is administratively feasible following Termination of Employment or
Retirement.
6.3 The unpaid Account Balance will be adjusted monthly pursuant to
Section 5.3.
6.4 The Employer shall withhold from payments made under this Plan
any taxes required to be withheld from a Participant's wages for Federal, state,
or local government.
6.5 The Participant may elect to extend the Distribution Date by
notifying the Committee in writing at least one (1) year plus one (1) day prior
to the initially selected Distribution Date. The Participant may elect to extend
the Distribution Date a maximum of two (2) times for each Deferral.
ARTICLE 7
SURVIVOR BENEFITS
7.1 If the Participant dies prior to (i) the commencement of
benefits (as contemplated under Article 6) or (ii) the payment in full of the
amount in the Participant's Account Balance, the Account Balance as of the
Participant's death shall be paid to the Beneficiary.
7.2 The Participant may request the mode of payment of the foregoing
benefit in the Agreement, which the Committee, in its sole discretion, may
authorize.
7.3 Benefits will be paid in the same manner as in Section 6.2, 6.3,
and 6.4.
5
<PAGE> 7
ARTICLE 8
TERMINATION OF EMPLOYMENT
8.1 Upon a Termination of Employment, the Participant will be
entitled to a Benefit at the time and in the manner specified by the Participant
in the election form. Account Balances will continue to be adjusted pursuant to
Section 5.3.
ARTICLE 9
BENEFICIARY
9.1 All payments made by the Employer under the Plan shall be made
to the Participant during the Participant's lifetime.
9.2 A Participant shall designate a Beneficiary to receive benefits
under the Plan by completing the appropriate form as designated by the
Committee.
9.3 A Participant shall have the right at any time to change the
Beneficiary by submitting to the Committee a Change of Beneficiary Notice in the
form prescribed by the Committee.
9.4 Each Change of Beneficiary Notice shall be in writing and shall
be effective when received by the Employer. The Employer shall acknowledge in
writing receipt of each Change of Beneficiary Notice.
9.5 Each Change of Beneficiary Notice shall automatically revoke and
supersede any prior Beneficiary designation, if any.
9.6 Any payment made by the Employer in accordance with this Plan
shall fully discharge the Employer from all further obligations with respect to
the amount of such payment.
9.7 If no Beneficiary designation is in effect at the time of the
Participant's death or if the named Beneficiary has predeceased the Participant,
then the Beneficiary (ies) shall be: (1) the surviving spouse, (2) if there is
no surviving spouse, then the Participant's issue per stirpes, or (3) if no such
issue survive the Participant, then the Participant's estate.
ARTICLE 10
LEAVE OF ABSENCE
10.1 If a Participant is authorized by the Company for any reason to
take a PAID Leave of Absence, the Deferral commitments shall remain in full
force and effect.
10.2 If a Participant takes an UNPAID Leave of Absence from the
employment of the Company, the Deferral commitments shall be suspended until the
Leave of Absence ends and the Participant's paid status resumes.
6
<PAGE> 8
ARTICLE 11
EMPLOYER LIABILITY
11.1 Benefits to a Participant shall be paid exclusively from the
general assets of the Employer.
11.2 The right of the Participant to Benefits shall be no greater
than that of an unsecured general creditor, except as otherwise provided by law.
11.3 The Employer shall have no obligation to a Participant under
the Plan, except as provided in the Master Plan Document.
11.4 The Participant must cooperate with the Employer in furnishing
all information requested by the Employer in order to facilitate the payment of
Benefits.
ARTICLE 12
NO GUARANTEE OF CONTINUING EMPLOYMENT
12.1 Nothing herein shall constitute a contract of continuing
employment between the Employer and the Participant.
ARTICLE 13
TERMINATION, AMENDMENT OR MODIFICATION OF PLAN
13.1 The Employer reserves the right to terminate this Plan. In the
event of Employer-instigated Plan termination, the Participants will receive
their Account Balances as of the date of termination. The mode of payment shall
be determined by the Committee.
13.2 Termination of this Plan shall not terminate the rights of a
Participant or a Beneficiary to continue to receive any Benefits under this Plan
to which they have become entitled prior to its termination.
ARTICLE 14
RESTRICTION ON ALIENATION OF BENEFITS
14.1 No right or benefit under the Plan shall be subject to
alienation, sale, transfer, pledge, assignment or encumbrance by a Participant,
a Beneficiary or other person except as may be required by law.
ARTICLE 15
EARLY WITHDRAWAL
15.1 No withdrawal for hardship is contemplated by this Plan.
However, the Committee, in its sole discretion, may consider and grant a request
for hardship withdrawal upon terms which the Committee may deem fair and
equitable. A hardship for these purposes shall mean a severe financial hardship
to the Participant resulting from extraordinary circumstances beyond the control
of the Participant.
7
<PAGE> 9
15.2 A Participant may, upon 30 days' prior written notice to the
Committee, elect to receive all or a portion of his or her Account Balance, in
which case the Committee shall promptly after the 30-day period pay to the
Participant 90% of the portion of the Account Balance that the Participant has
elected to receive. The remaining 10% of the elected portion of the Account
Balance shall be canceled and the Company shall have no further obligation with
respect thereto. If the Participant elects an immediate pay-out pursuant to this
Section 15.2, the Participant may not make further Deferrals in this Plan for a
period of two-years thereafter. The Participant is not eligible to make further
Deferrals in this Plan again if the Participant elects a withdrawal pursuant to
this Section 15.2 more than once. Notwithstanding anything else in this Plan to
the contrary, in the event of any act of God, war, natural disaster, aircraft
grounding, revocation of operating certificate, terrorism, strike, lockout,
labor dispute, work stoppage, fire, other act, whether similar or dissimilar,
beyond the control of the Company (each a "Force Majeure Event"), which Force
Majeure Event affects the Company or its subsidiaries, the Board of Directors of
the Company, at its sole discretion, may (i) terminate this Section 15.2 or (ii)
suspend, delay, defer or substitute (for such period of time as the Board may
deem necessary) any payments due by operation of this Section 15.2.
ARTICLE 16
ADMINISTRATION OF THE PLAN
16.1 The general administration of this Plan, as well as
construction and interpretation thereof, shall be vested in the Committee. The
number of Committee members shall be established by, and the members shall be
appointed from time to time by, and shall serve at the pleasure of, the Board of
Directors of the Employer; provided, however, that no member of the Committee
shall be allowed to participate in decisions regarding his own eligibility or
benefits under the Plan.
16.2 Subject to the Plan, the Committee shall from time to time
establish rules, forms and procedures for the administration of the Plan. Except
as otherwise expressly provided, the Committee shall have the exclusive right to
interpret the Plan and to decide any and all matters arising thereunder. The
Committee's decisions shall be conclusive and binding upon all persons having or
claiming to have any right or interest under the Plan.
16.3 The Committee may employ such consultants, advisors and
managers as it deems necessary or useful in carrying out its duties.
16.4 No member of the Committee shall be liable for any act or
omission on such Committee member's own part, excepting willful misconduct. The
Employer shall indemnify and save harmless each member of the Committee against
any and all expenses and liabilities arising out of membership on the Committee,
with the exception of expenses and liabilities arising out of willful
misconduct.
16.5 To enable the Committee to perform its functions, the Employer
shall supply full and timely information to the Committee on all matters
relating to the compensation of all
8
<PAGE> 10
Participants, their retirement, death or other cause for termination of
employment and such other pertinent facts as the Committee may require.
16.6 The Committee shall have the power, in its sole discretion, to
change the manner and time of payments to be made to a Participant or
Beneficiary from that set forth in the Participant's Agreement.
16.7 The Company reserves the right to amend this Plan as it deems
appropriate for future deferral years.
16.8 Dispute Resolution Procedure:
(a) Notice of Denial of Claim. When a Participant's claim for
benefits under this Plan has been denied, the Committee shall provide notice to
the Participant in writing of the denial within 90 days after the submission of
the claim. The notice shall be written in a manner calculated to be understood
by the applicant and shall include:
(i) the specific reason or reasons for denial;
(ii) specific references to the pertinent Plan provisions
on which the denial is based;
(iii) a description of any additional material or
information necessary for the applicant to perfect the claim and an
explanation of why such material or information is necessary; and
(iv) an explanation of the Plan's claim review
procedures.
If special circumstances require an extension of time for processing the initial
claim, a written notice of the extension and the reason therefore shall be
furnished to the claimant before the end of the initial 90-day period. In no
event shall this extension exceed 90 days.
(b) Appeal of Denied Claim. In the event a claim for benefits
under the Plan is denied or if the applicant has had no response to such claim
within 90 days of its submission (in which case the claim for benefits shall be
deemed to have been denied), the applicant or his duly authorized
representative, at the applicant's sole expense, may appeal the denial to his
Employer within 60 days of the receipt of written notice of the denial or 60
days from the date such claim is deemed to be denied. In pursuing such appeal
the applicant or his duly authorized representative:
(i) may request in writing that his Employer review the
denial;
(ii) may review pertinent documents; and
(iii) may submit issues and comments in writing.
9
<PAGE> 11
The decision on review shall be made within 60 days of receipt of the request
for review, unless special circumstances require an extension of time for
processing, in which case a decision shall be rendered as soon as possible, but
not later than 120 days after receipt of the request for review. If such an
extension of time is required, written notice of the extension shall be
furnished to the claimant before the end of the original 60-day period. The
decision on review shall be made in writing, shall be written in a manner
calculated to be understood by the claimant, and shall include specific
references to the provisions of this Plan on which the denial is based. If the
decision on review is not furnished within the time specified above, the claim
shall be denied on review
ARTICLE 17
MISCELLANEOUS
17.1 Any notice given under the Plan shall be in writing and shall
be mailed or delivered to: American Airlines, Inc., Executive Compensation and
Benefits, Mail Drop 5131 HDQ, P . O. Box 619616, DFW Airport, TX 75261-9616.
17.2 The Plan shall be binding upon the Employer and its respective
successors or assigns and upon a Participant, Participant's Beneficiary,
assigns, heirs, executors and administrators.
17.3 The Plan and Plan Agreement shall be governed by and construed
under the Laws of the State of Texas.
17.4 Headings in the Master Plan Document are inserted for
convenience of reference only. In the event of any conflict between such
headings and the text, the text shall govern.
17.5 Masculine pronouns, however used, shall include feminine
pronouns and when the context dictates, the singular shall include the plural.
ARTICLE 18
TRUST
18.1 To assist in the payment of Benefits following a Change in
Control or Potential Change in Control (each as defined in the 1999 Long-Term
Incentive Plan (or its successors) of AMR Corporation ("AMR") with respect to
AMR, the Board of Directors of AMR or its General Counsel or its Corporate
Secretary may establish a trust.
18.2 The trust which may be established pursuant to Section 18.1
will be: i) with a nationally recognized banking institution with experience in
serving as a trustee for such matters, ii) pursuant to such documentation as
recommended by outside counsel to AMR, and iii) funded so as to enable the trust
to pay the Benefits contemplated under the Plan as may be determined by AMR's
independent compensation consultant. In addition, AMR's Board of Directors, its
General Counsel or its Corporate Secretary, may take those additional actions
deemed reasonably necessary to accomplish the stated purpose of Section 18.1.
10
<PAGE> 12
IN WITNESS WHEREOF the Employer has signed this Plan this ___ day of __________,
1999.
AMR CORPORATION
By:
--------------------------------------
C.D. MarLett
Title: Corporate Secretary
11
<PAGE> 1
EXHIBIT 10.56
AMERICAN AIRLINES, INC.
1999 EMPLOYEE PROFIT SHARING PLAN
Purpose
The purpose of the 1999 American Airlines Employee Profit Sharing Plan ("Plan")
is to provide participating employees with a sense of commitment to, and direct
financial interest in, the success of American Airlines, Inc.
("American").
Definitions
Capitalized terms not otherwise defined in the Plan will have the meanings set
forth in the 1998 Long Term Incentive Plan, as amended.
"AMR" is defined as AMR Corporation.
"American" is defined as AMR Corporation less AMR subsidiaries other than
American Airlines, Inc.
"Committee" is defined as the AMR Incentive Compensation Committee.
"Fund" is defined as the profit sharing fund, if any, accumulated in accordance
with this plan.
"Qualified Earnings" is defined as base pay, overtime, holiday pay, skill
premiums, longevity pay, sick pay, vacation pay, shift differential, market rate
differential, overrides and license premiums and does not include such things as
travel and incidental expenses, moving expenses, relocation allowance (COLA),
payouts from any retirement plan, disability payments, Workers Compensation
payments, imputed income from D-3 service charges or Company provided life
insurance, nor does it include any special monetary awards or allowances such as
IdeAAs in Action payments, lump sum payments, or incentive compensation or
profit sharing payments.
"Plan Earnings" is defined as the sum of American's pre-tax income, interest
expense, aircraft rental expense, AMR Minority Interest Expense, and any
accruals for American's Pilot Variable Compensation Plan, TWU Profit Sharing
Plan, Employee Profit Sharing Plan, and Incentive Compensation Plan, less
Calculated Amortization of Operating Leases and any accounting adjustments or
extraordinary or unusual items which may be added or deducted at the discretion
of the Committee and approved by the Board of Directors.
1
<PAGE> 2
"Adjusted Investment" is defined as the sum of American's notes payable, current
maturities of long term debt and capital leases, long term debt, capital leases,
present value of operating leases, and stockholders' equity, and any
extraordinary or unusual items which may be added or deducted at the discretion
of the Committee and the Board of Directors.
"Present Value of Operating Leases" is defined as the present value of the lease
payments required under American's aircraft operating leases over the remaining
lease term, calculated using a discount rate of Prime plus one percent. Amounts
for 3/31/99, 6/30/99, and 9/30/99 are computed by determining the difference
between the Present Value of Operating Leases as of 12/31/99 and 12/31/98 and
allocating that difference evenly over the four quarters of 1999.
"AMR Minority Interest Expense" is defined as outside stockholder's ownership in
AMR subsidiaries other than American Airlines, Inc.
"Capitalized Value of Operating Leases" is defined as the initial present value
of the lease payments required under American's aircraft operating leases over
the initial stated lease term, calculated using a discount rate of Prime plus
one percent.
"Calculated Amortization of Operating Leases" is defined as the amortization
expense associated with the Capitalized Value of Operating Leases and is
determined by the straight line method over the lease term.
"Prime" is defined as the base rate on Corporate Loans posted by at least 75% of
the 30 largest U.S. banks which is published daily in the Wall Street Journal.
"Average Adjusted Investment" is defined as the sum of Adjusted Investment as of
12/31/98, 3/31/99, 6/30/99, and 9/30/99, divided by four.
"Return on Investment" or "ROI" is defined as Plan Earnings divided by Average
Adjusted Investment, stated as a percentage.
"Affiliate" is defined as a subsidiary of AMR or any entity that is designated
by the Board as a participating employer under the Plan, provided that AMR
directly or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity.
Eligibility for Participation
In order to be eligible for a profit sharing award, the individual must:
o Have worked during the plan year as a regular full-time or part-time
employee at American in a participating workgroup (flight attendant,
reservations, coordinator/planner, airport agent, support staff, management
levels 04 and below).
2
<PAGE> 3
o Must have completed six consecutive months of service as a regular employee
at American or an Affiliate during his/her tenure. If the six months
service requirement is fulfilled during the plan year, eligible earnings
from the time worked at American during those six months will be included
in the award calculation.
o Must be actively employed at American or an Affiliate at the time awards
are paid. If at the time awards are paid under the Plan, an individual has
retired from American or an Affiliate, has been laid off, is on a leave of
absence with re-instatement rights, is disabled or has died, the award
which the individual otherwise would have received under the Plan but for
such retirement, lay-off, leave, disability or death may be paid to the
individual or his/her estate in the event of death, at the discretion of
the Committee.
Notwithstanding the foregoing, however, an employee will not be eligible to
participate in the Plan if such employee is, at the same time, eligible to
participate in:
i) the 1999 American Airlines Incentive Compensation Plan for Officers
and Key Employees,
ii) the Pilot Profit Sharing (as implemented in 1997),
iii) the TWU Profit Sharing Plan for members of the Transport Workers
Union (as implemented in 1995 and revised in 1996),
iv) any incentive compensation, profit sharing, commission or other bonus
plan for employees of any division of American, or
v) any incentive compensation, profit sharing, commission or other bonus
plan sponsored by an Affiliate.
Profit Sharing awards will be determined on a proportionate basis for
participation in more than one plan. Employees who transfer from/to Affiliates
or any other plan described above, and satisfy aforementioned eligibility
requirements, will receive awards from each plan on a proportionate basis.
The Profit Sharing Fund Accumulation
Performance will be measured by ROI and the Fund will accumulate based on that
performance. The Fund is established at 1% of Qualified Earnings when ROI is
equal to 6.4%. The fund will accumulate on a straight-line basis at the rate of
0.583% of qualified earnings for each additional point of ROI.
The profit sharing fund will not exceed an amount equal to 8% of Qualified
Earnings at levels of ROI above 18.4%.
3
<PAGE> 4
Award Distribution
For domestic employees, individual awards will be distributed based on an
employee's Qualified Earnings for the Plan year multiplied by the appropriate
percentage of Qualified Earnings based upon the ROI achieved for the Plan year.
The percent of Qualified Earnings used for fund accumulation and award
distribution will be the same.
A portion of the Fund will be allocated for international employees based on
eligible international employees' Qualified Earnings as a percentage of eligible
employees' total Qualified Earnings. This portion of the Fund will be set aside
for distribution at the discretion of the appropriate Officer, subject only to
the Committee's approval.
Administration
The Plan will be administered by a Committee comprised of officers of American
appointed by the Chairman of AMR. The Committee will have authority to
administer and interpret the Plan, establish administrative rules, determine
eligibility and take any other action necessary for the proper and efficient
operation of the Plan. The amount, if any, of the Fund shall be computed by the
General Auditor of American based on a certification of ROI by American's
independent auditors. A summary of awards under the Plan shall be provided to
the Board of Directors at the first regular meeting following determination of
the awards.
Method of Payment
The Committee shall determine the method of payment of awards. Awards shall be
paid as soon as practicable after audited financial statements for the year 1999
are available. Individuals, except retirees, may elect to defer their awards
into the 401(k) plan established by American.
General
Neither this Plan nor any action taken thereunder shall be construed as giving
to any employee or participant the right to be retained in the employ of
American or any Affiliate.
Nothing in the Plan shall be deemed to give any employee any right,
contractually or otherwise, to participate in the Plan or in any benefits
thereunder, other than the right to receive payment of such award as may have
been expressly determined by the Committee.
4
<PAGE> 5
In the event of any act of God, war, natural disaster, aircraft grounding,
revocation of operating certificate, terrorism, strike, lockout, labor dispute,
work stoppage, fire, epidemic or quarantine restriction, act of government,
critical materials shortage, or any other act beyond the control of the Company,
whether similar or dissimilar, (each a "Force Majeure Event"), which Force
Majeure Event affects the Company or its Subsidiaries or its Affiliates, the
Board of Directors of the Company, at its sole discretion, may (i) terminate or
(ii) suspend, delay, defer (for such period of time as the Board may deem
necessary), or substitute any payments due currently or in the future under the
Plan, including, but not limited to, any payments that have accrued to the
benefit of participants but have not yet been paid.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees (i) not to disclose any trade secrets of, or other
confidential/restricted information of, American, to any unauthorized party and,
(ii) not to make any unauthorized use of such trade secrets or confidential or
restricted information during his or her employment with American or after such
employment is terminated, and (iii) not to solicit any current employees of
American or any subsidiaries of AMR Corporation to join the employee at his or
her new place of employment after his or her employment with American is
terminated.
The Committee may amend, suspend, or terminate the Plan at any time.
5
<PAGE> 1
EXHIBIT 10.60
AMERICAN AIRLINES, INC.
1999 INCENTIVE COMPENSATION PLAN
FOR OFFICERS AND KEY EMPLOYEES
Purpose
The purpose of the 1999 American Airlines Incentive Compensation Plan ("Plan")
for Officers and Key Employees is to provide greater incentive to officers and
key employees of American Airlines, Inc. ("American"), to achieve the highest
level of individual performance, and to meet or exceed specified goals which
will contribute to the success of American.
Definitions
This Plan has been approved by the Committee under the terms and conditions of
the 1998 Long Term Incentive Plan, as amended ("LTIP"). Capitalized terms not
otherwise defined in the Plan will have the meanings set forth in the LTIP.
For purposes of the Plan, the following definitions will control:
"AMR" is defined as AMR Corporation.
"American" is defined as AMR Corporation less AMR subsidiaries other than
American Airlines, Inc.
"Committee" is defined as the Compensation Committee of the AMR Board of
Directors.
"Fund" is defined as the incentive compensation fund, if any, accumulated in
accordance with this Plan.
"Qualified Earnings" is defined as base pay, overtime, holiday pay, skill
premiums, longevity pay, sick pay, vacation pay, shift differential, market rate
differential, overrides and license premiums and does not include such things as
travel and incidental expenses, moving expenses, relocation allowance (COLA),
payouts from any retirement plan, disability payments, Workers Compensation
payments, imputed income from D-3 service charges or Company provided life
insurance, nor does it include any special monetary awards or allowances such as
IdeAAs in Action payments, lump sum payments, or incentive compensation or
profit sharing payments.
1
<PAGE> 2
"Target Award" is defined as the award (stated as a percentage of Qualified
Earnings) for an eligible participant when Target CFROGA is achieved; subject,
however, to adjustment by the Committee or senior management, as the case may
be, based upon the participant's individual performance.
"Adjusted Earnings/(Loss)" is defined as the sum of American's net
earnings/(loss), aircraft rental expense - net of the Related Tax Impact, Net
Interest Expense - net of the Related Tax Impact, and AMR Minority Interest
Expense - net of Related Tax Impact, less: Calculated Amortization on Operating
Leases - net of the Related Tax Impact .
"Net Interest Expense" is defined as interest expense less interest income.
"Calculated Amortization on Operating Leases" is defined as the amortization
expense associated with Capitalized Value of Operating Leases and is determined
by the straight line method of amortization over the lease term.
"Net Cash Flow" is defined as the sum of Adjusted Earnings/(Loss), depreciation
and amortization expense, Calculated Amortization on Operating Leases, and any
accounting adjustments or extraordinary or unusual items (net of the Related Tax
Impact) or other non-cash items which may be added or deducted at the discretion
of the AMR Incentive Compensation Committee and approved by the AMR Board of
Directors.
"Adjusted Gross Assets" is defined as the sum of American's total assets, the
Capitalized Value of Operating Leases, Accumulated Depreciation on Equipment and
Property, and Accumulated Amortization on Equipment and Property under Capital
Leases, less cash and short-term investments, less Accident Receivables, and
other assets which may be added or deducted at the discretion of the AMR
Incentive Compensation Committee and approved by the AMR Board of Directors.
"Accident Receivables" is defined as amounts recorded as receivables from
insurance carriers related to significant accident losses, and for which an
offsetting liability has been recorded.
"Capitalized Value of Operating Leases" is defined as the initial present value
of the lease payments required under American's aircraft operating leases over
the initial stated lease term, calculated using a discount rate of Prime plus
one percent.
"AMR Minority Interest Expense" is defined as outside stockholder's ownership in
AMR subsidiaries other than American Airlines, Inc.
"Prime" is defined as the base rate on Corporate Loans posted by at least 75% of
the 30 largest U.S. banks which is published daily in the Wall Street Journal.
2
<PAGE> 3
"Related Tax Impact" of an adjustment made in determining Adjusted Net
Earnings/(Loss) or Net Cash Flow is defined as the amount of that adjustment
multiplied by American's estimated marginal tax rate for the relevant year, as
determined by American's Tax Department.
"Average Adjusted Gross Assets" is defined as the sum of Adjusted Gross Assets
as of 12/31/98, 3/31/99, 6/30/99, and 9/30/99, divided by four.
"Cash Flow Return on Gross Assets" or "CFROGA" is defined as Net Cash Flow
divided by Average Adjusted Gross Assets, stated as a percentage.
"Comparison Airlines" shall consist of UAL Corp., Delta Air Lines, Inc.,
Southwest Airlines, Inc., and US Airways, Inc.
"Affiliate" is defined as a subsidiary of AMR or any entity that is designated
by the Board as a participating employer under the Plan, provided that AMR
directly or indirectly owns at least 20% of the combined voting power of all
classes of stock of such entity.
"Threshold CFROGA" is defined as 6.7%.
Eligibility for Participation
In order to be eligible to participate in the Plan, an individual must be an
officer or key employee (as designated by American's Chairman and CEO) of
American. Additionally, the individual must have been employed by American or an
Affiliate as an officer or key employee for at least three consecutive months
during the Plan year. The three months service requirement may be waived in
cases of mandatory retirement prior to completing three months of service.
During a Plan year, individuals with less than twelve months eligibility in the
Plan may be eligible to participate in the Plan on a pro rata basis, at the
discretion of the Committee. In addition, the Committee, in its discretion, may
permit participation by officers and key employees of Affiliates who have been
so employed by the Affiliate for at least three consecutive months during the
Plan year.
Notwithstanding the forgoing, however, an officer or key employee will not be
eligible to participate in the Plan if such officer or key employee is, at the
same time, eligible to participate in a commission, incentive, profit sharing or
other bonus compensation program sponsored by American or an Affiliate, unless
the Committee otherwise decides.
3
<PAGE> 4
In order to receive an award under the Plan, an individual must satisfy the
aforementioned eligibility requirements and must be an employee of American or
an Affiliate at the time an award under the Plan is paid. If at the time awards
are paid under the Plan, an individual has retired from American or an
Affiliate, is on leave of absence with reinstatement rights, is disabled, or has
died, the award which the individual otherwise would have received under the
Plan but for such retirement, leave, disability, or death may be paid to the
individual, or his/her estate in the event of death, at the discretion of the
Committee.
The Incentive Compensation Fund
a) As CFROGA exceeds the Threshold CFROGA, the Fund will begin to
accumulate.
b) Target CFROGA will vary from 7.4% - 7.8% depending upon CFROGA
rank among the Comparison Airlines. At target CFROGA, the Fund
will accumulate to a size that will allow Target Awards for
all eligible participants.
c) Maximum Payout CFROGA will vary from 9.0% to 10.2% depending
on CFROGA rank among the comparison airlines. At Maximum
Payout CFROGA, the Fund will accumulate to a size that will
allow 210% of Target Awards for all eligible participants.
d) Once Threshold CFROGA has been attained, the Fund will
accumulate on a linear basis such that at Target CFROGA, the
Fund size equals 100% of Target Awards. Following the
attainment of Target CFROGA, the Fund will accumulate on a
linear basis such that maximum awards are funded at Maximum
Payout CFROGA.
<TABLE>
<CAPTION>
American's --CFROGA-- ---------------
Competitive ----------- Comparison
Rank Threshold Target Max Payout Airlines
----------- --------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
1 6.7% 7.4% 9.0% Delta
2 6.7% 7.5% 9.3% UAL
3 6.7% 7.6% 9.6% US Airways
4 6.7% 7.7% 9.9% Southwest
5 6.7% 7.8% 10.2%
---------------
</TABLE>
4
<PAGE> 5
Allocation of Individual Awards
Individual awards for officers of American under the Plan will be determined by
the Committee based upon each participant's performance; provided, however, that
in no event will any award to an officer exceed the amount calculated in
accordance with Section 11 (b) of the 1998 LTIP. Individual awards for key
non-officer employees of American will be determined by the senior management of
American based upon each such employee's performance; provided, however, that in
no event will any award to a key non-officer, when combined with any other award
made under an incentive, commission, profit sharing or other bonus compensation
program sponsored by American or an Affiliate (excluding any performance return
or stock-based awards, such as performance share awards), exceed 100% of that
employee's base salary. The aggregate of all awards paid hereunder will not
exceed the lesser of 2.1 times the target fund or 50% of total base salaries of
all participants; provided, however, that if payments to any officers made
pursuant to Section 11 (b) of the LTIP exceed 100% of such officer's base
salary, the Fund amount will be increased to account for such differential. In
addition, the Committee may determine in its discretion that the Fund may not be
fully distributed.
Administration
The Committee shall have authority to administer and interpret the Plan,
establish administrative rules, approve eligible participants, and take any
other action necessary for the proper operation of the Plan. In computing the
Cash Flow Return on Gross Assets of the Comparison Airlines, the Committee may
include or exclude special or non-recurring items. Notwithstanding anything to
the contrary contained herein, no awards will be made under the Plan unless
awards are also made under the 1999 American Airlines Employee Profit Sharing
Plan, the 1999 Pilot Variable Compensation Plan for members of the Allied Pilots
Association, and the 1999 TWU Profit Sharing Plan for members of the Transport
Workers Union. The amount if any, of the Fund shall be computed by the General
Auditor of American based on a certification of CFROGA by American's independent
auditors. A summary of awards under the Plan shall be provided to the Board of
Directors at the first regular meeting following determination of the awards.
Method of Payment
The Committee will determine the method of payment of awards. Awards shall be
paid as soon as practicable after audited financial statements for the year 1999
are available. Individuals, except retirees, may elect to defer their awards
into a 401(k) plan established by American or AMR or into a deferred
compensation program, if any, administered by American or AMR.
5
<PAGE> 6
General
Neither this Plan nor any action taken hereunder shall be construed as giving
any employee or participant the right to be retained in the employ of American
or an Affiliate.
Nothing in the Plan shall be deemed to give any employee any right,
contractually or otherwise, to participate in the Plan or in any benefits
hereunder, other than the right to receive payment of such incentive
compensation as may have been expressly awarded by the Committee.
In the event of any act of God, war, natural disaster, aircraft grounding,
revocation of operating certificate, terrorism, strike, lockout, labor dispute,
work stoppage, fire, epidemic or quarantine restriction, act of government,
critical materials shortage, or any other act beyond the control of American,
whether similar or dissimilar, (each a "Force Majeure Event"), which Force
Majeure Event affects American or its Subsidiaries or its Affiliates, the Board
of Directors of American, at its sole discretion, may (i) terminate or (ii)
suspend, delay, defer (for such period of time as the Board may deem necessary),
or substitute any payments due currently or in the future under the Plan,
including, but not limited to, any payments that have accrued to the benefit of
participants but have not yet been paid.
In consideration of the employee's privilege to participate in the Plan, the
employee agrees (i) not to disclose any trade secrets of, or other
confidential/restricted information of, American, to any unauthorized party and,
(ii) not to make any unauthorized use of such trade secrets or confidential or
restricted information during his or her employment with American or after such
employment is terminated, and (iii) not to solicit any current employees of
American or any subsidiaries of AMR Corporation to join the employee at his or
her new place of employment after his or her employment with American is
terminated.
The Board of Directors may amend, suspend, or terminate the Plan at any time.
6
<PAGE> 1
EXHIBIT 10.61
AMENDED AND RESTATED
EXECUTIVE TERMINATION BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE TERMINATION BENEFITS AGREEMENT
(this "Agreement"), dated as of the 21st day of May, 1998 is among AMR
CORPORATION, a Delaware corporation, AMERICAN AIRLINES, INC., a Delaware
corporation (collectively the "Company"), and GERARD J. ARPEY (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company considers it essential to the best interests of
the Company and its stockholders that its management be encouraged to remain
with the Company and to continue to devote full attention to the Company's
business in the event an effort is made to obtain control of the Company through
a tender offer or otherwise;
WHEREAS, the Company recognizes that the possibility of a change in
control and the uncertainty and questions which it may raise among management
may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company;
WHEREAS, the Executive is a key Executive of the Company;
<PAGE> 2
WHEREAS, the Company believes the Executive has made valuable
contributions to the productivity and profitability of the Company;
WHEREAS, should the Company receive any proposal from a third person
concerning a possible business combination with or acquisition of equity
securities of the Company, the Board believes it imperative that the Company and
the Board be able to rely upon the Executive to continue in his position, and
that the Company be able to receive and rely upon his advice as to the best
interests of the Company and its stockholders without concern that he might be
distracted by the personal uncertainties and risks created by such a proposal;
and
WHEREAS, should the Company receive any such proposals, in addition to
the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether such
proposals would be in the best interests of the Company and its stockholders,
and to take such other actions as the Board might determine to be appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
undivided attention and services of the Executive and the availability of his
advice and counsel notwithstanding the possibility, threat or occurrence of a
bid to take over control of the Company, and to induce the Executive to remain
in the employ of the Company, and for other good and valuable consideration, the
Company and the Executive agree as follows:
1. Change in Control
For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have taken place if:
(a) any person as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended from time to time (the "Exchange Act"), and as
used in Sections 13(d) and
2
<PAGE> 3
14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange
Act (a "Person"), but excluding the Company, any subsidiary of the Company and
any employee benefit plan sponsored or maintained by the Company or any
subsidiary of the Company (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13(d)-3 under the Exchange Act, as amended from time to time) of securities
of the Company representing 15% or more of the combined voting power of the
Company's then outstanding securities; or
(b) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company or
the acquisition of the assets of another corporation (a "Business Combination"),
in each case, unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the then outstanding shares of common stock of the
Company and the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors
immediately prior to such Business Combination
3
<PAGE> 4
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries), (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 15% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination, and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Incumbent Board, providing for
such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. Circumstances Triggering Receipt of Severance Benefits
(a) Subject to Section 2(c), the Company will provide the
Executive with the benefits set forth in Section 4 upon any termination of the
Executive's employment:
(i) by the Company at any time within the first 24
months after a Change in Control;
4
<PAGE> 5
(ii) by the Executive for "Good Reason" (as defined
in Section 2(b) below) at any time within the first 24 months
after a Change in Control;
(iii) by the Executive pursuant to Section 2(d); or
(iv) by the Company or the Executive pursuant to
Section 2(e).
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and/or any subsidiary for
"Good Reason" with the right to benefits set forth in Section 4 upon the
occurrence of one or more of the following events (regardless of whether any
other reason, other than Cause as provided below, for such termination exists or
has occurred, including without limitation other employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent office or position, of or with the
Company and/or a subsidiary, as the case may be, which the
Executive held immediately prior to a Change in Control, or
the removal of the Executive as a director of the Company
and/or a subsidiary (or any successor thereto) if the
Executive shall have been a director of the Company and/or a
subsidiary immediately prior to the Change in Control;
(ii) (A) A significant adverse change in the nature
or scope of the authorities, powers, functions,
responsibilities or duties attached to the position with the
Company and/or any subsidiary which the Executive held
immediately prior to the Change in Control, (B) a reduction in
the aggregate of the Executive's annual base salary rate and
annual incentive compensation target to be received from the
Company and/or any subsidiary, or (C) the termination or
denial of the Executive's rights to Employee Benefits (as
defined below) or a reduction in the
5
<PAGE> 6
scope or value thereof, any of which is not remedied by the
Company within 10 calendar days after receipt by the Company
of written notice from the Executive of such change, reduction
or termination, as the case may be;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the parties
hereto provided it has been made in good faith and in all
events will be presumed to have been made in good faith unless
otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation,
a change in the scope of the business or other activities for
which the Executive was responsible immediately prior to the
Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused the Executive to
suffer a substantial reduction in, any of the authorities,
powers, functions, responsibilities or duties attached to the
position held by the Executive immediately prior to the Change
in Control, which situation is not remedied within 10 calendar
days after written notice to the Company from the Executive of
such determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or transfer of
all or substantially all of its business and/or assets, unless
the successor or successors (by liquidation, merger,
consolidation, reorganization, transfer or otherwise) to which
all or substantially all of its business and/or assets have
been transferred (directly or by operation of
6
<PAGE> 7
law) assumed all duties and obligations of the Company under
this Agreement pursuant to Section 9(a);
(v) The Company relocates its principal executive
offices, or requires the Executive to have his principal
location of work changed, to any location that is in excess of
50 miles from the location thereof immediately prior to the
Change in Control, or requires the Executive to travel away
from his office in the course of discharging his
responsibilities or duties hereunder at least 20% more (in
terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to
any prior year) than was required of Executive in any of the
three full years immediately prior to the Change in Control
without, in either case, his prior written consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the
Company or any successor thereto, which breach is not remedied
within 10 calendar days after written notice to the Company
from the Executive describing the nature of such breach.
(c) Notwithstanding Sections 2(a) and (b) above, no benefits
shall be payable by reason of this Agreement in the event of:
(i) Termination of the Executive's employment with
the Company and its subsidiaries by reason of the Executive's
death or Disability, provided that the Executive has not
previously given a valid "Notice of Termination" pursuant to
Section 3. For purposes hereof, "Disability" shall be defined
as the inability of Executive due to illness, accident or
other physical or mental disability to perform his duties for
any period of six consecutive months or for any period of
eight
7
<PAGE> 8
months out of any 12-month period, as determined by an
independent physician selected by the Company and reasonably
acceptable to the Executive (or his legal representative),
provided that the Executive does not return to work on
substantially a full-time basis within 30 days after written
notice from the Company, pursuant to Section 3, of an intent
to terminate the Executive's employment due to Disability;
(ii) Termination of the Executive's employment with
the Company and its subsidiaries on account of the Executive's
retirement at or after age 65, pursuant to the Company's
Retirement Benefit Plan; or
(iii) Termination of the Executive's employment with
the Company and its subsidiaries for Cause. For the purposes
hereof, "Cause" shall be defined as a felony conviction of the
Executive or the failure of the Executive to contest
prosecution for a felony, or the Executive's wilful misconduct
or dishonesty, any of which is directly and materially harmful
to the business or reputation of the Company or any subsidiary
or affiliate. Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for "Cause"
hereunder unless and until there shall have been delivered to
the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three quarters of the Board
then in office at a meeting of the Board called and held for
such purpose, after reasonable notice to the Executive and an
opportunity for the Executive, together with his counsel (if
the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the
good faith opinion of the Board, the Executive had committed
an act constituting
8
<PAGE> 9
"Cause" as herein defined and specifying the particulars
thereof in detail. Nothing herein will limit the right of the
Executive or his beneficiaries to contest the validity or
propriety of any such determination.
This Section 2(c) shall not preclude the payment of any amounts
otherwise payable to the Executive under any of the Company's employee benefit
plans, stock plans, programs and arrangements and/or under any Employment
Agreement.
(d) Notwithstanding anything contained in this Agreement to
the contrary, in the event of a Change in Control, the Executive may terminate
employment with the Company and any subsidiary for any reason, or without
reason, by providing Notice of Termination pursuant to Section 3 during the
30-day period immediately following the first anniversary of the first
occurrence of a Change in Control with the right to the benefits set forth in
Section 4.
(e) Any termination of employment of the Executive, including
a termination for "Good Reason," but excluding a termination for "Cause," or the
removal of the Executive from the office or position in the Company or any
subsidiary that occurs (i) not more than 180 days prior to the date on which a
Change in Control occurs and (ii) following the commencement of any discussion
with a third person that ultimately results in a Change in Control shall be
deemed to be a termination or removal of the Executive after a Change in Control
for purposes of this Agreement.
3. Notice of Termination
Any termination of the Executive's employment with the Company and its
subsidiaries as contemplated by Section 2 shall be communicated by written
"Notice of Termination" to the other party hereto. Any "Notice of Termination"
shall indicate the effective date of termination which shall not be less than 30
days or more than 60 days after the date the Notice of
9
<PAGE> 10
Termination is delivered (the "Termination Date"), the specific provision in
this Agreement relied upon, and, except for a termination pursuant to Section
2(d), will set forth in reasonable detail the facts and circumstances claimed to
provide a basis for such termination including, if applicable, the failure after
provision of written notice by the Executive to effect a remedy pursuant to the
final clause of Section 2(b)(ii), 2(b)(iii) or 2(b)(vi).
4. Termination Benefits
Subject to the conditions set forth in Section 2, the following
benefits shall be paid or provided to the Executive:
(a) Compensation
The Company shall pay to the Executive three times the sum of
(i) "Base Pay", which shall be an amount equal to the greater of (A) the
Executive's effective annual base salary at the Termination Date or (B) the
Executive's effective annual base salary immediately prior to the Change in
Control, plus (ii) "Incentive Pay" equal to the greater of (x) the target annual
bonus payable to the Executive under the Company's Incentive Compensation Plan
or any other annual bonus plan for the fiscal year of the Company in which the
Change in Control occurred or (y) the highest annual bonus earned by the
Executive under the Company's Incentive Compensation Plan or any other annual
bonus plan (whether paid currently or on a deferred basis) with respect to any
12 consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred, plus (iii) "Performance Returns" equal to the highest annual
payment of performance returns paid to the Executive with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred.
10
<PAGE> 11
(b) Welfare Benefits
For a period of 36 months following the Termination Date (the
"Continuation Period"), the Company shall arrange to provide the Executive with
benefits, including travel accident, major medical, dental, vision care and
other welfare benefit programs in effect immediately prior to the Change in
Control ("Employee Benefits") substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination, or denial
described in Section 2(b)(ii)(C)). If and to the extent that any benefit
described in this Section 4(b) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any subsidiary, as the
case may be, then the Company will itself pay or provide for the payment to the
Executive, his dependents and beneficiaries, of such Employee Benefits along
with, in the case of any benefit which is subject to tax because it is not or
cannot be paid or provided under any such policy, plan, program or arrangement
of the Company or any subsidiary, an additional amount such that after payment
by the Executive, or his dependents or beneficiaries, as the case may be, of all
taxes so imposed, the recipient retains an amount equal to such taxes. Employee
Benefits otherwise receivable by the Executive pursuant to this Section 4(b)
will be reduced to the extent comparable welfare benefits are actually received
by the Executive from another employer during the Continuation Period, and any
such benefits actually received by the Executive shall be reported by the
Executive to the Company.
(c) Retirement Benefits
The Executive shall be deemed to be completely vested in
Executive's currently accrued benefits under the Company's Retirement Benefit
Plan and Supplemental Executive Retirement Plan ("SERP") in effect as of the
date of Change in Control (collectively, the
11
<PAGE> 12
"Plans"), regardless of his actual vesting service credit thereunder. In
addition, the Executive shall be deemed to earn service credit for benefit
calculation purposes thereunder for the Continuation Period. Benefits under the
Plans will become payable at any time designated by the Executive following
termination of the Executive's employment with the Company and its subsidiaries
after the Executive reaches age 55, subject to the terms of the Plans regarding
the actuarial adjustment of benefit payments commencing prior to normal
retirement age. The benefits to be paid pursuant to the Plans shall be
calculated as though the Executive's compensation rate for each of the five
years immediately preceding his retirement equaled the sum of Base Pay plus
Incentive Pay plus Performance Returns. Any benefits payable pursuant to this
Section 4(c) that are not payable out of the Plans for any reason (including but
not limited to any applicable benefit limitations under the Employee Retirement
Income Security Act of 1974, as amended, or any restrictions relating to the
qualification of the Company's Retirement Benefit Plan under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code")) shall be paid
directly by the Company out of its general assets.
(d) Relocation Benefits
If the Executive moves his residence in order to pursue other
business or employment opportunities during the Continuation Period and requests
in writing that the Company provide relocation services, he will be reimbursed
for any expenses incurred in that initial relocation (including taxes payable on
the reimbursement) which are not reimbursed by another employer. Benefits under
this provision will include assistance in selling the Executive's home and all
other assistance and benefits which were customarily provided by the Company to
transferred executives prior to the Change in Control.
(e) Executive Outplacement Counseling
12
<PAGE> 13
At the request of the Executive made in writing during the
Continuation Period, the Company shall engage an outplacement counseling service
of national reputation to assist the Executive in obtaining employment.
(f) Stock Based Compensation Plans
(i) Any issued and outstanding Stock Options (to the
extent they have not already become exercisable) shall become
exercisable as of the date on which the Change in Control
occurs, unless otherwise specifically provided at the time
such options are granted.
(ii) The Company's right to rescind any award of
stock to the Executive under the Company's 1988 Long Term
Incentive Plan or the Company's 1998 Long Term Incentive Plan
(or any successor plan) shall terminate upon a Change in
Control, and all restrictions on the sale, pledge,
hypothecation or other disposition of shares of stock awarded
pursuant to such plan shall be removed at the Termination
Date, unless otherwise specifically provided at the time such
award(s) are made.
(iii) The Executive's rights under any other stock
based compensation plan shall vest (to the extent they have
not already vested) and any performance criteria shall be
deemed met at target as of the date on which a Change in
Control occurs, unless otherwise specifically provided at the
time such right(s) are granted.
(g) Split Dollar Life Insurance
The Company shall pay to the Executive a lump sum equal to the
cost on the Termination Date of purchasing, at standard independent insurance
premium rates, an individual
13
<PAGE> 14
paid up insurance policy providing benefits equal to the benefits provided by
the Company's Split Dollar Life Insurance coverage immediately prior to the date
of the Change in Control.
(h) Other Benefits
(i) The Executive shall have all flight privileges
provided by the Company to Directors as of the date of Change
in Control until the Executive reaches age 55, at which time
he shall have all flight privileges provided by the Company to
its retirees who held the same or similar position as the
Executive immediately prior to the Change in Control.
(ii) The Executive, at the Executive's option, shall
be entitled to continue the use of the Executive's
Company-provided automobile during the Continuation Period
under the same terms that applied to the automobile
immediately prior to the Change in Control, or to purchase the
automobile at its book value as of the Termination Date.
(iii) The Company shall pay to the Executive an
amount equal to the cost to the Company of providing any other
perquisites and benefits of the Company in effect immediately
prior to the Change in Control, calculated as if such benefits
were continued during the Continuation Period.
(i) Accrued Amounts
The Company shall pay to the Executive all other amounts
accrued or earned by the Executive through the Termination Date and amounts
otherwise owing under the then existing plans and policies of the Company,
including but not limited to all amounts of compensation previously deferred by
the Executive (together with any accrued interest thereon) and not yet paid by
the Company, and any accrued vacation pay not yet paid by the Company.
14
<PAGE> 15
(j) The Company shall pay to the Executive the amounts due
pursuant to Sections 4(a), 4(g) and 4(h)(iii) in a lump sum on the first
business day of the month following the Termination Date. The Company shall pay
to the Executive the amounts due pursuant to Section 4(i) in accordance with the
terms and conditions of the existing plans and policies of the Company.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, but subject to Section 5(h), in the event that this Agreement
shall become operative and it shall be determined (as hereafter provided) that
any payment (other than the Gross-Up payments provided for in this Section 5) or
distribution by the Company or any of its subsidiaries to or for the benefit of
the Executive, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right,
restricted stock, deferred stock or the lapse or termination of any restriction
on, deferral period or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties with
respect to such tax (such tax or taxes, together with any such interest and
penalties, being hereafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in an amount
such that, after payment by the Executive of all taxes (including any interest
or
15
<PAGE> 16
penalties imposed with respect to such taxes), including any Excise Tax and
any income tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive in his sole discretion. The Executive shall direct the Accounting Firm
to submit its determination and detailed supporting calculations to both the
Company and the Executive within 30 calendar days after the Change in Control
Date, the Termination Date, if applicable, and any such other time or times as
may be requested by the Company or the Executive. If the Accounting Firm
determines that any Excise Tax is payable by the Executive, the Company shall
pay the required Gross-Up Payment to the Executive within five business days
after receipt of such determination and calculations with respect to any Payment
to the Executive. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall, at the same time as it makes such
determination, furnish the Company and the Executive an opinion that the
Executive has substantial authority not to report any Excise Tax on his federal,
state or local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto) and
the possibility of similar uncertainty regarding applicable state or local tax
law at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the
16
<PAGE> 17
event that the Company exhausts or fails to pursue its remedies pursuant to
Section 5(f) and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting
17
<PAGE> 18
Firm determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 5(b) shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within five business days after receipt
from the Executive of a statement therefor and reasonable evidence of his
payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment or
any additional Gross-Up Payment. Such notification shall be given as promptly as
practicable but no later than 10 business days after the Executive actually
receives notice of such claim and the Executive shall further apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid (in each case, to the extent known by the Executive). The
Executive shall not pay such claim prior to the earlier of (x) the expiration of
the 30-calendar-day period following the date on which he gives such notice to
the Company and (y) the date that any payment of amount with respect to such
claim is due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including without
18
<PAGE> 19
limitation accepting legal representation with respect to such
claim by an attorney competent in respect of the subject
matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such contest and payment
of costs and expenses. Without limiting the foregoing provisions of this Section
5(f), the Company shall control all proceedings taken in connection with the
contest of any claim contemplated by this Section 5(f) and, at its sole option,
may pursue or forego any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim (provided,
however, that the Executive may participate therein at his own cost and expense)
and may, at its option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any
19
<PAGE> 20
Excise Tax or income or other tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, however,
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the contested amount
is claimed to be due is limited solely to such contested amount. Furthermore,
the Company's control of any such contested claim shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), the Executive receives any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(f)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
any taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5(f), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial or refund prior to the expiration of 30 calendar days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of any such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid by the
Company to the Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to the
contrary, if (i) but for this sentence, the Company would be obligated to make a
Gross-Up Payment to the Executive, (ii) the aggregate "present value" of the
"parachute payments" to be paid or provided
20
<PAGE> 21
to the Executive under this Agreement or otherwise does not exceed 1.15
multiplied by three times the Executive's "base amount," and (iii) but for this
sentence, the net after-tax benefit to the Executive of the Gross-Up Payment
would not exceed $50,000 (taking into account both income taxes and any Excise
Tax), then the payments and benefits to be paid or provided under this Agreement
(including any stock based compensation pursuant to Section 4(f)) will be
reduced to the minimum extent necessary (but in no event to less than zero) so
that no portion of any payment or benefit to the Executive, as so reduced,
constitutes an "excess parachute payment." For purposes of this Section 5(h),
the terms "excess parachute payment," "present value," "parachute payment," and
"base amount" will have the meanings assigned to them by Section 280G of the
Code. The determination of whether any reduction in such payments or benefits to
be provided under this Agreement is required pursuant to the preceding sentence
will be made at the expense of the Company, if requested by the Executive or the
Company, by the Accounting Firm. The fact that the Executive's right to payments
or benefits may be reduced by reason of the limitations contained in this
Section 5(h) will not of itself limit or otherwise affect any other rights of
the Executive other than pursuant to this Agreement. In the event that any
payment or benefit intended to be provided under this Agreement or otherwise is
required to be reduced pursuant to this Section 5(h), the Executive will be
entitled to designate the payments and/or benefits to be so reduced in order to
give effect to this Section 5(h). The Company will provide the Executive with
all information reasonably requested by the Executive to permit the Executive to
make such designation. In the event that the Executive fails to make such
designation within 10 business days of the Termination Date, the Company may
effect such reduction in any manner it deems appropriate.
21
<PAGE> 22
6. No Mitigation Obligation. The Company hereby acknowledges that
it will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any source
whatsoever create any mitigation, offset, reduction or any other obligation on
the part of the Executive hereunder or otherwise, except as expressly provided
in the last sentence of Section 4(b).
7. Legal Fees and Expenses.
(a) It is the intent of the Company that the Executive not be
required to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Executive's rights under this
Agreement by litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the Executive
hereunder. Accordingly, if it should appear to the Executive that the Company
has failed to comply with any of its obligations under this Agreement or in the
event that the Company or any other person takes or threatens to take any action
to declare this Agreement void or unenforceable, or institutes any litigation or
other action or proceeding designed to deny, or to recover from, the Executive
any or all of the benefits provided or intended to be provided to the Executive
hereunder, the Company irrevocably authorizes the Executive from time to time to
retain counsel of Executive's choice, at the expense of the Company as hereafter
provided, to advise and represent the Executive in connection with any such
interpretation, enforcement or
22
<PAGE> 23
defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and expenses
incurred by the Executive in connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant
to Section 7(a) hereof, in the event a Change in Control occurs, the performance
of the Company's obligations under this Section 7 shall be secured by amounts
deposited or to be deposited in trust pursuant to certain trust agreements to
which the Company shall be a party, which amounts deposited shall in the
aggregate be not less than $2,000,000, providing that the fees and expenses of
counsel selected from time to time by the Executive pursuant to Section 7(a)
shall be paid, or reimbursed to the Executive if paid by the Executive, either
in accordance with the terms of such trust agreements, or, if not so provided,
on a regular, periodic basis upon presentation by the Executive to the trustee
of a statement or statements prepared by such counsel in accordance with its
customary practices. Any failure by the Company to satisfy any of its
obligations under this Section 7(b) shall not limit the rights of the Executive
hereunder. Subject to the foregoing, the Executive shall have the status of a
general unsecured creditor of the Company and shall have no right to, or
security interest in, any assets of the Company or any subsidiary.
23
<PAGE> 24
8. Continuing Obligations
(a) The Executive hereby agrees that all documents, records,
techniques, business secrets and other information which have come into his
possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company and, except for
personal documents and records of the Executive, shall be returned to the
Company. The Executive further agrees to retain in confidence any confidential
information known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly disclosed,
except that Executive may disclose any such information required to be disclosed
in the normal course of his employment with the Company or pursuant to any court
order or other legal process.
(b) The Executive hereby agrees that during the Continuation
Period, he will not directly or indirectly solicit any employee of the Company
or any of its subsidiaries or affiliated companies to join the employ of any
entity that competes with the Company or any of its subsidiaries or affiliated
companies.
9. Successors
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive to expressly assume and agree
to perform 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.
Failure of such successor entity to enter into such agreement prior to the
effective date of any such succession (or, if later, within three business days
after first receiving a written request for such agreement) shall constitute a
breach of this Agreement and shall entitle the Executive to
24
<PAGE> 25
terminate his employment pursuant to Section 2(a)(ii) and to receive the
payments and benefits provided under Section 4. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
Agreement provided for in this Section 9 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive dies while any amounts are payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to his devisee, legatee or other designee or, if there is no such
designee, to his estate.
10. Notices
For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or
permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company, with a copy to the General Counsel of the Company) at its principal
executive office and to the Executive at his principal residence, or to such
other address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
25
<PAGE> 26
11. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
12. Miscellaneous
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement (or in any
employment or other written agreement relating to the Executive).
Notwithstanding any provision of this Agreement to the contrary, the parties'
respective rights and obligations under Sections 4, 5 and 7 will survive any
termination or expiration of this Agreement or the termination of the
Executive's employment following a Change in Control for any reason whatsoever.
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any subsidiary prior to or following any Change in
Control. The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as the Company is required to withhold
pursuant to any law or government regulation or ruling. In the event that the
Company refuses or otherwise fails to make a payment when due and it is
ultimately decided that the Executive is entitled to such
26
<PAGE> 27
payment, such payment shall be increased to reflect an interest factor,
compounded annually, equal to the prime rate in effect as of the date the
payment was first due plus two points. For this purpose, the prime rate shall be
based on the rate identified by Chase Manhattan Bank as its prime rate.
13. Separability
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Non-assignability
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as provided in Section 9. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or by the laws
of descent or distribution, and in the event of any attempted assignment or
transfer by Executive contrary to this Section 14 the Company shall have no
liability to pay any amount so attempted to be assigned or transferred to any
person other than the Executive or, in the event of his death, his designated
beneficiary or, in the absence of an effective beneficiary designation, the
Executive's estate.
15. Effectiveness; Term
This Agreement will be effective and binding as of the date first above
written immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs. Upon the
27
<PAGE> 28
occurrence of a Change in Control at any time during the Term (as defined
below), without further action, this Agreement shall become immediately
operative. For purposes of this Agreement, "Term" means the period commencing as
of the date first above written and expiring as of the later of (i) the fifth
anniversary of the date first above written or (ii) the second anniversary of
the first occurrence of a Change in Control; provided, however, that (A)
commencing on the fifth anniversary of the date first above written and each
fifth anniversary date thereafter, the Term of this Agreement will automatically
be extended for an additional five years unless, not later than 180 days
preceding each such fifth anniversary date, the Company or the Executive shall
have given notice that it or the Executive, as the case may be, does not wish to
have the Term extended and (B) subject to Section 2(e), if, prior to a Change in
Control, the Executive ceases for any reason to be an employee of the Company
and any subsidiary, thereupon without further action the Term shall be deemed to
have expired and this Agreement will immediately terminate and be of no further
effect. For purposes of this Section 15, the Executive shall not be deemed to
have ceased to be an employee of the Company and any subsidiary by reason of the
transfer of Executive's employment between the Company and any subsidiary, or
among any subsidiaries.
16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
17 Prior Agreement. This Agreement supersedes and terminates any
and all prior Executive Termination Benefits Agreements by and among Company and
the Executive.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth, thereby
mutually and voluntarily agreeing that this Agreement supersedes and replaces
any prior similar agreements for such termination benefits.
AMR CORPORATION
By: /s/ Donald J. Carty
----------------------
AMERICAN AIRLINES, INC.
By: /s/ Thomas J. Kiernan
----------------------
GERARD J. ARPEY
/s/ Gerard J. Arpey
-------------------------
29
<PAGE> 1
EXHIBIT 10.62
AMENDED AND RESTATED
EXECUTIVE TERMINATION BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE TERMINATION BENEFITS AGREEMENT
(this "Agreement"), dated as of the 21st day of May, 1998 is among AMR
CORPORATION, a Delaware corporation, AMERICAN AIRLINES, INC., a Delaware
corporation (collectively the "Company"), and ROBERT W. BAKER (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company considers it essential to the best interests of
the Company and its stockholders that its management be encouraged to remain
with the Company and to continue to devote full attention to the Company's
business in the event an effort is made to obtain control of the Company through
a tender offer or otherwise;
WHEREAS, the Company recognizes that the possibility of a change in
control and the uncertainty and questions which it may raise among management
may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company;
WHEREAS, the Executive is a key Executive of the Company;
<PAGE> 2
WHEREAS, the Company believes the Executive has made valuable
contributions to the productivity and profitability of the Company;
WHEREAS, should the Company receive any proposal from a third person
concerning a possible business combination with or acquisition of equity
securities of the Company, the Board believes it imperative that the Company and
the Board be able to rely upon the Executive to continue in his position, and
that the Company be able to receive and rely upon his advice as to the best
interests of the Company and its stockholders without concern that he might be
distracted by the personal uncertainties and risks created by such a proposal;
and
WHEREAS, should the Company receive any such proposals, in addition to
the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether such
proposals would be in the best interests of the Company and its stockholders,
and to take such other actions as the Board might determine to be appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
undivided attention and services of the Executive and the availability of his
advice and counsel notwithstanding the possibility, threat or occurrence of a
bid to take over control of the Company, and to induce the Executive to remain
in the employ of the Company, and for other good and valuable consideration, the
Company and the Executive agree as follows:
1. Change in Control
For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have taken place if:
(a) any person as defined in Section 3(a)(9) of the
Securities Exchange Act of 1934, as amended from time to time (the "Exchange
Act"), and as used in Sections 13(d) and
2
<PAGE> 3
14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange
Act (a "Person"), but excluding the Company, any subsidiary of the Company and
any employee benefit plan sponsored or maintained by the Company or any
subsidiary of the Company (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13(d)-3 under the Exchange Act, as amended from time to time) of securities
of the Company representing 15% or more of the combined voting power of the
Company's then outstanding securities; or
(b) individuals who, as of the date hereof, constitute
the Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) consummation of a reorganization, merger or
consolidation or sale or other disposition of all or substantially all of the
assets of the Company or the acquisition of the assets of another corporation (a
"Business Combination"), in each case, unless, following such Business
Combination, (i) all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the then outstanding shares of
common stock of the Company and the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors immediately prior to such Business Combination
3
<PAGE> 4
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries), (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 15% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination, and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Incumbent Board, providing for
such Business Combination; or
(d) approval by the stockholders of the Company of a
complete liquidation or dissolution of the Company.
2. Circumstances Triggering Receipt of Severance Benefits
(a) Subject to Section 2(c), the Company will provide the
Executive with the benefits set forth in Section 4 upon any termination of the
Executive's employment:
(i) by the Company at any time within the first
24 months after a Change in Control;
4
<PAGE> 5
(ii) by the Executive for "Good Reason" (as
defined in Section 2(b) below) at any time within the first 24
months after a Change in Control;
(iii) by the Executive pursuant to Section 2(d);
or
(iv) by the Company or the Executive pursuant to
Section 2(e).
(b) In the event of the occurrence of a Change in
Control, the Executive may terminate employment with the Company and/or any
subsidiary for "Good Reason" with the right to benefits set forth in Section 4
upon the occurrence of one or more of the following events (regardless of
whether any other reason, other than Cause as provided below, for such
termination exists or has occurred, including without limitation other
employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent office or position, of or with the
Company and/or a subsidiary, as the case may be, which the
Executive held immediately prior to a Change in Control, or
the removal of the Executive as a director of the Company
and/or a subsidiary (or any successor thereto) if the
Executive shall have been a director of the Company and/or a
subsidiary immediately prior to the Change in Control;
(ii) (A) A significant adverse change in the
nature or scope of the authorities, powers, functions,
responsibilities or duties attached to the position with the
Company and/or any subsidiary which the Executive held
immediately prior to the Change in Control, (B) a reduction in
the aggregate of the Executive's annual base salary rate and
annual incentive compensation target to be received from the
Company and/or any subsidiary, or (C) the termination or
denial of the Executive's rights to Employee Benefits (as
defined below) or a reduction in the
5
<PAGE> 6
scope or value thereof, any of which is not remedied by the
Company within 10 calendar days after receipt by the Company
of written notice from the Executive of such change, reduction
or termination, as the case may be;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the parties
hereto provided it has been made in good faith and in all
events will be presumed to have been made in good faith unless
otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation,
a change in the scope of the business or other activities for
which the Executive was responsible immediately prior to the
Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused the Executive to
suffer a substantial reduction in, any of the authorities,
powers, functions, responsibilities or duties attached to the
position held by the Executive immediately prior to the Change
in Control, which situation is not remedied within 10 calendar
days after written notice to the Company from the Executive of
such determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or transfer of
all or substantially all of its business and/or assets, unless
the successor or successors (by liquidation, merger,
consolidation, reorganization, transfer or otherwise) to which
all or substantially all of its business and/or assets have
been transferred (directly or by operation of
6
<PAGE> 7
law) assumed all duties and obligations of the Company under
this Agreement pursuant to Section 9(a);
(v) The Company relocates its principal
executive offices, or requires the Executive to have his
principal location of work changed, to any location that is in
excess of 50 miles from the location thereof immediately prior
to the Change in Control, or requires the Executive to travel
away from his office in the course of discharging his
responsibilities or duties hereunder at least 20% more (in
terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to
any prior year) than was required of Executive in any of the
three full years immediately prior to the Change in Control
without, in either case, his prior written consent; or
(vi) Without limiting the generality or effect of
the foregoing, any material breach of this Agreement by the
Company or any successor thereto, which breach is not remedied
within 10 calendar days after written notice to the Company
from the Executive describing the nature of such breach.
(c) Notwithstanding Sections 2(a) and (b) above, no
benefits shall be payable by reason of this Agreement in the event of:
(i) Termination of the Executive's employment
with the Company and its subsidiaries by reason of the
Executive's death or Disability, provided that the Executive
has not previously given a valid "Notice of Termination"
pursuant to Section 3. For purposes hereof, "Disability" shall
be defined as the inability of Executive due to illness,
accident or other physical or mental disability to perform his
duties for any period of six consecutive months or for any
period of eight
7
<PAGE> 8
months out of any 12-month period, as determined by an
independent physician selected by the Company and reasonably
acceptable to the Executive (or his legal representative),
provided that the Executive does not return to work on
substantially a full-time basis within 30 days after written
notice from the Company, pursuant to Section 3, of an intent
to terminate the Executive's employment due to Disability;
(ii) Termination of the Executive's employment
with the Company and its subsidiaries on account of the
Executive's retirement at or after age 65, pursuant to the
Company's Retirement Benefit Plan; or
(iii) Termination of the Executive's employment
with the Company and its subsidiaries for Cause. For the
purposes hereof, "Cause" shall be defined as a felony
conviction of the Executive or the failure of the Executive to
contest prosecution for a felony, or the Executive's willful
misconduct or dishonesty, any of which is directly and
materially harmful to the business or reputation of the
Company or any subsidiary or affiliate. Notwithstanding the
foregoing, the Executive shall not be deemed to have been
terminated for "Cause" hereunder unless and until there shall
have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three
quarters of the Board then in office at a meeting of the Board
called and held for such purpose, after reasonable notice to
the Executive and an opportunity for the Executive, together
with his counsel (if the Executive chooses to have counsel
present at such meeting), to be heard before the Board,
finding that, in the good faith opinion of the Board, the
Executive had committed an act constituting
8
<PAGE> 9
"Cause" as herein defined and specifying the particulars
thereof in detail. Nothing herein will limit the right of the
Executive or his beneficiaries to contest the validity or
propriety of any such determination.
This Section 2(c) shall not preclude the payment of any amounts
otherwise payable to the Executive under any of the Company's employee benefit
plans, stock plans, programs and arrangements and/or under any Employment
Agreement.
(d) Notwithstanding anything contained in this Agreement
to the contrary, in the event of a Change in Control, the Executive may
terminate employment with the Company and any subsidiary for any reason, or
without reason, by providing Notice of Termination pursuant to Section 3 during
the 30-day period immediately following the first anniversary of the first
occurrence of a Change in Control with the right to the benefits set forth in
Section 4.
(e) Any termination of employment of the Executive,
including a termination for "Good Reason," but excluding a termination for
"Cause," or the removal of the Executive from the office or position in the
Company or any subsidiary that occurs (i) not more than 180 days prior to the
date on which a Change in Control occurs and (ii) following the commencement of
any discussion with a third person that ultimately results in a Change in
Control shall be deemed to be a termination or removal of the Executive after a
Change in Control for purposes of this Agreement.
3. Notice of Termination
Any termination of the Executive's employment with the Company and its
subsidiaries as contemplated by Section 2 shall be communicated by written
"Notice of Termination" to the other party hereto. Any "Notice of Termination"
shall indicate the effective date of termination which shall not be less than 30
days or more than 60 days after the date the Notice of
9
<PAGE> 10
Termination is delivered (the "Termination Date"), the specific provision in
this Agreement relied upon, and, except for a termination pursuant to Section
2(d), will set forth in reasonable detail the facts and circumstances claimed to
provide a basis for such termination including, if applicable, the failure after
provision of written notice by the Executive to effect a remedy pursuant to the
final clause of Section 2(b)(ii), 2(b)(iii) or 2(b)(vi).
4. Termination Benefits
Subject to the conditions set forth in Section 2, the following
benefits shall be paid or provided to the Executive:
(a) Compensation
The Company shall pay to the Executive three times the sum of
(i) "Base Pay", which shall be an amount equal to the greater of (A) the
Executive's effective annual base salary at the Termination Date or (B) the
Executive's effective annual base salary immediately prior to the Change in
Control, plus (ii) "Incentive Pay" equal to the greater of (x) the target annual
bonus payable to the Executive under the Company's Incentive Compensation Plan
or any other annual bonus plan for the fiscal year of the Company in which the
Change in Control occurred or (y) the highest annual bonus earned by the
Executive under the Company's Incentive Compensation Plan or any other annual
bonus plan (whether paid currently or on a deferred basis) with respect to any
12 consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred, plus (iii) "Performance Returns" equal to the highest annual
payment of performance returns paid to the Executive with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred.
10
<PAGE> 11
(b) Welfare Benefits
For a period of 36 months following the Termination Date (the
"Continuation Period"), the Company shall arrange to provide the Executive with
benefits, including travel accident, major medical, dental, vision care and
other welfare benefit programs in effect immediately prior to the Change in
Control ("Employee Benefits") substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination, or denial
described in Section 2(b)(ii)(C)). If and to the extent that any benefit
described in this Section 4(b) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any subsidiary, as the
case may be, then the Company will itself pay or provide for the payment to the
Executive, his dependents and beneficiaries, of such Employee Benefits along
with, in the case of any benefit which is subject to tax because it is not or
cannot be paid or provided under any such policy, plan, program or arrangement
of the Company or any subsidiary, an additional amount such that after payment
by the Executive, or his dependents or beneficiaries, as the case may be, of all
taxes so imposed, the recipient retains an amount equal to such taxes. Employee
Benefits otherwise receivable by the Executive pursuant to this Section 4(b)
will be reduced to the extent comparable welfare benefits are actually received
by the Executive from another employer during the Continuation Period, and any
such benefits actually received by the Executive shall be reported by the
Executive to the Company.
(c) Retirement Benefits
The Executive shall be deemed to be completely vested in
Executive's currently accrued benefits under the Company's Retirement Benefit
Plan and Supplemental Executive Retirement Plan ("SERP") in effect as of the
date of Change in Control (collectively, the
11
<PAGE> 12
"Plans"), regardless of his actual vesting service credit thereunder. In
addition, the Executive shall be deemed to earn service credit for benefit
calculation purposes thereunder for the Continuation Period. Benefits under the
Plans will become payable at any time designated by the Executive following
termination of the Executive's employment with the Company and its subsidiaries
after the Executive reaches age 55, subject to the terms of the Plans regarding
the actuarial adjustment of benefit payments commencing prior to normal
retirement age. The benefits to be paid pursuant to the Plans shall be
calculated as though the Executive's compensation rate for each of the five
years immediately preceding his retirement equaled the sum of Base Pay plus
Incentive Pay plus Performance Returns. Any benefits payable pursuant to this
Section 4(c) that are not payable out of the Plans for any reason (including but
not limited to any applicable benefit limitations under the Employee Retirement
Income Security Act of 1974, as amended, or any restrictions relating to the
qualification of the Company's Retirement Benefit Plan under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code")) shall be paid
directly by the Company out of its general assets.
(d) Relocation Benefits
If the Executive moves his residence in order to
pursue other business or employment opportunities during the Continuation Period
and requests in writing that the Company provide relocation services, he will be
reimbursed for any expenses incurred in that initial relocation (including taxes
payable on the reimbursement) which are not reimbursed by another employer.
Benefits under this provision will include assistance in selling the Executive's
home and all other assistance and benefits which were customarily provided by
the Company to transferred executives prior to the Change in Control.
12
<PAGE> 13
(e) Executive Outplacement Counseling
At the request of the Executive made in writing during the
Continuation Period, the Company shall engage an outplacement counseling service
of national reputation to assist the Executive in obtaining employment.
(f) Stock Based Compensation Plans
(i) Any issued and outstanding Stock
Options (to the extent they have not already become
exercisable) shall become exercisable as of the date on which
the Change in Control occurs, unless otherwise specifically
provided at the time such options are granted.
(ii) The Company's right to rescind any award of
stock to the Executive under the Company's 1988 Long Term
Incentive Plan or the Company's 1998 Long Term Incentive Plan
(or any successor plan) shall terminate upon a Change in
Control, and all restrictions on the sale, pledge,
hypothecation or other disposition of shares of stock awarded
pursuant to such plan shall be removed at the Termination
Date, unless otherwise specifically provided at the time such
award(s) are made.
(iii) The Executive's rights under any other stock
based compensation plan shall vest (to the extent they have
not already vested) and any performance criteria shall be
deemed met at target as of the date on which a Change in
Control occurs, unless otherwise specifically provided at the
time such right(s) are granted.
(g) Split Dollar Life Insurance
The Company shall pay to the Executive a lump sum equal to the
cost on the Termination Date of purchasing, at standard independent insurance
premium rates, an individual
13
<PAGE> 14
paid up insurance policy providing benefits equal to the benefits provided by
the Company's Split Dollar Life Insurance coverage immediately prior to the date
of the Change in Control.
(h) Other Benefits
(i) The Executive shall have all flight
privileges provided by the Company to Directors as of the date
of Change in Control until the Executive reaches age 55, at
which time he shall have all flight privileges provided by the
Company to its retirees who held the same or similar position
as the Executive immediately prior to the Change in Control.
(ii) The Executive, at the Executive's option,
shall be entitled to continue the use of the Executive's
Company-provided automobile during the Continuation Period
under the same terms that applied to the automobile
immediately prior to the Change in Control, or to purchase the
automobile at its book value as of the Termination Date.
(iii) The Company shall pay to the Executive an
amount equal to the cost to the Company of providing any other
perquisites and benefits of the Company in effect immediately
prior to the Change in Control, calculated as if such benefits
were continued during the Continuation Period.
(i) Accrued Amounts
The Company shall pay to the Executive all other amounts
accrued or earned by the Executive through the Termination Date and amounts
otherwise owing under the then existing plans and policies of the Company,
including but not limited to all amounts of compensation previously deferred by
the Executive (together with any accrued interest thereon) and not yet paid by
the Company, and any accrued vacation pay not yet paid by the Company.
14
<PAGE> 15
(j) The Company shall pay to the Executive the amounts
due pursuant to Sections 4(a), 4(g) and 4(h)(iii) in a lump sum on the first
business day of the month following the Termination Date. The Company shall pay
to the Executive the amounts due pursuant to Section 4(i) in accordance with the
terms and conditions of the existing plans and policies of the Company.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, but subject to Section 5(h), in the event that this Agreement
shall become operative and it shall be determined (as hereafter provided) that
any payment (other than the Gross-Up payments provided for in this Section 5) or
distribution by the Company or any of its subsidiaries to or for the benefit of
the Executive, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right,
restricted stock, deferred stock or the lapse or termination of any restriction
on, deferral period or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties with
respect to such tax (such tax or taxes, together with any such interest and
penalties, being hereafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in an amount
such that, after payment by the Executive of all taxes (including any interest
or
15
<PAGE> 16
penalties imposed with respect to such taxes), including any Excise Tax and
any income tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive in his sole discretion. The Executive shall direct the Accounting Firm
to submit its determination and detailed supporting calculations to both the
Company and the Executive within 30 calendar days after the Change in Control
Date, the Termination Date, if applicable, and any such other time or times as
may be requested by the Company or the Executive. If the Accounting Firm
determines that any Excise Tax is payable by the Executive, the Company shall
pay the required Gross-Up Payment to the Executive within five business days
after receipt of such determination and calculations with respect to any Payment
to the Executive. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall, at the same time as it makes such
determination, furnish the Company and the Executive an opinion that the
Executive has substantial authority not to report any Excise Tax on his federal,
state or local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto) and
the possibility of similar uncertainty regarding applicable state or local tax
law at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the
16
<PAGE> 17
event that the Company exhausts or fails to pursue its remedies pursuant to
Section 5(f) and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive.
(d) The federal, state and local income or other tax
returns filed by the Executive shall be prepared and filed on a consistent basis
with the determination of the Accounting Firm with respect to the Excise Tax
payable by the Executive. The Executive shall make proper payment of the amount
of any Excise Payment, and at the request of the Company, provide to the Company
true and correct copies (with any amendments) of his federal income tax return
as filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting
17
<PAGE> 18
Firm determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 5(b) shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within five business days after receipt
from the Executive of a statement therefor and reasonable evidence of his
payment thereof.
(f) The Executive shall notify the Company in writing of
any claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment or
any additional Gross-Up Payment. Such notification shall be given as promptly as
practicable but no later than 10 business days after the Executive actually
receives notice of such claim and the Executive shall further apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid (in each case, to the extent known by the Executive). The
Executive shall not pay such claim prior to the earlier of (x) the expiration of
the 30-calendar-day period following the date on which he gives such notice to
the Company and (y) the date that any payment of amount with respect to such
claim is due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) provide the Company with any written records
or documents in his possession relating to such claim
reasonably requested by the Company;
(ii) take such action in connection with
contesting such claim as the Company shall reasonably request
in writing from time to time, including without
18
<PAGE> 19
limitation accepting legal representation with respect to such
claim by an attorney competent in respect of the subject
matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such contest and payment
of costs and expenses. Without limiting the foregoing provisions of this Section
5(f), the Company shall control all proceedings taken in connection with the
contest of any claim contemplated by this Section 5(f) and, at its sole option,
may pursue or forego any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim (provided,
however, that the Executive may participate therein at his own cost and expense)
and may, at its option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any
19
<PAGE> 20
Excise Tax or income or other tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, however,
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the contested amount
is claimed to be due is limited solely to such contested amount. Furthermore,
the Company's control of any such contested claim shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), the Executive receives any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(f)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
any taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5(f), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial or refund prior to the expiration of 30 calendar days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of any such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid by the
Company to the Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to
the contrary, if (i) but for this sentence, the Company would be obligated to
make a Gross-Up Payment to the Executive, (ii) the aggregate "present value" of
the "parachute payments" to be paid or provided
20
<PAGE> 21
to the Executive under this Agreement or otherwise does not exceed 1.15
multiplied by three times the Executive's "base amount," and (iii) but for this
sentence, the net after-tax benefit to the Executive of the Gross-Up Payment
would not exceed $50,000 (taking into account both income taxes and any Excise
Tax), then the payments and benefits to be paid or provided under this Agreement
(including any stock based compensation pursuant to Section 4(f)) will be
reduced to the minimum extent necessary (but in no event to less than zero) so
that no portion of any payment or benefit to the Executive, as so reduced,
constitutes an "excess parachute payment." For purposes of this Section 5(h),
the terms "excess parachute payment," "present value," "parachute payment," and
"base amount" will have the meanings assigned to them by Section 280G of the
Code. The determination of whether any reduction in such payments or benefits to
be provided under this Agreement is required pursuant to the preceding sentence
will be made at the expense of the Company, if requested by the Executive or the
Company, by the Accounting Firm. The fact that the Executive's right to payments
or benefits may be reduced by reason of the limitations contained in this
Section 5(h) will not of itself limit or otherwise affect any other rights of
the Executive other than pursuant to this Agreement. In the event that any
payment or benefit intended to be provided under this Agreement or otherwise is
required to be reduced pursuant to this Section 5(h), the Executive will be
entitled to designate the payments and/or benefits to be so reduced in order to
give effect to this Section 5(h). The Company will provide the Executive with
all information reasonably requested by the Executive to permit the Executive to
make such designation. In the event that the Executive fails to make such
designation within 10 business days of the Termination Date, the Company may
effect such reduction in any manner it deems appropriate.
21
<PAGE> 22
6. No Mitigation Obligation. The Company hereby acknowledges that
it will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any source
whatsoever create any mitigation, offset, reduction or any other obligation on
the part of the Executive hereunder or otherwise, except as expressly provided
in the last sentence of Section 4(b).
7. Legal Fees and Expenses.
(a) It is the intent of the Company that the Executive
not be required to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Executive's rights under this
Agreement by litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the Executive
hereunder. Accordingly, if it should appear to the Executive that the Company
has failed to comply with any of its obligations under this Agreement or in the
event that the Company or any other person takes or threatens to take any action
to declare this Agreement void or unenforceable, or institutes any litigation or
other action or proceeding designed to deny, or to recover from, the Executive
any or all of the benefits provided or intended to be provided to the Executive
hereunder, the Company irrevocably authorizes the Executive from time to time to
retain counsel of Executive's choice, at the expense of the Company as hereafter
provided, to advise and represent the Executive in connection with any such
interpretation, enforcement or
22
<PAGE> 23
defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and expenses
incurred by the Executive in connection with any of the foregoing.
(b) Without limiting the obligations of the Company
pursuant to Section 7(a) hereof, in the event a Change in Control occurs, the
performance of the Company's obligations under this Section 7 shall be secured
by amounts deposited or to be deposited in trust pursuant to certain trust
agreements to which the Company shall be a party, which amounts deposited shall
in the aggregate be not less than $2,000,000, providing that the fees and
expenses of counsel selected from time to time by the Executive pursuant to
Section 7(a) shall be paid, or reimbursed to the Executive if paid by the
Executive, either in accordance with the terms of such trust agreements, or, if
not so provided, on a regular, periodic basis upon presentation by the Executive
to the trustee of a statement or statements prepared by such counsel in
accordance with its customary practices. Any failure by the Company to satisfy
any of its obligations under this Section 7(b) shall not limit the rights of the
Executive hereunder. Subject to the foregoing, the Executive shall have the
status of a general unsecured creditor of the Company and shall have no right
to, or security interest in, any assets of the Company or any subsidiary.
23
<PAGE> 24
8. Continuing Obligations
(a) The Executive hereby agrees that all documents,
records, techniques, business secrets and other information which have come into
his possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company and, except for
personal documents and records of the Executive, shall be returned to the
Company. The Executive further agrees to retain in confidence any confidential
information known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly disclosed,
except that Executive may disclose any such information required to be disclosed
in the normal course of his employment with the Company or pursuant to any court
order or other legal process.
(b) The Executive hereby agrees that during the
Continuation Period, he will not directly or indirectly solicit any employee of
the Company or any of its subsidiaries or affiliated companies to join the
employ of any entity that competes with the Company or any of its subsidiaries
or affiliated companies.
9. Successors
(a) The Company shall require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive to expressly assume and agree
to perform 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.
Failure of such successor entity to enter into such agreement prior to the
effective date of any such succession (or, if later, within three business days
after first receiving a written request for such agreement) shall constitute a
breach of this Agreement and shall entitle the Executive to
24
<PAGE> 25
terminate his employment pursuant to Section 2(a)(ii) and to receive the
payments and benefits provided under Section 4. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
Agreement provided for in this Section 9 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive dies while any amounts are payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to his devisee, legatee or other designee or, if there is no such
designee, to his estate.
10. Notices
For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or
permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company, with a copy to the General Counsel of the Company) at its principal
executive office and to the Executive at his principal residence, or to such
other address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
25
<PAGE> 26
11. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE
OF THIS AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF
DELAWARE.
12. Miscellaneous
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement (or in any
employment or other written agreement relating to the Executive).
Notwithstanding any provision of this Agreement to the contrary, the parties'
respective rights and obligations under Sections 4, 5 and 7 will survive any
termination or expiration of this Agreement or the termination of the
Executive's employment following a Change in Control for any reason whatsoever.
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any subsidiary prior to or following any Change in
Control. The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as the Company is required to withhold
pursuant to any law or government regulation or ruling. In the event that the
Company refuses or otherwise fails to make a payment when due and it is
ultimately decided that the Executive is entitled to such
26
<PAGE> 27
payment, such payment shall be increased to reflect an interest factor,
compounded annually, equal to the prime rate in effect as of the date the
payment was first due plus two points. For this purpose, the prime rate shall be
based on the rate identified by Chase Manhattan Bank as its prime rate.
13. Separability
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Non-assignability
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as provided in Section 9. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or by the laws
of descent or distribution, and in the event of any attempted assignment or
transfer by Executive contrary to this Section 14 the Company shall have no
liability to pay any amount so attempted to be assigned or transferred to any
person other than the Executive or, in the event of his death, his designated
beneficiary or, in the absence of an effective beneficiary designation, the
Executive's estate.
15. Effectiveness; Term
This Agreement will be effective and binding as of the date first above
written immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs. Upon the
27
<PAGE> 28
occurrence of a Change in Control at any time during the Term (as defined
below), without further action, this Agreement shall become immediately
operative. For purposes of this Agreement, "Term" means the period commencing as
of the date first above written and expiring as of the later of (i) the fifth
anniversary of the date first above written or (ii) the second anniversary of
the first occurrence of a Change in Control; provided, however, that (A)
commencing on the fifth anniversary of the date first above written and each
fifth anniversary date thereafter, the Term of this Agreement will automatically
be extended for an additional five years unless, not later than 180 days
preceding each such fifth anniversary date, the Company or the Executive shall
have given notice that it or the Executive, as the case may be, does not wish to
have the Term extended and (B) subject to Section 2(e), if, prior to a Change in
Control, the Executive ceases for any reason to be an employee of the Company
and any subsidiary, thereupon without further action the Term shall be deemed to
have expired and this Agreement will immediately terminate and be of no further
effect. For purposes of this Section 15, the Executive shall not be deemed to
have ceased to be an employee of the Company and any subsidiary by reason of the
transfer of Executive's employment between the Company and any subsidiary, or
among any subsidiaries.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
17. Prior Agreement. This Agreement supersedes and terminates any
and all prior Executive Termination Benefits Agreements by and among Company and
the Executive.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth, thereby
mutually and voluntarily agreeing that this Agreement supersedes and replaces
any prior similar agreements for such termination benefits.
AMR CORPORATION
By: /s/ Donald J. Carty
-------------------------------
AMERICAN AIRLINES, INC.
By: /s/ Thomas J. Kiernan
-------------------------------
ROBERT W. BAKER
/s/ Robert W. Baker
-------------------------------
29
<PAGE> 1
EXHIBIT 10.63
AMENDED AND RESTATED
EXECUTIVE TERMINATION BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE TERMINATION BENEFITS AGREEMENT
(this "Agreement"), dated as of the 21st day of May, 1998 is among AMR
CORPORATION, a Delaware corporation, AMERICAN AIRLINES, INC., a Delaware
corporation (collectively the "Company"), and PETER M. BOWLER (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company considers it essential to the best interests of
the Company and its stockholders that its management be encouraged to remain
with the Company and to continue to devote full attention to the Company's
business in the event an effort is made to obtain control of the Company
through a tender offer or otherwise;
WHEREAS, the Company recognizes that the possibility of a change in
control and the uncertainty and questions which it may raise among management
may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company;
WHEREAS, the Executive is a key Executive of the Company;
<PAGE> 2
WHEREAS, the Company believes the Executive has made valuable
contributions to the productivity and profitability of the Company;
WHEREAS, should the Company receive any proposal from a third person
concerning a possible business combination with or acquisition of equity
securities of the Company, the Board believes it imperative that the Company
and the Board be able to rely upon the Executive to continue in his position,
and that the Company be able to receive and rely upon his advice as to the best
interests of the Company and its stockholders without concern that he might be
distracted by the personal uncertainties and risks created by such a proposal;
and
WHEREAS, should the Company receive any such proposals, in addition to
the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether
such proposals would be in the best interests of the Company and its
stockholders, and to take such other actions as the Board might determine to be
appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
undivided attention and services of the Executive and the availability of his
advice and counsel notwithstanding the possibility, threat or occurrence of a
bid to take over control of the Company, and to induce the Executive to remain
in the employ of the Company, and for other good and valuable consideration,
the Company and the Executive agree as follows:
1. Change in Control
For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have taken place if:
(a) any person as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended from time to time (the "Exchange Act"), and as
used in Sections 13(d)
2
<PAGE> 3
and 14(d) thereof, including a "group" as defined in Section 13(d) of the
Exchange Act (a "Person"), but excluding the Company, any subsidiary of the
Company and any employee benefit plan sponsored or maintained by the Company or
any subsidiary of the Company (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13(d)-3 under the Exchange Act, as amended from time to time) of
securities of the Company representing 15% or more of the combined voting power
of the Company's then outstanding securities; or
(b) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board; or
(c) consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company
or the acquisition of the assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the then outstanding shares of common stock
of the Company and the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors immediately prior to such Business Combination
3
<PAGE> 4
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election
of directors, as the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a corporation which as a
result of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries), (ii) no
Person (excluding any employee benefit plan (or related trust) of the Company
or such corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 15% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Business Combination, and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Incumbent Board,
providing for such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. Circumstances Triggering Receipt of Severance Benefits
(a) Subject to Section 2(c), the Company will provide the Executive
with the benefits set forth in Section 4 upon any termination of the
Executive's employment:
(i) by the Company at any time within the first 24 months after
a Change in Control;
4
<PAGE> 5
(ii) by the Executive for "Good Reason" (as defined in Section
2(b) below) at any time within the first 24 months after a Change in
Control;
(iii) by the Executive pursuant to Section 2(d); or
(iv) by the Company or the Executive pursuant to Section 2(e).
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and/or any subsidiary for
"Good Reason" with the right to benefits set forth in Section 4 upon the
occurrence of one or more of the following events (regardless of whether any
other reason, other than Cause as provided below, for such termination exists
or has occurred, including without limitation other employment):
(i) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially
equivalent office or position, of or with the Company and/or a
subsidiary, as the case may be, which the Executive held immediately
prior to a Change in Control, or the removal of the Executive as a
director of the Company and/or a subsidiary (or any successor
thereto) if the Executive shall have been a director of the Company
and/or a subsidiary immediately prior to the Change in Control;
(ii) (A) A significant adverse change in the nature or scope of
the authorities, powers, functions, responsibilities or duties
attached to the position with the Company and/or any subsidiary
which the Executive held immediately prior to the Change in
Control, (B) a reduction in the aggregate of the Executive's annual
base salary rate and annual incentive compensation target to be
received from the Company and/or any subsidiary, or (C) the
termination or denial of the Executive's rights to Employee
Benefits (as defined below) or a reduction in the
5
<PAGE> 6
scope or value thereof, any of which is not remedied by the Company
within 10 calendar days after receipt by the Company of written
notice from the Executive of such change, reduction or termination,
as the case may be;
(iii) A determination by the Executive (which determination will
be conclusive and binding upon the parties hereto provided it has
been made in good faith and in all events will be presumed to have
been made in good faith unless otherwise shown by the Company by
clear and convincing evidence) that a change in circumstances has
occurred following a Change in Control, including, without
limitation, a change in the scope of the business or other
activities for which the Executive was responsible immediately
prior to the Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused the Executive to suffer a
substantial reduction in, any of the authorities, powers,
functions, responsibilities or duties attached to the position held
by the Executive immediately prior to the Change in Control, which
situation is not remedied within 10 calendar days after written
notice to the Company from the Executive of such determination;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially
all of its business and/or assets, unless the successor or
successors (by liquidation, merger, consolidation, reorganization,
transfer or otherwise) to which all or substantially all of its
business and/or assets have been transferred (directly or by
operation of
6
<PAGE> 7
law) assumed all duties and obligations of the Company under this
Agreement pursuant to Section 9(a);
(v) The Company relocates its principal executive offices, or
requires the Executive to have his principal location of work
changed, to any location that is in excess of 50 miles from the
location thereof immediately prior to the Change in Control, or
requires the Executive to travel away from his office in the course
of discharging his responsibilities or duties hereunder at least
20% more (in terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to any
prior year) than was required of Executive in any of the three full
years immediately prior to the Change in Control without, in either
case, his prior written consent; or
(vi) Without limiting the generality or effect of the foregoing,
any material breach of this Agreement by the Company or any
successor thereto, which breach is not remedied within 10 calendar
days after written notice to the Company from the Executive
describing the nature of such breach.
(c) Notwithstanding Sections 2(a) and (b) above, no benefits shall
be payable by reason of this Agreement in the event of:
(i) Termination of the Executive's employment with the Company
and its subsidiaries by reason of the Executive's death or
Disability, provided that the Executive has not previously given a
valid "Notice of Termination" pursuant to Section 3. For purposes
hereof, "Disability" shall be defined as the inability of Executive
due to illness, accident or other physical or mental disability to
perform his duties for any period of six consecutive months or for
any period of eight
7
<PAGE> 8
months out of any 12-month period, as determined by an independent
physician selected by the Company and reasonably acceptable to the
Executive (or his legal representative), provided that the
Executive does not return to work on substantially a full-time
basis within 30 days after written notice from the Company,
pursuant to Section 3, of an intent to terminate the Executive's
employment due to Disability;
(ii) Termination of the Executive's employment with the Company
and its subsidiaries on account of the Executive's retirement at or
after age 65, pursuant to the Company's Retirement Benefit Plan; or
(iii) Termination of the Executive's employment with the Company
and its subsidiaries for Cause. For the purposes hereof, "Cause"
shall be defined as a felony conviction of the Executive or the
failure of the Executive to contest prosecution for a felony, or
the Executive's wilful misconduct or dishonesty, any of which is
directly and materially harmful to the business or reputation of
the Company or any subsidiary or affiliate. Notwithstanding the
foregoing, the Executive shall not be deemed to have been
terminated for "Cause" hereunder unless and until there shall have
been delivered to the Executive a copy of a resolution duly adopted
by the affirmative vote of not less than three quarters of the
Board then in office at a meeting of the Board called and held for
such purpose, after reasonable notice to the Executive and an
opportunity for the Executive, together with his counsel (if the
Executive chooses to have counsel present at such meeting), to be
heard before the Board, finding that, in the good faith opinion of
the Board, the Executive had committed an act constituting
8
<PAGE> 9
"Cause" as herein defined and specifying the particulars thereof in
detail. Nothing herein will limit the right of the Executive or his
beneficiaries to contest the validity or propriety of any such
determination.
This Section 2(c) shall not preclude the payment of any amounts otherwise
payable to the Executive under any of the Company's employee benefit plans,
stock plans, programs and arrangements and/or under any Employment Agreement.
(d) Notwithstanding anything contained in this Agreement to the
contrary, in the event of a Change in Control, the Executive may terminate
employment with the Company and any subsidiary for any reason, or without
reason, by providing Notice of Termination pursuant to Section 3 during the
30-day period immediately following the first anniversary of the first
occurrence of a Change in Control with the right to the benefits set forth in
Section 4.
(e) Any termination of employment of the Executive, including a
termination for "Good Reason," but excluding a termination for "Cause," or the
removal of the Executive from the office or position in the Company or any
subsidiary that occurs (i) not more than 180 days prior to the date on which a
Change in Control occurs and (ii) following the commencement of any discussion
with a third person that ultimately results in a Change in Control shall be
deemed to be a termination or removal of the Executive after a Change in
Control for purposes of this Agreement.
3. Notice of Termination
Any termination of the Executive's employment with the Company and its
subsidiaries as contemplated by Section 2 shall be communicated by written
"Notice of Termination" to the other party hereto. Any "Notice of Termination"
shall indicate the effective date of termination which shall not be less than
30 days or more than 60 days after the date the Notice of
9
<PAGE> 10
Termination is delivered (the "Termination Date"), the specific provision in
this Agreement relied upon, and, except for a termination pursuant to Section
2(d), will set forth in reasonable detail the facts and circumstances claimed
to provide a basis for such termination including, if applicable, the failure
after provision of written notice by the Executive to effect a remedy pursuant
to the final clause of Section 2(b)(ii), 2(b)(iii) or 2(b)(vi).
4. Termination Benefits
Subject to the conditions set forth in Section 2, the following
benefits shall be paid or provided to the Executive:
(a) Compensation
The Company shall pay to the Executive three times the sum of (i) "Base
Pay", which shall be an amount equal to the greater of (A) the Executive's
effective annual base salary at the Termination Date or (B) the Executive's
effective annual base salary immediately prior to the Change in Control, plus
(ii) "Incentive Pay" equal to the greater of (x) the target annual bonus
payable to the Executive under the Company's Incentive Compensation Plan or any
other annual bonus plan for the fiscal year of the Company in which the Change
in Control occurred or (y) the highest annual bonus earned by the Executive
under the Company's Incentive Compensation Plan or any other annual bonus plan
(whether paid currently or on a deferred basis) with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred, plus (iii) "Performance Returns" equal to the highest annual
payment of performance returns paid to the Executive with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred.
10
<PAGE> 11
(b) Welfare Benefits
For a period of 36 months following the Termination Date (the
"Continuation Period"), the Company shall arrange to provide the Executive with
benefits, including travel accident, major medical, dental, vision care and
other welfare benefit programs in effect immediately prior to the Change in
Control ("Employee Benefits") substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination, or denial
described in Section 2(b)(ii)(C)). If and to the extent that any benefit
described in this Section 4(b) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any subsidiary, as the
case may be, then the Company will itself pay or provide for the payment to the
Executive, his dependents and beneficiaries, of such Employee Benefits along
with, in the case of any benefit which is subject to tax because it is not or
cannot be paid or provided under any such policy, plan, program or arrangement
of the Company or any subsidiary, an additional amount such that after payment
by the Executive, or his dependents or beneficiaries, as the case may be, of
all taxes so imposed, the recipient retains an amount equal to such taxes.
Employee Benefits otherwise receivable by the Executive pursuant to this
Section 4(b) will be reduced to the extent comparable welfare benefits are
actually received by the Executive from another employer during the
Continuation Period, and any such benefits actually received by the Executive
shall be reported by the Executive to the Company.
(c) Retirement Benefits
The Executive shall be deemed to be completely vested in Executive's
currently accrued benefits under the Company's Retirement Benefit Plan and
Supplemental Executive Retirement Plan ("SERP") in effect as of the date of
Change in Control (collectively, the
11
<PAGE> 12
"Plans"), regardless of his actual vesting service credit thereunder. In
addition, the Executive shall be deemed to earn service credit for benefit
calculation purposes thereunder for the Continuation Period. Benefits under the
Plans will become payable at any time designated by the Executive following
termination of the Executive's employment with the Company and its subsidiaries
after the Executive reaches age 55, subject to the terms of the Plans regarding
the actuarial adjustment of benefit payments commencing prior to normal
retirement age. The benefits to be paid pursuant to the Plans shall be
calculated as though the Executive's compensation rate for each of the five
years immediately preceding his retirement equaled the sum of Base Pay plus
Incentive Pay plus Performance Returns. Any benefits payable pursuant to this
Section 4(c) that are not payable out of the Plans for any reason (including
but not limited to any applicable benefit limitations under the Employee
Retirement Income Security Act of 1974, as amended, or any restrictions
relating to the qualification of the Company's Retirement Benefit Plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"))
shall be paid directly by the Company out of its general assets.
(d) Relocation Benefits
If the Executive moves his residence in order to pursue other business
or employment opportunities during the Continuation Period and requests in
writing that the Company provide relocation services, he will be reimbursed for
any expenses incurred in that initial relocation (including taxes payable on
the reimbursement) which are not reimbursed by another employer. Benefits under
this provision will include assistance in selling the Executive's home and all
other assistance and benefits which were customarily provided by the Company to
transferred executives prior to the Change in Control.
12
<PAGE> 13
(e) Executive Outplacement Counseling
At the request of the Executive made in writing during the Continuation
Period, the Company shall engage an outplacement counseling service of national
reputation to assist the Executive in obtaining employment.
(f) Stock Based Compensation Plans
(i) Any issued and outstanding Stock Options (to the extent they
have not already become exercisable) shall become exercisable as of the
date on which the Change in Control occurs, unless otherwise
specifically provided at the time such options are granted.
(ii) The Company's right to rescind any award of stock to the
Executive under the Company's 1988 Long Term Incentive Plan or the
Company?s 1998 Long Term Incentive Plan (or any successor plan) shall
terminate upon a Change in Control, and all restrictions on the sale,
pledge, hypothecation or other disposition of shares of stock awarded
pursuant to such plan shall be removed at the Termination Date, unless
otherwise specifically provided at the time such award(s) are made.
(iii) The Executive's rights under any other stock based
compensation plan shall vest (to the extent they have not already
vested) and any performance criteria shall be deemed met at target as
of the date on which a Change in Control occurs, unless otherwise
specifically provided at the time such right(s) are granted.
(g) Split Dollar Life Insurance
The Company shall pay to the Executive a lump sum equal to the cost on
the Termination Date of purchasing, at standard independent insurance premium
rates, an individual
13
<PAGE> 14
paid up insurance policy providing benefits equal to the benefits provided by
the Company's Split Dollar Life Insurance coverage immediately prior to the
date of the Change in Control.
(h) Other Benefits
(i) The Executive shall have all flight privileges provided by the
Company to Directors as of the date of Change in Control until the
Executive reaches age 55, at which time he shall have all flight
privileges provided by the Company to its retirees who held the same or
similar position as the Executive immediately prior to the Change in
Control.
(ii) The Executive, at the Executive's option, shall be entitled to
continue the use of the Executive's Company-provided automobile during
the Continuation Period under the same terms that applied to the
automobile immediately prior to the Change in Control, or to purchase
the automobile at its book value as of the Termination Date.
(iii) The Company shall pay to the Executive an amount equal to the
cost to the Company of providing any other perquisites and benefits of
the Company in effect immediately prior to the Change in Control,
calculated as if such benefits were continued during the Continuation
Period.
(i) Accrued Amounts
The Company shall pay to the Executive all other amounts accrued or
earned by the Executive through the Termination Date and amounts otherwise
owing under the then existing plans and policies of the Company, including but
not limited to all amounts of compensation previously deferred by the Executive
(together with any accrued interest thereon) and not yet paid by the Company,
and any accrued vacation pay not yet paid by the Company.
14
<PAGE> 15
(j) The Company shall pay to the Executive the amounts due pursuant
to Sections 4(a), 4(g) and 4(h)(iii) in a lump sum on the first business day of
the month following the Termination Date. The Company shall pay to the
Executive the amounts due pursuant to Section 4(i) in accordance with the terms
and conditions of the existing plans and policies of the Company.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, but
subject to Section 5(h), in the event that this Agreement shall become
operative and it shall be determined (as hereafter provided) that any payment
(other than the Gross-Up payments provided for in this Section 5) or
distribution by the Company or any of its subsidiaries to or for the benefit of
the Executive, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right,
restricted stock, deferred stock or the lapse or termination of any restriction
on, deferral period or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties
with respect to such tax (such tax or taxes, together with any such interest
and penalties, being hereafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment or
payments (collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in
an amount such that, after payment by the Executive of all taxes (including any
interest or
15
<PAGE> 16
penalties imposed with respect to such taxes), including any Excise Tax and any
income tax imposed upon the Gross-Up Payment, the Executive retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all determinations
required to be made under this Section 5, including whether an Excise Tax is
payable by the Executive and the amount of such Excise Tax and whether a
Gross-Up Payment is required to be paid by the Company to the Executive and the
amount of such Gross-Up Payment, if any, shall be made by a nationally
recognized accounting firm (the "Accounting Firm") selected by the Executive in
his sole discretion. The Executive shall direct the Accounting Firm to submit
its determination and detailed supporting calculations to both the Company and
the Executive within 30 calendar days after the Change in Control Date, the
Termination Date, if applicable, and any such other time or times as may be
requested by the Company or the Executive. If the Accounting Firm determines
that any Excise Tax is payable by the Executive, the Company shall pay the
required Gross-Up Payment to the Executive within five business days after
receipt of such determination and calculations with respect to any Payment to
the Executive. If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall, at the same time as it makes such determination,
furnish the Company and the Executive an opinion that the Executive has
substantial authority not to report any Excise Tax on his federal, state or
local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto)
and the possibility of similar uncertainty regarding applicable state or local
tax law at the time of any determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the
16
<PAGE> 17
event that the Company exhausts or fails to pursue its remedies pursuant to
Section 5(f) and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination
and detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days
after receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the Accounting
Firm access to and copies of any books, records and documents in the possession
of the Company or the Executive, as the case may be, reasonably requested by
the Accounting Firm, and otherwise cooperate with the Accounting Firm in
connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive.
(d) The federal, state and local income or other tax returns filed by
the Executive shall be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment.
If prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting
17
<PAGE> 18
Firm determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by Section
5(b) shall be borne by the Company. If such fees and expenses are initially
paid by the Executive, the Company shall reimburse the Executive the full
amount of such fees and expenses within five business days after receipt from
the Executive of a statement therefor and reasonable evidence of his payment
thereof.
(f) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service or any other taxing authority that, if successful,
would require the payment by the Company of a Gross-Up Payment or any
additional Gross-Up Payment. Such notification shall be given as promptly as
practicable but no later than 10 business days after the Executive actually
receives notice of such claim and the Executive shall further apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid (in each case, to the extent known by the Executive). The
Executive shall not pay such claim prior to the earlier of (x) the expiration
of the 30-calendar-day period following the date on which he gives such notice
to the Company and (y) the date that any payment of amount with respect to such
claim is due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) provide the Company with any written records or documents in
his possession relating to such claim reasonably requested by the
Company;
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including without
18
<PAGE> 19
limitation accepting legal representation with respect to such claim by
an attorney competent in respect of the subject matter and reasonably
selected by the Company;
(iii) cooperate with the Company in good faith in order effectively
to contest such claim; and
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such contest and payment
of costs and expenses. Without limiting the foregoing provisions of this
Section 5(f), the Company shall control all proceedings taken in connection
with the contest of any claim contemplated by this Section 5(f) and, at its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim (provided, however, that the Executive may participate therein at
his own cost and expense) and may, at its option, either direct the Executive
to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
the tax claimed and sue for a refund, the Company shall advance the amount of
such payment to the Executive on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any
19
<PAGE> 20
Excise Tax or income or other tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, however,
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of any such contested claim shall be limited
to issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other taxing
authority.
(g) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 5(f), the Executive receives any refund with
respect to such claim, the Executive shall (subject to the Company's complying
with the requirements of Section 5(f)) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon after any
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim
and the Company does not notify the Executive in writing of its intent to
contest such denial or refund prior to the expiration of 30 calendar days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of any such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid by the
Company to the Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to the contrary, if
(i) but for this sentence, the Company would be obligated to make a Gross-Up
Payment to the Executive, (ii) the aggregate "present value" of the "parachute
payments" to be paid or provided
20
<PAGE> 21
to the Executive under this Agreement or otherwise does not exceed 1.15
multiplied by three times the Executive's "base amount," and (iii) but for this
sentence, the net after-tax benefit to the Executive of the Gross-Up Payment
would not exceed $50,000 (taking into account both income taxes and any Excise
Tax), then the payments and benefits to be paid or provided under this
Agreement (including any stock based compensation pursuant to Section 4(f))
will be reduced to the minimum extent necessary (but in no event to less than
zero) so that no portion of any payment or benefit to the Executive, as so
reduced, constitutes an "excess parachute payment." For purposes of this
Section 5(h), the terms "excess parachute payment," "present value," "parachute
payment," and "base amount" will have the meanings assigned to them by Section
280G of the Code. The determination of whether any reduction in such payments
or benefits to be provided under this Agreement is required pursuant to the
preceding sentence will be made at the expense of the Company, if requested by
the Executive or the Company, by the Accounting Firm. The fact that the
Executive's right to payments or benefits may be reduced by reason of the
limitations contained in this Section 5(h) will not of itself limit or
otherwise affect any other rights of the Executive other than pursuant to this
Agreement. In the event that any payment or benefit intended to be provided
under this Agreement or otherwise is required to be reduced pursuant to this
Section 5(h), the Executive will be entitled to designate the payments and/or
benefits to be so reduced in order to give effect to this Section 5(h). The
Company will provide the Executive with all information reasonably requested by
the Executive to permit the Executive to make such designation. In the event
that the Executive fails to make such designation within 10 business days of
the Termination Date, the Company may effect such reduction in any manner it
deems appropriate.
21
<PAGE> 22
6. No Mitigation Obligation. The Company hereby acknowledges that it
will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance
with the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise, nor will any profits, income, earnings or other benefits from any
source whatsoever create any mitigation, offset, reduction or any other
obligation on the part of the Executive hereunder or otherwise, except as
expressly provided in the last sentence of Section 4(b).
7. Legal Fees and Expenses.
(a) It is the intent of the Company that the Executive not be
required to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Executive's rights under this
Agreement by litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the
Executive hereunder. Accordingly, if it should appear to the Executive that the
Company has failed to comply with any of its obligations under this Agreement
or in the event that the Company or any other person takes or threatens to take
any action to declare this Agreement void or unenforceable, or institutes any
litigation or other action or proceeding designed to deny, or to recover from,
the Executive any or all of the benefits provided or intended to be provided to
the Executive hereunder, the Company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
Company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or
22
<PAGE> 23
defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and
expenses incurred by the Executive in connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant to Section
7(a) hereof, in the event a Change in Control occurs, the performance of the
Company's obligations under this Section 7 shall be secured by amounts
deposited or to be deposited in trust pursuant to certain trust agreements to
which the Company shall be a party, which amounts deposited shall in the
aggregate be not less than $2,000,000, providing that the fees and expenses of
counsel selected from time to time by the Executive pursuant to Section 7(a)
shall be paid, or reimbursed to the Executive if paid by the Executive, either
in accordance with the terms of such trust agreements, or, if not so provided,
on a regular, periodic basis upon presentation by the Executive to the trustee
of a statement or statements prepared by such counsel in accordance with its
customary practices. Any failure by the Company to satisfy any of its
obligations under this Section 7(b) shall not limit the rights of the Executive
hereunder. Subject to the foregoing, the Executive shall have the status of a
general unsecured creditor of the Company and shall have no right to, or
security interest in, any assets of the Company or any subsidiary.
23
<PAGE> 24
8. Continuing Obligations
(a) The Executive hereby agrees that all documents, records,
techniques, business secrets and other information which have come into his
possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company and, except for
personal documents and records of the Executive, shall be returned to the
Company. The Executive further agrees to retain in confidence any confidential
information known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly disclosed,
except that Executive may disclose any such information required to be
disclosed in the normal course of his employment with the Company or pursuant
to any court order or other legal process.
(b) The Executive hereby agrees that during the Continuation Period,
he will not directly or indirectly solicit any employee of the Company or any
of its subsidiaries or affiliated companies to join the employ of any entity
that competes with the Company or any of its subsidiaries or affiliated
companies.
9. Successors
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive to expressly assume and agree
to perform 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.
Failure of such successor entity to enter into such agreement prior to the
effective date of any such succession (or, if later, within three business days
after first receiving a written request for such agreement) shall constitute a
breach of this Agreement and shall entitle the Executive to
24
<PAGE> 25
terminate his employment pursuant to Section 2(a)(ii) and to receive the
payments and benefits provided under Section 4. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
Agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive dies
while any amounts are payable to him hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there is no such
designee, to his estate.
10. Notices
For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or
permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS,
or Purolator, addressed to the Company (to the attention of the Secretary of
the Company, with a copy to the General Counsel of the Company) at its
principal executive office and to the Executive at his principal residence, or
to such other address as any party may have furnished to the other in writing
and in accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
25
<PAGE> 26
11. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
12. Miscellaneous
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement (or in any
employment or other written agreement relating to the Executive).
Notwithstanding any provision of this Agreement to the contrary, the parties'
respective rights and obligations under Sections 4, 5 and 7 will survive any
termination or expiration of this Agreement or the termination of the
Executive's employment following a Change in Control for any reason whatsoever.
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any subsidiary prior to or following any Change in
Control. The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as the Company is required to withhold
pursuant to any law or government regulation or ruling. In the event that the
Company refuses or otherwise fails to make a payment when due and it is
ultimately decided that the Executive is entitled to such
26
<PAGE> 27
payment, such payment shall be increased to reflect an interest factor,
compounded annually, equal to the prime rate in effect as of the date the
payment was first due plus two points. For this purpose, the prime rate shall
be based on the rate identified by Chase Manhattan Bank as its prime rate.
13. Separability
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Non-assignability
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as provided in Section 9. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or by the
laws of descent or distribution, and in the event of any attempted assignment
or transfer by Executive contrary to this Section 14 the Company shall have no
liability to pay any amount so attempted to be assigned or transferred to any
person other than the Executive or, in the event of his death, his designated
beneficiary or, in the absence of an effective beneficiary designation, the
Executive's estate.
15. Effectiveness; Term
This Agreement will be effective and binding as of the date first above
written immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs. Upon the
27
<PAGE> 28
occurrence of a Change in Control at any time during the Term (as defined
below), without further action, this Agreement shall become immediately
operative. For purposes of this Agreement, "Term" means the period commencing
as of the date first above written and expiring as of the later of (i) the
fifth anniversary of the date first above written or (ii) the second
anniversary of the first occurrence of a Change in Control; provided, however,
that (A) commencing on the fifth anniversary of the date first above written
and each fifth anniversary date thereafter, the Term of this Agreement will
automatically be extended for an additional five years unless, not later than
180 days preceding each such fifth anniversary date, the Company or the
Executive shall have given notice that it or the Executive, as the case may be,
does not wish to have the Term extended and (B) subject to Section 2(e), if,
prior to a Change in Control, the Executive ceases for any reason to be an
employee of the Company and any subsidiary, thereupon without further action
the Term shall be deemed to have expired and this Agreement will immediately
terminate and be of no further effect. For purposes of this Section 15, the
Executive shall not be deemed to have ceased to be an employee of the Company
and any subsidiary by reason of the transfer of Executive's employment between
the Company and any subsidiary, or among any subsidiaries.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
17. Prior Agreement. This Agreement supersedes and terminates any and
all prior Executive Termination Benefits Agreements by and among Company and
the Executive.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth, thereby
mutually and voluntarily agreeing that this Agreement supersedes and replaces
any prior similar agreements for such termination benefits.
AMR CORPORATION
By: /s/ Donald J. Carty
------------------------------
AMERICAN AIRLINES, INC.
By: /s/ Thomas J. Kiernan
------------------------------
PETER M. BOWLER
/s/ Peter M. Bowler
----------------------------------
29
<PAGE> 1
EXHIBIT 10.64
AMENDED AND RESTATED
EXECUTIVE TERMINATION BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE TERMINATION BENEFITS AGREEMENT (this
"Agreement"), dated as of the 21st day of May, 1998 is among AMR CORPORATION, a
Delaware corporation, AMERICAN AIRLINES, INC., a Delaware corporation
(collectively the "Company"), and DONALD J. CARTY (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company considers it essential to the best interests of the
Company and its stockholders that its management be encouraged to remain with
the Company and to continue to devote full attention to the Company's business
in the event an effort is made to obtain control of the Company through a
tender offer or otherwise;
WHEREAS, the Company recognizes that the possibility of a change in
control and the uncertainty and questions which it may raise among management
may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company;
WHEREAS, the Executive is a key Executive of the Company;
<PAGE> 2
WHEREAS, the Company believes the Executive has made valuable
contributions to the productivity and profitability of the Company;
WHEREAS, should the Company receive any proposal from a third person
concerning a possible business combination with or acquisition of equity
securities of the Company, the Board believes it imperative that the Company
and the Board be able to rely upon the Executive to continue in his position,
and that the Company be able to receive and rely upon his advice as to the best
interests of the Company and its stockholders without concern that he might be
distracted by the personal uncertainties and risks created by such a proposal;
and
WHEREAS, should the Company receive any such proposals, in addition to the
Executive's regular duties, he may be called upon to assist in the assessment
of such proposals, advise management and the Board as to whether such proposals
would be in the best interests of the Company and its stockholders, and to take
such other actions as the Board might determine to be appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
undivided attention and services of the Executive and the availability of his
advice and counsel notwithstanding the possibility, threat or occurrence of a
bid to take over control of the Company, and to induce the Executive to remain
in the employ of the Company, and for other good and valuable consideration,
the Company and the Executive agree as follows:
1. Change in Control
For purposes of this Agreement, a Change in Control of the Company shall
be deemed to have taken place if:
(a) any person as defined in Section 3(a)(9) of the Securities Exchange
Act of 1934, as amended from time to time (the "Exchange Act"), and as used in
Sections 13(d) and
2
<PAGE> 3
14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange
Act (a "Person"), but excluding the Company, any subsidiary of the Company and
any employee benefit plan sponsored or maintained by the Company or any
subsidiary of the Company (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13(d)-3 under the Exchange Act, as amended from time to time) of
securities of the Company representing 15% or more of the combined voting power
of the Company's then outstanding securities; or
(b) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board; or
(c) consummation of a reorganization, merger or consolidation or sale or
other disposition of all or substantially all of the assets of the Company or
the acquisition of the assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the then outstanding shares of common stock
of the Company and the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors immediately prior to such Business Combination
3
<PAGE> 4
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election
of directors, as the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a corporation which as a
result of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries), (ii) no
Person (excluding any employee benefit plan (or related trust) of the Company
or such corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 15% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Business Combination, and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Incumbent Board,
providing for such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. Circumstances Triggering Receipt of Severance Benefits
(a) Subject to Section 2(c), the Company will provide the Executive with
the benefits set forth in Section 4 upon any termination of the Executive's
employment:
(i) by the Company at any time within the first 24 months after a
Change in Control;
4
<PAGE> 5
(ii) by the Executive for "Good Reason" (as defined in Section 2(b)
below) at any time within the first 24 months after a Change in
Control;
(iii) by the Executive pursuant to Section 2(d); or
(iv) by the Company or the Executive pursuant to Section 2(e).
(b) In the event of the occurrence of a Change in Control, the Executive
may terminate employment with the Company and/or any subsidiary for "Good
Reason" with the right to benefits set forth in Section 4 upon the occurrence
of one or more of the following events (regardless of whether any other reason,
other than Cause as provided below, for such termination exists or has
occurred, including without limitation other employment):
(i) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially equivalent
office or position, of or with the Company and/or a subsidiary, as the
case may be, which the Executive held immediately prior to a Change in
Control, or the removal of the Executive as a director of the Company
and/or a subsidiary (or any successor thereto) if the Executive shall
have been a director of the Company and/or a subsidiary immediately
prior to the Change in Control;
(ii) (A) A significant adverse change in the nature or scope of the
authorities, powers, functions, responsibilities or duties attached to
the position with the Company and/or any subsidiary which the Executive
held immediately prior to the Change in Control, (B) a reduction in the
aggregate of the Executive's annual base salary rate and annual
incentive compensation target to be received from the Company and/or any
subsidiary, or (C) the termination or denial of the Executive's rights
to Employee Benefits (as defined below) or a reduction in the
5
<PAGE> 6
scope or value thereof, any of which is not remedied by the Company
within 10 calendar days after receipt by the Company of written notice
from the Executive of such change, reduction or termination, as the
case may be;
(iii) A determination by the Executive (which determination will be
conclusive and binding upon the parties hereto provided it has been
made in good faith and in all events will be presumed to have been made
in good faith unless otherwise shown by the Company by clear and
convincing evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation, a change
in the scope of the business or other activities for which the
Executive was responsible immediately prior to the Change in Control,
which has rendered the Executive substantially unable to carry out, has
substantially hindered Executive's performance of, or has caused the
Executive to suffer a substantial reduction in, any of the authorities,
powers, functions, responsibilities or duties attached to the position
held by the Executive immediately prior to the Change in Control, which
situation is not remedied within 10 calendar days after written notice
to the Company from the Executive of such determination;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all
of its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer or
otherwise) to which all or substantially all of its business and/or
assets have been transferred (directly or by operation of
6
<PAGE> 7
law) assumed all duties and obligations of the Company under this
Agreement pursuant to Section 9(a);
(v) The Company relocates its principal executive offices, or
requires the Executive to have his principal location of work changed,
to any location that is in excess of 50 miles from the location thereof
immediately prior to the Change in Control, or requires the Executive
to travel away from his office in the course of discharging his
responsibilities or duties hereunder at least 20% more (in terms of
aggregate days in any calendar year or in any calendar quarter when
annualized for purposes of comparison to any prior year) than was
required of Executive in any of the three full years immediately prior
to the Change in Control without, in either case, his prior written
consent; or
(vi) Without limiting the generality or effect of the foregoing, any
material breach of this Agreement by the Company or any successor
thereto, which breach is not remedied within 10 calendar days after
written notice to the Company from the Executive describing the nature
of such breach.
(c) Notwithstanding Sections 2(a) and (b) above, no benefits shall be
payable by reason of this Agreement in the event of:
(i) Termination of the Executive's employment with the Company and
its subsidiaries by reason of the Executive's death or Disability,
provided that the Executive has not previously given a valid "Notice of
Termination" pursuant to Section 3. For purposes hereof, "Disability"
shall be defined as the inability of Executive due to illness, accident
or other physical or mental disability to perform his duties for any
period of six consecutive months or for any period of eight
7
<PAGE> 8
months out of any 12-month period, as determined by an independent
physician selected by the Company and reasonably acceptable to the
Executive (or his legal representative), provided that the Executive
does not return to work on substantially a full-time basis within 30
days after written notice from the Company, pursuant to Section 3, of
an intent to terminate the Executive's employment due to Disability;
(ii) Termination of the Executive's employment with the Company and
its subsidiaries on account of the Executive's retirement at or after
age 65, pursuant to the Company's Retirement Benefit Plan; or
(iii) Termination of the Executive's employment with the Company and
its subsidiaries for Cause. For the purposes hereof, "Cause" shall be
defined as a felony conviction of the Executive or the failure of the
Executive to contest prosecution for a felony, or the Executive's
wilful misconduct or dishonesty, any of which is directly and
materially harmful to the business or reputation of the Company or any
subsidiary or affiliate. Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for "Cause" hereunder
unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less
than three quarters of the Board then in office at a meeting of the
Board called and held for such purpose, after reasonable notice to the
Executive and an opportunity for the Executive, together with his
counsel (if the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the good faith
opinion of the Board, the Executive had committed an act constituting
8
<PAGE> 9
"Cause" as herein defined and specifying the particulars thereof in
detail. Nothing herein will limit the right of the Executive or his
beneficiaries to contest the validity or propriety of any such
determination.
This Section 2(c) shall not preclude the payment of any amounts otherwise
payable to the Executive under any of the Company's employee benefit plans,
stock plans, programs and arrangements and/or under any Employment Agreement.
(d) Notwithstanding anything contained in this Agreement to the
contrary, in the event of a Change in Control, the Executive may terminate
employment with the Company and any subsidiary for any reason, or without
reason, by providing Notice of Termination pursuant to Section 3 during the
30-day period immediately following the first anniversary of the first
occurrence of a Change in Control with the right to the benefits set forth in
Section 4.
(e) Any termination of employment of the Executive, including a
termination for "Good Reason," but excluding a termination for "Cause," or the
removal of the Executive from the office or position in the Company or any
subsidiary that occurs (i) not more than 180 days prior to the date on which a
Change in Control occurs and (ii) following the commencement of any discussion
with a third person that ultimately results in a Change in Control shall be
deemed to be a termination or removal of the Executive after a Change in
Control for purposes of this Agreement.
3. Notice of Termination
Any termination of the Executive's employment with the Company and its
subsidiaries as contemplated by Section 2 shall be communicated by written
"Notice of Termination" to the other party hereto. Any "Notice of Termination"
shall indicate the effective date of termination which shall not be less than
30 days or more than 60 days after the date the Notice of
9
<PAGE> 10
Termination is delivered (the "Termination Date"), the specific provision in
this Agreement relied upon, and, except for a termination pursuant to Section
2(d), will set forth in reasonable detail the facts and circumstances claimed
to provide a basis for such termination including, if applicable, the failure
after provision of written notice by the Executive to effect a remedy pursuant
to the final clause of Section 2(b)(ii), 2(b)(iii) or 2(b)(vi).
4. Termination Benefits
Subject to the conditions set forth in Section 2, the following benefits
shall be paid or provided to the Executive:
(a) Compensation
The Company shall pay to the Executive three times the sum of (i) "Base
Pay", which shall be an amount equal to the greater of (A) the Executive's
effective annual base salary at the Termination Date or (B) the Executive's
effective annual base salary immediately prior to the Change in Control, plus
(ii) "Incentive Pay" equal to the greater of (x) the target annual bonus
payable to the Executive under the Company's Incentive Compensation Plan or any
other annual bonus plan for the fiscal year of the Company in which the Change
in Control occurred or (y) the highest annual bonus earned by the Executive
under the Company's Incentive Compensation Plan or any other annual bonus plan
(whether paid currently or on a deferred basis) with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred, plus (iii) "Performance Returns" equal to the highest annual
payment of performance returns paid to the Executive with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred.
10
<PAGE> 11
(b) Welfare Benefits
For a period of 36 months following the Termination Date (the
"Continuation Period"), the Company shall arrange to provide the Executive with
benefits, including travel accident, major medical, dental, vision care and
other welfare benefit programs in effect immediately prior to the Change in
Control ("Employee Benefits") substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination, or denial
described in Section 2(b)(ii)(C)). If and to the extent that any benefit
described in this Section 4(b) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any subsidiary, as the
case may be, then the Company will itself pay or provide for the payment to the
Executive, his dependents and beneficiaries, of such Employee Benefits along
with, in the case of any benefit which is subject to tax because it is not or
cannot be paid or provided under any such policy, plan, program or arrangement
of the Company or any subsidiary, an additional amount such that after payment
by the Executive, or his dependents or beneficiaries, as the case may be, of
all taxes so imposed, the recipient retains an amount equal to such taxes.
Employee Benefits otherwise receivable by the Executive pursuant to this
Section 4(b) will be reduced to the extent comparable welfare benefits are
actually received by the Executive from another employer during the
Continuation Period, and any such benefits actually received by the Executive
shall be reported by the Executive to the Company.
(c) Retirement Benefits
The Executive shall be deemed to be completely vested in Executive's
currently accrued benefits under the Company's Retirement Benefit Plan and
Supplemental Executive Retirement Plan ("SERP") in effect as of the date of
Change in Control (collectively, the
11
<PAGE> 12
"Plans"), regardless of his actual vesting service credit thereunder. In
addition, the Executive shall be deemed to earn service credit for benefit
calculation purposes thereunder for the Continuation Period. Benefits under the
Plans will become payable at any time designated by the Executive following
termination of the Executive's employment with the Company and its subsidiaries
after the Executive reaches age 55, subject to the terms of the Plans regarding
the actuarial adjustment of benefit payments commencing prior to normal
retirement age. The benefits to be paid pursuant to the Plans shall be
calculated as though the Executive's compensation rate for each of the five
years immediately preceding his retirement equaled the sum of Base Pay plus
Incentive Pay plus Performance Returns. Any benefits payable pursuant to this
Section 4(c) that are not payable out of the Plans for any reason (including
but not limited to any applicable benefit limitations under the Employee
Retirement Income Security Act of 1974, as amended, or any restrictions
relating to the qualification of the Company's Retirement Benefit Plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"))
shall be paid directly by the Company out of its general assets.
(d) Relocation Benefits
If the Executive moves his residence in order to pursue other business
or employment opportunities during the Continuation Period and requests in
writing that the Company provide relocation services, he will be reimbursed for
any expenses incurred in that initial relocation (including taxes payable on
the reimbursement) which are not reimbursed by another employer. Benefits under
this provision will include assistance in selling the Executive's home and all
other assistance and benefits which were customarily provided by the Company to
transferred executives prior to the Change in Control.
12
<PAGE> 13
(e) Executive Outplacement Counseling
At the request of the Executive made in writing during the Continuation
Period, the Company shall engage an outplacement counseling service of national
reputation to assist the Executive in obtaining employment.
(f) Stock Based Compensation Plans
(i) Any issued and outstanding Stock Options (to the extent they
have not already become exercisable) shall become exercisable as of the
date on which the Change in Control occurs, unless otherwise
specifically provided at the time such options are granted.
(ii) The Company's right to rescind any award of stock to the
Executive under the Company's 1988 Long Term Incentive Plan or the
Company's 1998 Long Term Incentive Plan (or any successor plan) shall
terminate upon a Change in Control, and all restrictions on the sale,
pledge, hypothecation or other disposition of shares of stock awarded
pursuant to such plan shall be removed at the Termination Date, unless
otherwise specifically provided at the time such award(s) are made.
(iii) The Executive's rights under any other stock based compensation
plan shall vest (to the extent they have not already vested) and any
performance criteria shall be deemed met at target as of the date on
which a Change in Control occurs, unless otherwise specifically
provided at the time such right(s) are granted.
(g) Split Dollar Life Insurance
The Company shall pay to the Executive a lump sum equal to the cost on
the Termination Date of purchasing, at standard independent insurance premium
rates, an individual
13
<PAGE> 14
paid up insurance policy providing benefits equal to the benefits provided by
the Company's Split Dollar Life Insurance coverage immediately prior to the
date of the Change in Control.
(h) Other Benefits
(i) The Executive shall have all flight privileges provided by the
Company to Directors as of the date of Change in Control until the
Executive reaches age 55, at which time he shall have all flight
privileges provided by the Company to its retirees who held the same or
similar position as the Executive immediately prior to the Change in
Control.
(ii) The Executive, at the Executive's option, shall be entitled to
continue the use of the Executive's Company-provided automobile during
the Continuation Period under the same terms that applied to the
automobile immediately prior to the Change in Control, or to purchase
the automobile at its book value as of the Termination Date.
(iii) The Company shall pay to the Executive an amount equal to the
cost to the Company of providing any other perquisites and benefits of
the Company in effect immediately prior to the Change in Control,
calculated as if such benefits were continued during the Continuation
Period.
(i) Accrued Amounts
The Company shall pay to the Executive all other amounts accrued or
earned by the Executive through the Termination Date and amounts otherwise
owing under the then existing plans and policies of the Company, including but
not limited to all amounts of compensation previously deferred by the Executive
(together with any accrued interest thereon) and not yet paid by the Company,
and any accrued vacation pay not yet paid by the Company.
14
<PAGE> 15
(j) The Company shall pay to the Executive the amounts due pursuant
to Sections 4(a), 4(g) and 4(h)(iii) in a lump sum on the first business day of
the month following the Termination Date. The Company shall pay to the
Executive the amounts due pursuant to Section 4(i) in accordance with the terms
and conditions of the existing plans and policies of the Company.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, but
subject to Section 5(h), in the event that this Agreement shall become
operative and it shall be determined (as hereafter provided) that any payment
(other than the Gross-Up payments provided for in this Section 5) or
distribution by the Company or any of its subsidiaries to or for the benefit of
the Executive, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right,
restricted stock, deferred stock or the lapse or termination of any restriction
on, deferral period or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties
with respect to such tax (such tax or taxes, together with any such interest
and penalties, being hereafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment or
payments (collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in
an amount such that, after payment by the Executive of all taxes (including any
interest or
15
<PAGE> 16
penalties imposed with respect to such taxes), including any Excise Tax and any
income tax imposed upon the Gross-Up Payment, the Executive retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all determinations
required to be made under this Section 5, including whether an Excise Tax is
payable by the Executive and the amount of such Excise Tax and whether a
Gross-Up Payment is required to be paid by the Company to the Executive and the
amount of such Gross-Up Payment, if any, shall be made by a nationally
recognized accounting firm (the "Accounting Firm") selected by the Executive in
his sole discretion. The Executive shall direct the Accounting Firm to submit
its determination and detailed supporting calculations to both the Company and
the Executive within 30 calendar days after the Change in Control Date, the
Termination Date, if applicable, and any such other time or times as may be
requested by the Company or the Executive. If the Accounting Firm determines
that any Excise Tax is payable by the Executive, the Company shall pay the
required Gross-Up Payment to the Executive within five business days after
receipt of such determination and calculations with respect to any Payment to
the Executive. If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall, at the same time as it makes such determination,
furnish the Company and the Executive an opinion that the Executive has
substantial authority not to report any Excise Tax on his federal, state or
local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto)
and the possibility of similar uncertainty regarding applicable state or local
tax law at the time of any determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the
16
<PAGE> 17
event that the Company exhausts or fails to pursue its remedies pursuant to
Section 5(f) and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination
and detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days
after receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the Accounting
Firm access to and copies of any books, records and documents in the possession
of the Company or the Executive, as the case may be, reasonably requested by
the Accounting Firm, and otherwise cooperate with the Accounting Firm in
connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive.
(d) The federal, state and local income or other tax returns filed by
the Executive shall be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment.
If prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting
17
<PAGE> 18
Firm determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by Section
5(b) shall be borne by the Company. If such fees and expenses are initially
paid by the Executive, the Company shall reimburse the Executive the full
amount of such fees and expenses within five business days after receipt from
the Executive of a statement therefor and reasonable evidence of his payment
thereof.
(f) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service or any other taxing authority that, if successful,
would require the payment by the Company of a Gross-Up Payment or any
additional Gross-Up Payment. Such notification shall be given as promptly as
practicable but no later than 10 business days after the Executive actually
receives notice of such claim and the Executive shall further apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid (in each case, to the extent known by the Executive). The
Executive shall not pay such claim prior to the earlier of (x) the expiration
of the 30-calendar-day period following the date on which he gives such notice
to the Company and (y) the date that any payment of amount with respect to such
claim is due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) provide the Company with any written records or documents in
his possession relating to such claim reasonably requested by the
Company;
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including without
18
<PAGE> 19
limitation accepting legal representation with respect to such claim by
an attorney competent in respect of the subject matter and reasonably
selected by the Company;
(iii) cooperate with the Company in good faith in order effectively
to contest such claim; and
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such contest and payment
of costs and expenses. Without limiting the foregoing provisions of this
Section 5(f), the Company shall control all proceedings taken in connection
with the contest of any claim contemplated by this Section 5(f) and, at its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim (provided, however, that the Executive may participate therein at
his own cost and expense) and may, at its option, either direct the Executive
to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
the tax claimed and sue for a refund, the Company shall advance the amount of
such payment to the Executive on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any
19
<PAGE> 20
Excise Tax or income or other tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, however,
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of any such contested claim shall be limited
to issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other taxing
authority.
(g) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 5(f), the Executive receives any refund with
respect to such claim, the Executive shall (subject to the Company's complying
with the requirements of Section 5(f)) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon after any
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim
and the Company does not notify the Executive in writing of its intent to
contest such denial or refund prior to the expiration of 30 calendar days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of any such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid by the
Company to the Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to the contrary, if
(i) but for this sentence, the Company would be obligated to make a Gross-Up
Payment to the Executive, (ii) the aggregate "present value" of the "parachute
payments" to be paid or provided
20
<PAGE> 21
to the Executive under this Agreement or otherwise does not exceed 1.15
multiplied by three times the Executive's "base amount," and (iii) but for this
sentence, the net after-tax benefit to the Executive of the Gross-Up Payment
would not exceed $50,000 (taking into account both income taxes and any Excise
Tax), then the payments and benefits to be paid or provided under this
Agreement (including any stock based compensation pursuant to Section 4(f))
will be reduced to the minimum extent necessary (but in no event to less than
zero) so that no portion of any payment or benefit to the Executive, as so
reduced, constitutes an "excess parachute payment." For purposes of this
Section 5(h), the terms "excess parachute payment," "present value," "parachute
payment," and "base amount" will have the meanings assigned to them by Section
280G of the Code. The determination of whether any reduction in such payments
or benefits to be provided under this Agreement is required pursuant to the
preceding sentence will be made at the expense of the Company, if requested by
the Executive or the Company, by the Accounting Firm. The fact that the
Executive's right to payments or benefits may be reduced by reason of the
limitations contained in this Section 5(h) will not of itself limit or
otherwise affect any other rights of the Executive other than pursuant to this
Agreement. In the event that any payment or benefit intended to be provided
under this Agreement or otherwise is required to be reduced pursuant to this
Section 5(h), the Executive will be entitled to designate the payments and/or
benefits to be so reduced in order to give effect to this Section 5(h). The
Company will provide the Executive with all information reasonably requested by
the Executive to permit the Executive to make such designation. In the event
that the Executive fails to make such designation within 10 business days of
the Termination Date, the Company may effect such reduction in any manner it
deems appropriate.
21
<PAGE> 22
6. No Mitigation Obligation. The Company hereby acknowledges that it
will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance
with the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise, nor will any profits, income, earnings or other benefits from any
source whatsoever create any mitigation, offset, reduction or any other
obligation on the part of the Executive hereunder or otherwise, except as
expressly provided in the last sentence of Section 4(b).
7. Legal Fees and Expenses.
(a) It is the intent of the Company that the Executive not be required
to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Executive's rights under this
Agreement by litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the
Executive hereunder. Accordingly, if it should appear to the Executive that the
Company has failed to comply with any of its obligations under this Agreement
or in the event that the Company or any other person takes or threatens to take
any action to declare this Agreement void or unenforceable, or institutes any
litigation or other action or proceeding designed to deny, or to recover from,
the Executive any or all of the benefits provided or intended to be provided to
the Executive hereunder, the Company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
Company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or
22
<PAGE> 23
defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and
expenses incurred by the Executive in connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant to Section
7(a) hereof, in the event a Change in Control occurs, the performance of the
Company's obligations under this Section 7 shall be secured by amounts
deposited or to be deposited in trust pursuant to certain trust agreements to
which the Company shall be a party, which amounts deposited shall in the
aggregate be not less than $2,000,000, providing that the fees and expenses of
counsel selected from time to time by the Executive pursuant to Section 7(a)
shall be paid, or reimbursed to the Executive if paid by the Executive, either
in accordance with the terms of such trust agreements, or, if not so provided,
on a regular, periodic basis upon presentation by the Executive to the trustee
of a statement or statements prepared by such counsel in accordance with its
customary practices. Any failure by the Company to satisfy any of its
obligations under this Section 7(b) shall not limit the rights of the Executive
hereunder. Subject to the foregoing, the Executive shall have the status of a
general unsecured creditor of the Company and shall have no right to, or
security interest in, any assets of the Company or any subsidiary.
23
<PAGE> 24
8. Continuing Obligations
(a) The Executive hereby agrees that all documents, records,
techniques, business secrets and other information which have come into his
possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company and, except for
personal documents and records of the Executive, shall be returned to the
Company. The Executive further agrees to retain in confidence any confidential
information known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly disclosed,
except that Executive may disclose any such information required to be
disclosed in the normal course of his employment with the Company or pursuant
to any court order or other legal process.
(b) The Executive hereby agrees that during the Continuation Period, he
will not directly or indirectly solicit any employee of the Company or any of
its subsidiaries or affiliated companies to join the employ of any entity that
competes with the Company or any of its subsidiaries or affiliated companies.
9. Successors
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive to expressly assume and agree
to perform 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.
Failure of such successor entity to enter into such agreement prior to the
effective date of any such succession (or, if later, within three business days
after first receiving a written request for such agreement) shall constitute a
breach of this Agreement and shall entitle the Executive to
24
<PAGE> 25
terminate his employment pursuant to Section 2(a)(ii) and to receive the
payments and benefits provided under Section 4. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
Agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive dies
while any amounts are payable to him hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there is no such
designee, to his estate.
10. Notices
For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or
permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS,
or Purolator, addressed to the Company (to the attention of the Secretary of
the Company, with a copy to the General Counsel of the Company) at its
principal executive office and to the Executive at his principal residence, or
to such other address as any party may have furnished to the other in writing
and in accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
25
<PAGE> 26
11. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
12. Miscellaneous
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement (or in any
employment or other written agreement relating to the Executive).
Notwithstanding any provision of this Agreement to the contrary, the parties'
respective rights and obligations under Sections 4, 5 and 7 will survive any
termination or expiration of this Agreement or the termination of the
Executive's employment following a Change in Control for any reason whatsoever.
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any subsidiary prior to or following any Change in
Control. The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as the Company is required to withhold
pursuant to any law or government regulation or ruling. In the event that the
Company refuses or otherwise fails to make a payment when due and it is
ultimately decided that the Executive is entitled to such
26
<PAGE> 27
payment, such payment shall be increased to reflect an interest factor,
compounded annually, equal to the prime rate in effect as of the date the
payment was first due plus two points. For this purpose, the prime rate shall
be based on the rate identified by Chase Manhattan Bank as its prime rate.
13. Separability
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Non-assignability
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as provided in Section 9. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or by the
laws of descent or distribution, and in the event of any attempted assignment
or transfer by Executive contrary to this Section 14 the Company shall have no
liability to pay any amount so attempted to be assigned or transferred to any
person other than the Executive or, in the event of his death, his designated
beneficiary or, in the absence of an effective beneficiary designation, the
Executive's estate.
15. Effectiveness; Term
This Agreement will be effective and binding as of the date first above
written immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs. Upon the
27
<PAGE> 28
occurrence of a Change in Control at any time during the Term (as defined
below), without further action, this Agreement shall become immediately
operative. For purposes of this Agreement, "Term" means the period commencing
as of the date first above written and expiring as of the later of (i) the
fifth anniversary of the date first above written or (ii) the second
anniversary of the first occurrence of a Change in Control; provided, however,
that (A) commencing on the fifth anniversary of the date first above written
and each fifth anniversary date thereafter, the Term of this Agreement will
automatically be extended for an additional five years unless, not later than
180 days preceding each such fifth anniversary date, the Company or the
Executive shall have given notice that it or the Executive, as the case may be,
does not wish to have the Term extended and (B) subject to Section 2(e), if,
prior to a Change in Control, the Executive ceases for any reason to be an
employee of the Company and any subsidiary, thereupon without further action
the Term shall be deemed to have expired and this Agreement will immediately
terminate and be of no further effect. For purposes of this Section 15, the
Executive shall not be deemed to have ceased to be an employee of the Company
and any subsidiary by reason of the transfer of Executive's employment between
the Company and any subsidiary, or among any subsidiaries.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
17. Prior Agreement. This Agreement supersedes and terminates any and
all prior Executive Termination Benefits Agreements by and among Company and
the Executive.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth, thereby
mutually and voluntarily agreeing that this Agreement supersedes and replaces
any prior similar agreements for such termination benefits.
AMR CORPORATION
By: /s/ Anne H. McNamara
-------------------------------
AMERICAN AIRLINES, INC.
By: /s/ Thomas J. Kiernan
-------------------------------
DONALD J. CARTY
/s/ Donald J. Carty
-----------------------------------
29
<PAGE> 1
EXHIBIT 10.65
AMENDED AND RESTATED
EXECUTIVE TERMINATION BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE TERMINATION BENEFITS AGREEMENT
(this "Agreement"), dated as of the 21st day of May, 1998 is among AMR
CORPORATION, a Delaware corporation, AMERICAN AIRLINES, INC., a Delaware
corporation (collectively the "Company"), and PETER J. DOLARA (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company considers it essential to the best interests of
the Company and its stockholders that its management be encouraged to remain
with the Company and to continue to devote full attention to the Company's
business in the event an effort is made to obtain control of the Company
through a tender offer or otherwise;
WHEREAS, the Company recognizes that the possibility of a change in
control and the uncertainty and questions which it may raise among management
may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company;
WHEREAS, the Executive is a key Executive of the Company;
<PAGE> 2
WHEREAS, the Company believes the Executive has made valuable
contributions to the productivity and profitability of the Company;
WHEREAS, should the Company receive any proposal from a third person
concerning a possible business combination with or acquisition of equity
securities of the Company, the Board believes it imperative that the Company
and the Board be able to rely upon the Executive to continue in his position,
and that the Company be able to receive and rely upon his advice as to the best
interests of the Company and its stockholders without concern that he might be
distracted by the personal uncertainties and risks created by such a proposal;
and
WHEREAS, should the Company receive any such proposals, in addition to
the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether
such proposals would be in the best interests of the Company and its
stockholders, and to take such other actions as the Board might determine to be
appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
undivided attention and services of the Executive and the availability of his
advice and counsel notwithstanding the possibility, threat or occurrence of a
bid to take over control of the Company, and to induce the Executive to remain
in the employ of the Company, and for other good and valuable consideration,
the Company and the Executive agree as follows:
1. Change in Control
For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have taken place if:
(a) any person as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended from time to time (the "Exchange Act"), and as
used in Sections 13(d) and
2
<PAGE> 3
14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange
Act (a "Person"), but excluding the Company, any subsidiary of the Company and
any employee benefit plan sponsored or maintained by the Company or any
subsidiary of the Company (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13(d)-3 under the Exchange Act, as amended from time to time) of
securities of the Company representing 15% or more of the combined voting power
of the Company's then outstanding securities; or
(b) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of
the Board; provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by the
Company's stockholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though
such individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies
or consents by or on behalf of a Person other than the Board; or
(c) consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company
or the acquisition of the assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the then outstanding shares of common stock
of the Company and the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors immediately prior to such Business Combination
3
<PAGE> 4
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election
of directors, as the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a corporation which as a
result of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries), (ii) no
Person (excluding any employee benefit plan (or related trust) of the Company
or such corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 15% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Business Combination, and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Incumbent Board,
providing for such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. Circumstances Triggering Receipt of Severance Benefits
(a) Subject to Section 2(c), the Company will provide the Executive
with the benefits set forth in Section 4 upon any termination of the
Executive's employment:
(i) by the Company at any time within the first 24 months after
a Change in Control;
4
<PAGE> 5
(ii) by the Executive for "Good Reason" (as defined in Section
2(b) below) at any time within the first 24 months after a Change in
Control;
(iii) by the Executive pursuant to Section 2(d); or
(iv) by the Company or the Executive pursuant to Section 2(e).
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and/or any subsidiary for
"Good Reason" with the right to benefits set forth in Section 4 upon the
occurrence of one or more of the following events (regardless of whether any
other reason, other than Cause as provided below, for such termination exists
or has occurred, including without limitation other employment):
(i) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially
equivalent office or position, of or with the Company and/or a
subsidiary, as the case may be, which the Executive held immediately
prior to a Change in Control, or the removal of the Executive as a
director of the Company and/or a subsidiary (or any successor
thereto) if the Executive shall have been a director of the Company
and/or a subsidiary immediately prior to the Change in Control;
(ii) (A) A significant adverse change in the nature or scope of
the authorities, powers, functions, responsibilities or duties
attached to the position with the Company and/or any subsidiary
which the Executive held immediately prior to the Change in
Control, (B) a reduction in the aggregate of the Executive's annual
base salary rate and annual incentive compensation target to be
received from the Company and/or any subsidiary, or (C) the
termination or denial of the Executive's rights to Employee
Benefits (as defined below) or a reduction in the
5
<PAGE> 6
scope or value thereof, any of which is not remedied by the Company
within 10 calendar days after receipt by the Company of written
notice from the Executive of such change, reduction or termination,
as the case may be;
(iii) A determination by the Executive (which determination will
be conclusive and binding upon the parties hereto provided it has
been made in good faith and in all events will be presumed to have
been made in good faith unless otherwise shown by the Company by
clear and convincing evidence) that a change in circumstances has
occurred following a Change in Control, including, without
limitation, a change in the scope of the business or other
activities for which the Executive was responsible immediately
prior to the Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused the Executive to suffer a
substantial reduction in, any of the authorities, powers,
functions, responsibilities or duties attached to the position held
by the Executive immediately prior to the Change in Control, which
situation is not remedied within 10 calendar days after written
notice to the Company from the Executive of such determination;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially
all of its business and/or assets, unless the successor or
successors (by liquidation, merger, consolidation, reorganization,
transfer or otherwise) to which all or substantially all of its
business and/or assets have been transferred (directly or by
operation of
6
<PAGE> 7
law) assumed all duties and obligations of the Company under this
Agreement pursuant to Section 9(a);
(v) The Company relocates its principal executive offices, or
requires the Executive to have his principal location of work changed,
to any location that is in excess of 50 miles from the location thereof
immediately prior to the Change in Control, or requires the Executive
to travel away from his office in the course of discharging his
responsibilities or duties hereunder at least 20% more (in terms of
aggregate days in any calendar year or in any calendar quarter when
annualized for purposes of comparison to any prior year) than was
required of Executive in any of the three full years immediately prior
to the Change in Control without, in either case, his prior written
consent; or
(vi) Without limiting the generality or effect of the foregoing,
any material breach of this Agreement by the Company or any successor
thereto, which breach is not remedied within 10 calendar days after
written notice to the Company from the Executive describing the nature
of such breach.
(c) Notwithstanding Sections 2(a) and (b) above, no benefits shall be
payable by reason of this Agreement in the event of:
(i) Termination of the Executive's employment with the Company and
its subsidiaries by reason of the Executive's death or Disability,
provided that the Executive has not previously given a valid "Notice of
Termination" pursuant to Section 3. For purposes hereof, "Disability"
shall be defined as the inability of Executive due to illness, accident
or other physical or mental disability to perform his duties for any
period of six consecutive months or for any period of eight
7
<PAGE> 8
months out of any 12-month period, as determined by an independent
physician selected by the Company and reasonably acceptable to the
Executive (or his legal representative), provided that the Executive
does not return to work on substantially a full-time basis within 30
days after written notice from the Company, pursuant to Section 3, of
an intent to terminate the Executive's employment due to Disability;
(ii) Termination of the Executive's employment with the Company
and its subsidiaries on account of the Executive's retirement at or
after age 65, pursuant to the Company's Retirement Benefit Plan; or
(iii) Termination of the Executive's employment with the Company
and its subsidiaries for Cause. For the purposes hereof, "Cause" shall
be defined as a felony conviction of the Executive or the failure of
the Executive to contest prosecution for a felony, or the Executive's
wilful misconduct or dishonesty, any of which is directly and
materially harmful to the business or reputation of the Company or any
subsidiary or affiliate. Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for "Cause" hereunder
unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less
than three quarters of the Board then in office at a meeting of the
Board called and held for such purpose, after reasonable notice to the
Executive and an opportunity for the Executive, together with his
counsel (if the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the good faith
opinion of the Board, the Executive had committed an act constituting
8
<PAGE> 9
"Cause" as herein defined and specifying the particulars thereof in
detail. Nothing herein will limit the right of the Executive or his
beneficiaries to contest the validity or propriety of any such
determination.
This Section 2(c) shall not preclude the payment of any amounts otherwise
payable to the Executive under any of the Company's employee benefit plans,
stock plans, programs and arrangements and/or under any Employment Agreement.
(d) Notwithstanding anything contained in this Agreement to the
contrary, in the event of a Change in Control, the Executive may terminate
employment with the Company and any subsidiary for any reason, or without
reason, by providing Notice of Termination pursuant to Section 3 during the
30-day period immediately following the first anniversary of the first
occurrence of a Change in Control with the right to the benefits set forth in
Section 4.
(e) Any termination of employment of the Executive, including a
termination for "Good Reason," but excluding a termination for "Cause," or the
removal of the Executive from the office or position in the Company or any
subsidiary that occurs (i) not more than 180 days prior to the date on which a
Change in Control occurs and (ii) following the commencement of any discussion
with a third person that ultimately results in a Change in Control shall be
deemed to be a termination or removal of the Executive after a Change in
Control for purposes of this Agreement.
3. Notice of Termination
Any termination of the Executive's employment with the Company and its
subsidiaries as contemplated by Section 2 shall be communicated by written
"Notice of Termination" to the other party hereto. Any "Notice of Termination"
shall indicate the effective date of termination which shall not be less than
30 days or more than 60 days after the date the Notice of
9
<PAGE> 10
Termination is delivered (the "Termination Date"), the specific provision in
this Agreement relied upon, and, except for a termination pursuant to Section
2(d), will set forth in reasonable detail the facts and circumstances claimed
to provide a basis for such termination including, if applicable, the failure
after provision of written notice by the Executive to effect a remedy pursuant
to the final clause of Section 2(b)(ii), 2(b)(iii) or 2(b)(vi).
4. Termination Benefits
Subject to the conditions set forth in Section 2, the following
benefits shall be paid or provided to the Executive:
(a) Compensation
The Company shall pay to the Executive three times the sum of (i) "Base
Pay", which shall be an amount equal to the greater of (A) the Executive's
effective annual base salary at the Termination Date or (B) the Executive's
effective annual base salary immediately prior to the Change in Control, plus
(ii) "Incentive Pay" equal to the greater of (x) the target annual bonus
payable to the Executive under the Company's Incentive Compensation Plan or any
other annual bonus plan for the fiscal year of the Company in which the Change
in Control occurred or (y) the highest annual bonus earned by the Executive
under the Company's Incentive Compensation Plan or any other annual bonus plan
(whether paid currently or on a deferred basis) with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred, plus (iii) "Performance Returns" equal to the highest annual
payment of performance returns paid to the Executive with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred.
10
<PAGE> 11
(b) Welfare Benefits
For a period of 36 months following the Termination Date (the
"Continuation Period"), the Company shall arrange to provide the Executive with
benefits, including travel accident, major medical, dental, vision care and
other welfare benefit programs in effect immediately prior to the Change in
Control ("Employee Benefits") substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination, or denial
described in Section 2(b)(ii)(C)). If and to the extent that any benefit
described in this Section 4(b) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any subsidiary, as the
case may be, then the Company will itself pay or provide for the payment to the
Executive, his dependents and beneficiaries, of such Employee Benefits along
with, in the case of any benefit which is subject to tax because it is not or
cannot be paid or provided under any such policy, plan, program or arrangement
of the Company or any subsidiary, an additional amount such that after payment
by the Executive, or his dependents or beneficiaries, as the case may be, of
all taxes so imposed, the recipient retains an amount equal to such taxes.
Employee Benefits otherwise receivable by the Executive pursuant to this
Section 4(b) will be reduced to the extent comparable welfare benefits are
actually received by the Executive from another employer during the
Continuation Period, and any such benefits actually received by the Executive
shall be reported by the Executive to the Company.
(c) Retirement Benefits
The Executive shall be deemed to be completely vested in Executive's
currently accrued benefits under the Company's Retirement Benefit Plan and
Supplemental Executive Retirement Plan ("SERP") in effect as of the date of
Change in Control (collectively, the
11
<PAGE> 12
"Plans"), regardless of his actual vesting service credit thereunder. In
addition, the Executive shall be deemed to earn service credit for benefit
calculation purposes thereunder for the Continuation Period. Benefits under the
Plans will become payable at any time designated by the Executive following
termination of the Executive's employment with the Company and its subsidiaries
after the Executive reaches age 55, subject to the terms of the Plans regarding
the actuarial adjustment of benefit payments commencing prior to normal
retirement age. The benefits to be paid pursuant to the Plans shall be
calculated as though the Executive's compensation rate for each of the five
years immediately preceding his retirement equaled the sum of Base Pay plus
Incentive Pay plus Performance Returns. Any benefits payable pursuant to this
Section 4(c) that are not payable out of the Plans for any reason (including
but not limited to any applicable benefit limitations under the Employee
Retirement Income Security Act of 1974, as amended, or any restrictions
relating to the qualification of the Company's Retirement Benefit Plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"))
shall be paid directly by the Company out of its general assets.
(d) Relocation Benefits
If the Executive moves his residence in order to pursue other business
or employment opportunities during the Continuation Period and requests in
writing that the Company provide relocation services, he will be reimbursed for
any expenses incurred in that initial relocation (including taxes payable on
the reimbursement) which are not reimbursed by another employer. Benefits under
this provision will include assistance in selling the Executive's home and all
other assistance and benefits which were customarily provided by the Company to
transferred executives prior to the Change in Control.
12
<PAGE> 13
(e) Executive Outplacement Counseling
At the request of the Executive made in writing during the Continuation
Period, the Company shall engage an outplacement counseling service of national
reputation to assist the Executive in obtaining employment.
(f) Stock Based Compensation Plans
(i) Any issued and outstanding Stock Options (to the extent they
have not already become exercisable) shall become exercisable as of the
date on which the Change in Control occurs, unless otherwise
specifically provided at the time such options are granted.
(ii) The Company's right to rescind any award of stock to the
Executive under the Company's 1988 Long Term Incentive Plan or the
Company's 1998 Long Term Incentive Plan (or any successor plan) shall
terminate upon a Change in Control, and all restrictions on the sale,
pledge, hypothecation or other disposition of shares of stock awarded
pursuant to such plan shall be removed at the Termination Date, unless
otherwise specifically provided at the time such award(s) are made.
(iii) The Executive's rights under any other stock based
compensation plan shall vest (to the extent they have not already
vested) and any performance criteria shall be deemed met at target as
of the date on which a Change in Control occurs, unless otherwise
specifically provided at the time such right(s) are granted.
(g) Split Dollar Life Insurance
The Company shall pay to the Executive a lump sum equal to the cost on
the Termination Date of purchasing, at standard independent insurance premium
rates, an individual
13
<PAGE> 14
paid up insurance policy providing benefits equal to the benefits provided by
the Company's Split Dollar Life Insurance coverage immediately prior to the
date of the Change in Control.
(h) Other Benefits
(i) The Executive shall have all flight privileges provided by the
Company to Directors as of the date of Change in Control until the
Executive reaches age 55, at which time he shall have all flight
privileges provided by the Company to its retirees who held the same or
similar position as the Executive immediately prior to the Change in
Control.
(ii) The Executive, at the Executive's option, shall be entitled to
continue the use of the Executive's Company-provided automobile during
the Continuation Period under the same terms that applied to the
automobile immediately prior to the Change in Control, or to purchase
the automobile at its book value as of the Termination Date.
(iii) The Company shall pay to the Executive an amount equal to the
cost to the Company of providing any other perquisites and benefits of
the Company in effect immediately prior to the Change in Control,
calculated as if such benefits were continued during the Continuation
Period.
(i) Accrued Amounts
The Company shall pay to the Executive all other amounts accrued or
earned by the Executive through the Termination Date and amounts otherwise
owing under the then existing plans and policies of the Company, including but
not limited to all amounts of compensation previously deferred by the Executive
(together with any accrued interest thereon) and not yet paid by the Company,
and any accrued vacation pay not yet paid by the Company.
14
<PAGE> 15
(j) The Company shall pay to the Executive the amounts due pursuant to
Sections 4(a), 4(g) and 4(h)(iii) in a lump sum on the first business day of
the month following the Termination Date. The Company shall pay to the
Executive the amounts due pursuant to Section 4(i) in accordance with the terms
and conditions of the existing plans and policies of the Company.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, but
subject to Section 5(h), in the event that this Agreement shall become
operative and it shall be determined (as hereafter provided) that any payment
(other than the Gross-Up payments provided for in this Section 5) or
distribution by the Company or any of its subsidiaries to or for the benefit of
the Executive, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right,
restricted stock, deferred stock or the lapse or termination of any restriction
on, deferral period or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties
with respect to such tax (such tax or taxes, together with any such interest
and penalties, being hereafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment or
payments (collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in
an amount such that, after payment by the Executive of all taxes (including any
interest or
15
<PAGE> 16
penalties imposed with respect to such taxes), including any Excise Tax and any
income tax imposed upon the Gross-Up Payment, the Executive retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all determinations
required to be made under this Section 5, including whether an Excise Tax is
payable by the Executive and the amount of such Excise Tax and whether a
Gross-Up Payment is required to be paid by the Company to the Executive and the
amount of such Gross-Up Payment, if any, shall be made by a nationally
recognized accounting firm (the "Accounting Firm") selected by the Executive in
his sole discretion. The Executive shall direct the Accounting Firm to submit
its determination and detailed supporting calculations to both the Company and
the Executive within 30 calendar days after the Change in Control Date, the
Termination Date, if applicable, and any such other time or times as may be
requested by the Company or the Executive. If the Accounting Firm determines
that any Excise Tax is payable by the Executive, the Company shall pay the
required Gross-Up Payment to the Executive within five business days after
receipt of such determination and calculations with respect to any Payment to
the Executive. If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall, at the same time as it makes such determination,
furnish the Company and the Executive an opinion that the Executive has
substantial authority not to report any Excise Tax on his federal, state or
local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto)
and the possibility of similar uncertainty regarding applicable state or local
tax law at the time of any determination by the Accounting Firm hereunder, it
is possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the
16
<PAGE> 17
event that the Company exhausts or fails to pursue its remedies pursuant to
Section 5(f) and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination
and detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days
after receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the Accounting
Firm access to and copies of any books, records and documents in the possession
of the Company or the Executive, as the case may be, reasonably requested by
the Accounting Firm, and otherwise cooperate with the Accounting Firm in
connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive.
(d) The federal, state and local income or other tax returns filed by
the Executive shall be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment.
If prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting
17
<PAGE> 18
Firm determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by Section
5(b) shall be borne by the Company. If such fees and expenses are initially
paid by the Executive, the Company shall reimburse the Executive the full
amount of such fees and expenses within five business days after receipt from
the Executive of a statement therefor and reasonable evidence of his payment
thereof.
(f) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service or any other taxing authority that, if successful,
would require the payment by the Company of a Gross-Up Payment or any
additional Gross-Up Payment. Such notification shall be given as promptly as
practicable but no later than 10 business days after the Executive actually
receives notice of such claim and the Executive shall further apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid (in each case, to the extent known by the Executive). The
Executive shall not pay such claim prior to the earlier of (x) the expiration
of the 30-calendar-day period following the date on which he gives such notice
to the Company and (y) the date that any payment of amount with respect to such
claim is due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) provide the Company with any written records or documents in his
possession relating to such claim reasonably requested by the Company;
(ii) take such action in connection with contesting such claim as
the Company shall reasonably request in writing from time to time,
including without
18
<PAGE> 19
limitation accepting legal representation with respect to such claim by
an attorney competent in respect of the subject matter and reasonably
selected by the Company;
(iii) cooperate with the Company in good faith in order effectively
to contest such claim; and
(iv) permit the Company to participate in any proceedings relating
to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such contest and payment
of costs and expenses. Without limiting the foregoing provisions of this
Section 5(f), the Company shall control all proceedings taken in connection
with the contest of any claim contemplated by this Section 5(f) and, at its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim (provided, however, that the Executive may participate therein at
his own cost and expense) and may, at its option, either direct the Executive
to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
the tax claimed and sue for a refund, the Company shall advance the amount of
such payment to the Executive on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any
19
<PAGE> 20
Excise Tax or income or other tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, however,
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of any such contested claim shall be limited
to issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other taxing
authority.
(g) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 5(f), the Executive receives any refund with
respect to such claim, the Executive shall (subject to the Company's complying
with the requirements of Section 5(f)) promptly pay to the Company the amount
of such refund (together with any interest paid or credited thereon after any
taxes applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim
and the Company does not notify the Executive in writing of its intent to
contest such denial or refund prior to the expiration of 30 calendar days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of any such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid by the
Company to the Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to the contrary, if
(i) but for this sentence, the Company would be obligated to make a Gross-Up
Payment to the Executive, (ii) the aggregate "present value" of the "parachute
payments" to be paid or provided
20
<PAGE> 21
to the Executive under this Agreement or otherwise does not exceed 1.15
multiplied by three times the Executive's "base amount," and (iii) but for this
sentence, the net after-tax benefit to the Executive of the Gross-Up Payment
would not exceed $50,000 (taking into account both income taxes and any Excise
Tax), then the payments and benefits to be paid or provided under this
Agreement (including any stock based compensation pursuant to Section 4(f))
will be reduced to the minimum extent necessary (but in no event to less than
zero) so that no portion of any payment or benefit to the Executive, as so
reduced, constitutes an "excess parachute payment." For purposes of this
Section 5(h), the terms "excess parachute payment," "present value," "parachute
payment," and "base amount" will have the meanings assigned to them by Section
280G of the Code. The determination of whether any reduction in such payments
or benefits to be provided under this Agreement is required pursuant to the
preceding sentence will be made at the expense of the Company, if requested by
the Executive or the Company, by the Accounting Firm. The fact that the
Executive's right to payments or benefits may be reduced by reason of the
limitations contained in this Section 5(h) will not of itself limit or
otherwise affect any other rights of the Executive other than pursuant to this
Agreement. In the event that any payment or benefit intended to be provided
under this Agreement or otherwise is required to be reduced pursuant to this
Section 5(h), the Executive will be entitled to designate the payments and/or
benefits to be so reduced in order to give effect to this Section 5(h). The
Company will provide the Executive with all information reasonably requested by
the Executive to permit the Executive to make such designation. In the event
that the Executive fails to make such designation within 10 business days of
the Termination Date, the Company may effect such reduction in any manner it
deems appropriate.
21
<PAGE> 22
6. No Mitigation Obligation. The Company hereby acknowledges that it
will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance
with the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of
any payment provided for in this Agreement by seeking other employment or
otherwise, nor will any profits, income, earnings or other benefits from any
source whatsoever create any mitigation, offset, reduction or any other
obligation on the part of the Executive hereunder or otherwise, except as
expressly provided in the last sentence of Section 4(b).
7. Legal Fees and Expenses.
(a) It is the intent of the Company that the Executive not be required
to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Executive's rights under this
Agreement by litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the
Executive hereunder. Accordingly, if it should appear to the Executive that the
Company has failed to comply with any of its obligations under this Agreement
or in the event that the Company or any other person takes or threatens to take
any action to declare this Agreement void or unenforceable, or institutes any
litigation or other action or proceeding designed to deny, or to recover from,
the Executive any or all of the benefits provided or intended to be provided to
the Executive hereunder, the Company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
Company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or
22
<PAGE> 23
defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and
expenses incurred by the Executive in connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant to Section
7(a) hereof, in the event a Change in Control occurs, the performance of the
Company's obligations under this Section 7 shall be secured by amounts
deposited or to be deposited in trust pursuant to certain trust agreements to
which the Company shall be a party, which amounts deposited shall in the
aggregate be not less than $2,000,000, providing that the fees and expenses of
counsel selected from time to time by the Executive pursuant to Section 7(a)
shall be paid, or reimbursed to the Executive if paid by the Executive, either
in accordance with the terms of such trust agreements, or, if not so provided,
on a regular, periodic basis upon presentation by the Executive to the trustee
of a statement or statements prepared by such counsel in accordance with its
customary practices. Any failure by the Company to satisfy any of its
obligations under this Section 7(b) shall not limit the rights of the Executive
hereunder. Subject to the foregoing, the Executive shall have the status of a
general unsecured creditor of the Company and shall have no right to, or
security interest in, any assets of the Company or any subsidiary.
23
<PAGE> 24
8. Continuing Obligations
(a) The Executive hereby agrees that all documents, records,
techniques, business secrets and other information which have come into his
possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company and, except for
personal documents and records of the Executive, shall be returned to the
Company. The Executive further agrees to retain in confidence any confidential
information known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly disclosed,
except that Executive may disclose any such information required to be
disclosed in the normal course of his employment with the Company or pursuant
to any court order or other legal process.
(b) The Executive hereby agrees that during the Continuation Period, he
will not directly or indirectly solicit any employee of the Company or any of
its subsidiaries or affiliated companies to join the employ of any entity that
competes with the Company or any of its subsidiaries or affiliated companies.
9. Successors
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive to expressly assume and agree
to perform 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.
Failure of such successor entity to enter into such agreement prior to the
effective date of any such succession (or, if later, within three business days
after first receiving a written request for such agreement) shall constitute a
breach of this Agreement and shall entitle the Executive to
24
<PAGE> 25
terminate his employment pursuant to Section 2(a)(ii) and to receive the
payments and benefits provided under Section 4. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
Agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive dies
while any amounts are payable to him hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there is no such
designee, to his estate.
10. Notices
For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or
permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS,
or Purolator, addressed to the Company (to the attention of the Secretary of
the Company, with a copy to the General Counsel of the Company) at its
principal executive office and to the Executive at his principal residence, or
to such other address as any party may have furnished to the other in writing
and in accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
25
<PAGE> 26
11. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
12. Miscellaneous
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement (or in any
employment or other written agreement relating to the Executive).
Notwithstanding any provision of this Agreement to the contrary, the parties'
respective rights and obligations under Sections 4, 5 and 7 will survive any
termination or expiration of this Agreement or the termination of the
Executive's employment following a Change in Control for any reason whatsoever.
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any subsidiary prior to or following any Change in
Control. The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as the Company is required to withhold
pursuant to any law or government regulation or ruling. In the event that the
Company refuses or otherwise fails to make a payment when due and it is
ultimately decided that the Executive is entitled to such
26
<PAGE> 27
payment, such payment shall be increased to reflect an interest factor,
compounded annually, equal to the prime rate in effect as of the date the
payment was first due plus two points. For this purpose, the prime rate shall
be based on the rate identified by Chase Manhattan Bank as its prime rate.
13. Separability
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Non-assignability
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as provided in Section 9. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or by the
laws of descent or distribution, and in the event of any attempted assignment
or transfer by Executive contrary to this Section 14 the Company shall have no
liability to pay any amount so attempted to be assigned or transferred to any
person other than the Executive or, in the event of his death, his designated
beneficiary or, in the absence of an effective beneficiary designation, the
Executive's estate.
15. Effectiveness; Term
This Agreement will be effective and binding as of the date first above
written immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs. Upon the
27
<PAGE> 28
occurrence of a Change in Control at any time during the Term (as defined
below), without further action, this Agreement shall become immediately
operative. For purposes of this Agreement, "Term" means the period commencing
as of the date first above written and expiring as of the later of (i) the
fifth anniversary of the date first above written or (ii) the second
anniversary of the first occurrence of a Change in Control; provided, however,
that (A) commencing on the fifth anniversary of the date first above written
and each fifth anniversary date thereafter, the Term of this Agreement will
automatically be extended for an additional five years unless, not later than
180 days preceding each such fifth anniversary date, the Company or the
Executive shall have given notice that it or the Executive, as the case may be,
does not wish to have the Term extended and (B) subject to Section 2(e), if,
prior to a Change in Control, the Executive ceases for any reason to be an
employee of the Company and any subsidiary, thereupon without further action
the Term shall be deemed to have expired and this Agreement will immediately
terminate and be of no further effect. For purposes of this Section 15, the
Executive shall not be deemed to have ceased to be an employee of the Company
and any subsidiary by reason of the transfer of Executive's employment between
the Company and any subsidiary, or among any subsidiaries.
16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
17 Prior Agreement. This Agreement supersedes and terminates any and
all prior Executive Termination Benefits Agreements by and among Company and
the Executive.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth, thereby
mutually and voluntarily agreeing that this Agreement supersedes and replaces
any prior similar agreements for such termination benefits.
AMR CORPORATION
By: /s/ Donald J. Carty
-------------------------------
AMERICAN AIRLINES, INC.
By: /s/ Thomas J. Kiernan
-------------------------------
PETER J. DOLARA
/s/ Peter J. Dolara
-----------------------------------
<PAGE> 1
EXHIBIT 10.66
AMENDED AND RESTATED
EXECUTIVE TERMINATION BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE TERMINATION BENEFITS AGREEMENT
(this "Agreement"), dated as of the 21st day of May, 1998 is among AMR
CORPORATION, a Delaware corporation, AMERICAN AIRLINES, INC., a Delaware
corporation (collectively the "Company"), and DANIEL P. GARTON (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company considers it essential to the best interests of
the Company and its stockholders that its management be encouraged to remain
with the Company and to continue to devote full attention to the Company's
business in the event an effort is made to obtain control of the Company
through a tender offer or otherwise;
WHEREAS, the Company recognizes that the possibility of a change in
control and the uncertainty and questions which it may raise among management
may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company;
WHEREAS, the Executive is a key Executive of the Company;
<PAGE> 2
WHEREAS, the Company believes the Executive has made valuable
contributions to the productivity and profitability of the Company;
WHEREAS, should the Company receive any proposal from a third person
concerning a possible business combination with or acquisition of equity
securities of the Company, the Board believes it imperative that the Company
and the Board be able to rely upon the Executive to continue in his position,
and that the Company be able to receive and rely upon his advice as to the best
interests of the Company and its stockholders without concern that he might be
distracted by the personal uncertainties and risks created by such a proposal;
and
WHEREAS, should the Company receive any such proposals, in addition to
the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether
such proposals would be in the best interests of the Company and its
stockholders, and to take such other actions as the Board might determine to be
appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
undivided attention and services of the Executive and the availability of his
advice and counsel notwithstanding the possibility, threat or occurrence of a
bid to take over control of the Company, and to induce the Executive to remain
in the employ of the Company, and for other good and valuable consideration,
the Company and the Executive agree as follows:
1. Change in Control
For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have taken place if:
(a) any person as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended from time to time (the "Exchange Act"), and as
used in Sections 13(d) and
2
<PAGE> 3
14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange
Act (a "Person"), but excluding the Company, any subsidiary of the Company and
any employee benefit plan sponsored or maintained by the Company or any
subsidiary of the Company (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13(d)-3 under the Exchange Act, as amended from time to time) of
securities of the Company representing 15% or more of the combined voting power
of the Company's then outstanding securities; or
(b) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of the assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the then outstanding shares of common stock
of the Company and the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors immediately prior to such Business Combination
3
<PAGE> 4
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election
of directors, as the case may be, of the corporation resulting from such
Business Combination (including, without limitation, a corporation which as a
result of such transaction owns the Company or all or substantially all of the
Company's assets either directly or through one or more subsidiaries), (ii) no
Person (excluding any employee benefit plan (or related trust) of the Company
or such corporation resulting from such Business Combination) beneficially
owns, directly or indirectly, 15% or more of, respectively, the then
outstanding shares of common stock of the corporation resulting from such
Business Combination or the combined voting power of the then outstanding
voting securities of such corporation except to the extent that such ownership
existed prior to the Business Combination, and (iii) at least a majority of the
members of the board of directors of the corporation resulting from such
Business Combination were members of the Incumbent Board at the time of the
execution of the initial agreement, or of the action of the Incumbent Board,
providing for such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. Circumstances Triggering Receipt of Severance Benefits
(a) Subject to Section 2(c), the Company will provide the
Executive with the benefits set forth in Section 4 upon any termination of the
Executive's employment:
(i) by the Company at any time within the first 24
months after a Change in Control;
4
<PAGE> 5
(ii) by the Executive for "Good Reason" (as defined
in Section 2(b) below) at any time within the first 24 months
after a Change in Control;
(iii) by the Executive pursuant to Section 2(d); or
(iv) by the Company or the Executive pursuant to
Section 2(e).
(b) In the event of the occurrence of a Change in Control,
the Executive may terminate employment with the Company and/or any subsidiary
for "Good Reason" with the right to benefits set forth in Section 4 upon the
occurrence of one or more of the following events (regardless of whether any
other reason, other than Cause as provided below, for such termination exists
or has occurred, including without limitation other employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent office or position, of or with the
Company and/or a subsidiary, as the case may be, which the
Executive held immediately prior to a Change in Control, or
the removal of the Executive as a director of the Company
and/or a subsidiary (or any successor thereto) if the
Executive shall have been a director of the Company and/or a
subsidiary immediately prior to the Change in Control;
(ii) (A) A significant adverse change in the nature
or scope of the authorities, powers, functions,
responsibilities or duties attached to the position with the
Company and/or any subsidiary which the Executive held
immediately prior to the Change in Control, (B) a reduction
in the aggregate of the Executive's annual base salary rate
and annual incentive compensation target to be received from
the Company and/or any subsidiary, or (C) the termination or
denial of the Executive's rights to Employee Benefits (as
defined below) or a reduction in the
5
<PAGE> 6
scope or value thereof, any of which is not remedied by the
Company within 10 calendar days after receipt by the Company
of written notice from the Executive of such change,
reduction or termination, as the case may be;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the parties
hereto provided it has been made in good faith and in all
events will be presumed to have been made in good faith unless
otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation,
a change in the scope of the business or other activities for
which the Executive was responsible immediately prior to the
Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused the Executive to
suffer a substantial reduction in, any of the authorities,
powers, functions, responsibilities or duties attached to the
position held by the Executive immediately prior to the Change
in Control, which situation is not remedied within 10 calendar
days after written notice to the Company from the Executive of
such determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or transfer of
all or substantially all of its business and/or assets,
unless the successor or successors (by liquidation, merger,
consolidation, reorganization, transfer or otherwise) to
which all or substantially all of its business and/or assets
have been transferred (directly or by operation of law)
assumed all duties and obligations of the Company under this
Agreement pursuant to Section 9(a);
6
<PAGE> 7
(v) The Company relocates its principal executive
offices, or requires the Executive to have his principal
location of work changed, to any location that is in excess
of 50 miles from the location thereof immediately prior to
the Change in Control, or requires the Executive to travel
away from his office in the course of discharging his
responsibilities or duties hereunder at least 20% more (in
terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison
to any prior year) than was required of Executive in any of
the three full years immediately prior to the Change in
Control without, in either case, his prior written consent;
or
(vi) Without limiting the generality or effect of
the foregoing, any material breach of this Agreement by the
Company or any successor thereto, which breach is not
remedied within 10 calendar days after written notice to the
Company from the Executive describing the nature of such
breach.
(c) Notwithstanding Sections 2(a) and (b) above, no benefits
shall be payable by reason of this Agreement in the event of:
(i) Termination of the Executive's employment with
the Company and its subsidiaries by reason of the Executive's
death or Disability, provided that the Executive has not
previously given a valid "Notice of Termination" pursuant to
Section 3. For purposes hereof, "Disability" shall be defined
as the inability of Executive due to illness, accident or
other physical or mental disability to perform his duties for
any period of six consecutive months or for any period of
eight
7
<PAGE> 8
months out of any 12-month period, as determined by an
independent physician selected by the Company and reasonably
acceptable to the Executive (or his legal representative),
provided that the Executive does not return to work on
substantially a full-time basis within 30 days after written
notice from the Company, pursuant to Section 3, of an intent
to terminate the Executive's employment due to Disability;
(ii) Termination of the Executive's employment with
the Company and its subsidiaries on account of the
Executive's retirement at or after age 65, pursuant to the
Company's Retirement Benefit Plan; or
(iii) Termination of the Executive's employment with
the Company and its subsidiaries for Cause. For the purposes
hereof, "Cause" shall be defined as a felony conviction of
the Executive or the failure of the Executive to contest
prosecution for a felony, or the Executive's wilful
misconduct or dishonesty, any of which is directly and
materially harmful to the business or reputation of the
Company or any subsidiary or affiliate. Notwithstanding the
foregoing, the Executive shall not be deemed to have been
terminated for "Cause" hereunder unless and until there shall
have been delivered to the Executive a copy of a resolution
duly adopted by the affirmative vote of not less than three
quarters of the Board then in office at a meeting of the
Board called and held for such purpose, after reasonable
notice to the Executive and an opportunity for the Executive,
together with his counsel (if the Executive chooses to have
counsel present at such meeting), to be heard before the
Board, finding that, in the good faith opinion of the Board,
the Executive had committed an act constituting
8
<PAGE> 9
"Cause" as herein defined and specifying the particulars
thereof in detail. Nothing herein will limit the right of the
Executive or his beneficiaries to contest the validity or
propriety of any such determination.
This Section 2(c) shall not preclude the payment of any amounts
otherwise payable to the Executive under any of the Company's employee benefit
plans, stock plans, programs and arrangements and/or under any Employment
Agreement.
(d) Notwithstanding anything contained in this Agreement to
the contrary, in the event of a Change in Control, the Executive may terminate
employment with the Company and any subsidiary for any reason, or without
reason, by providing Notice of Termination pursuant to Section 3 during the
30-day period immediately following the first anniversary of the first
occurrence of a Change in Control with the right to the benefits set forth in
Section 4.
(e) Any termination of employment of the Executive, including
a termination for "Good Reason," but excluding a termination for "Cause," or
the removal of the Executive from the office or position in the Company or any
subsidiary that occurs (i) not more than 180 days prior to the date on which a
Change in Control occurs and (ii) following the commencement of any discussion
with a third person that ultimately results in a Change in Control shall be
deemed to be a termination or removal of the Executive after a Change in
Control for purposes of this Agreement.
3. Notice of Termination
Any termination of the Executive's employment with the Company and its
subsidiaries as contemplated by Section 2 shall be communicated by written
"Notice of Termination" to the other party hereto. Any "Notice of Termination"
shall indicate the effective date of termination which shall not be less than
30 days or more than 60 days after the date the Notice of
9
<PAGE> 10
Termination is delivered (the "Termination Date"), the specific provision in
this Agreement relied upon, and, except for a termination pursuant to Section
2(d), will set forth in reasonable detail the facts and circumstances claimed
to provide a basis for such termination including, if applicable, the failure
after provision of written notice by the Executive to effect a remedy pursuant
to the final clause of Section 2(b)(ii), 2(b)(iii) or 2(b)(vi).
4. Termination Benefits
Subject to the conditions set forth in Section 2, the following
benefits shall be paid or provided to the Executive:
(a) Compensation
The Company shall pay to the Executive three times the sum of
(i) "Base Pay", which shall be an amount equal to the greater of (A) the
Executive's effective annual base salary at the Termination Date or (B) the
Executive's effective annual base salary immediately prior to the Change in
Control, plus (ii) "Incentive Pay" equal to the greater of (x) the target
annual bonus payable to the Executive under the Company's Incentive
Compensation Plan or any other annual bonus plan for the fiscal year of the
Company in which the Change in Control occurred or (y) the highest annual bonus
earned by the Executive under the Company's Incentive Compensation Plan or any
other annual bonus plan (whether paid currently or on a deferred basis) with
respect to any 12 consecutive month period during the three fiscal years of the
Company immediately preceding the fiscal year of the Company in which the
Change in Control occurred, plus (iii) "Performance Returns" equal to the
highest annual payment of performance returns paid to the Executive with
respect to any 12 consecutive month period during the three fiscal years of the
Company immediately preceding the fiscal year of the Company in which the
Change in Control occurred.
10
<PAGE> 11
(b) Welfare Benefits
For a period of 36 months following the Termination Date (the
"Continuation Period"), the Company shall arrange to provide the Executive with
benefits, including travel accident, major medical, dental, vision care and
other welfare benefit programs in effect immediately prior to the Change in
Control ("Employee Benefits") substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination, or denial
described in Section 2(b)(ii)(C)). If and to the extent that any benefit
described in this Section 4(b) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any subsidiary, as the
case may be, then the Company will itself pay or provide for the payment to the
Executive, his dependents and beneficiaries, of such Employee Benefits along
with, in the case of any benefit which is subject to tax because it is not or
cannot be paid or provided under any such policy, plan, program or arrangement
of the Company or any subsidiary, an additional amount such that after payment
by the Executive, or his dependents or beneficiaries, as the case may be, of
all taxes so imposed, the recipient retains an amount equal to such taxes.
Employee Benefits otherwise receivable by the Executive pursuant to this
Section 4(b) will be reduced to the extent comparable welfare benefits are
actually received by the Executive from another employer during the
Continuation Period, and any such benefits actually received by the Executive
shall be reported by the Executive to the Company.
(c) Retirement Benefits
The Executive shall be deemed to be completely vested in
Executive's currently accrued benefits under the Company's Retirement Benefit
Plan and Supplemental Executive Retirement Plan ("SERP") in effect as of the
date of Change in Control (collectively, the
11
<PAGE> 12
"Plans"), regardless of his actual vesting service credit thereunder. In
addition, the Executive shall be deemed to earn service credit for benefit
calculation purposes thereunder for the Continuation Period. Benefits under the
Plans will become payable at any time designated by the Executive following
termination of the Executive's employment with the Company and its subsidiaries
after the Executive reaches age 55, subject to the terms of the Plans regarding
the actuarial adjustment of benefit payments commencing prior to normal
retirement age. The benefits to be paid pursuant to the Plans shall be
calculated as though the Executive's compensation rate for each of the five
years immediately preceding his retirement equaled the sum of Base Pay plus
Incentive Pay plus Performance Returns. Any benefits payable pursuant to this
Section 4(c) that are not payable out of the Plans for any reason (including
but not limited to any applicable benefit limitations under the Employee
Retirement Income Security Act of 1974, as amended, or any restrictions
relating to the qualification of the Company's Retirement Benefit Plan under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code"))
shall be paid directly by the Company out of its general assets.
(d) Relocation Benefits
If the Executive moves his residence in order to pursue other
business or employment opportunities during the Continuation Period and
requests in writing that the Company provide relocation services, he will be
reimbursed for any expenses incurred in that initial relocation (including
taxes payable on the reimbursement) which are not reimbursed by another
employer. Benefits under this provision will include assistance in selling the
Executive's home and all other assistance and benefits which were customarily
provided by the Company to transferred executives prior to the Change in
Control.
12
<PAGE> 13
(e) Executive Outplacement Counseling
At the request of the Executive made in writing during the
Continuation Period, the Company shall engage an outplacement counseling
service of national reputation to assist the Executive in obtaining employment.
(f) Stock Based Compensation Plans
(i) Any issued and outstanding Stock Options (to the
extent they have not already become exercisable) shall become
exercisable as of the date on which the Change in Control
occurs, unless otherwise specifically provided at the time
such options are granted.
(ii) The Company's right to rescind any award of
stock to the Executive under the Company's 1988 Long Term
Incentive Plan or the Company's 1998 Long Term Incentive Plan
(or any successor plan) shall terminate upon a Change in
Control, and all restrictions on the sale, pledge,
hypothecation or other disposition of shares of stock awarded
pursuant to such plan shall be removed at the Termination
Date, unless otherwise specifically provided at the time such
award(s) are made.
(iii) The Executive's rights under any other stock
based compensation plan shall vest (to the extent they have
not already vested) and any performance criteria shall be
deemed met at target as of the date on which a Change in
Control occurs, unless otherwise specifically provided at the
time such right(s) are granted.
(g) Split Dollar Life Insurance
The Company shall pay to the Executive a lump sum equal to
the cost on the Termination Date of purchasing, at standard independent
insurance premium rates, an individual
13
<PAGE> 14
paid up insurance policy providing benefits equal to the benefits provided by
the Company's Split Dollar Life Insurance coverage immediately prior to the
date of the Change in Control.
(h) Other Benefits
(i) The Executive shall have all flight privileges
provided by the Company to Directors as of the date of Change
in Control until the Executive reaches age 55, at which time
he shall have all flight privileges provided by the Company
to its retirees who held the same or similar position as the
Executive immediately prior to the Change in Control.
(ii) The Executive, at the Executive's option, shall
be entitled to continue the use of the Executive's
Company-provided automobile during the Continuation Period
under the same terms that applied to the automobile
immediately prior to the Change in Control, or to purchase
the automobile at its book value as of the Termination Date.
(iii) The Company shall pay to the Executive an
amount equal to the cost to the Company of providing any
other perquisites and benefits of the Company in effect
immediately prior to the Change in Control, calculated as if
such benefits were continued during the Continuation Period.
(i) Accrued Amounts
The Company shall pay to the Executive all other amounts
accrued or earned by the Executive through the Termination Date and amounts
otherwise owing under the then existing plans and policies of the Company,
including but not limited to all amounts of compensation previously deferred by
the Executive (together with any accrued interest thereon) and not yet paid by
the Company, and any accrued vacation pay not yet paid by the Company.
14
<PAGE> 15
(j) The Company shall pay to the Executive the amounts due
pursuant to Sections 4(a), 4(g) and 4(h)(iii) in a lump sum on the first
business day of the month following the Termination Date. The Company shall pay
to the Executive the amounts due pursuant to Section 4(i) in accordance with
the terms and conditions of the existing plans and policies of the Company.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, but subject to Section 5(h), in the event that this Agreement
shall become operative and it shall be determined (as hereafter provided) that
any payment (other than the Gross-Up payments provided for in this Section 5)
or distribution by the Company or any of its subsidiaries to or for the benefit
of the Executive, whether paid or payable or distributed or distributable
pursuant to the terms of this Agreement or otherwise pursuant to or by reason
of any other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right,
restricted stock, deferred stock or the lapse or termination of any restriction
on, deferral period or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties
with respect to such tax (such tax or taxes, together with any such interest
and penalties, being hereafter collectively referred to as the "Excise Tax"),
then the Executive shall be entitled to receive an additional payment or
payments (collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in
an amount such that, after payment by the Executive of all taxes (including any
interest or
15
<PAGE> 16
penalties imposed with respect to such taxes), including any Excise Tax and any
income tax imposed upon the Gross-Up Payment, the Executive retains an amount
of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive in his sole discretion. The Executive shall direct the Accounting
Firm to submit its determination and detailed supporting calculations to both
the Company and the Executive within 30 calendar days after the Change in
Control Date, the Termination Date, if applicable, and any such other time or
times as may be requested by the Company or the Executive. If the Accounting
Firm determines that any Excise Tax is payable by the Executive, the Company
shall pay the required Gross-Up Payment to the Executive within five business
days after receipt of such determination and calculations with respect to any
Payment to the Executive. If the Accounting Firm determines that no Excise Tax
is payable by the Executive, it shall, at the same time as it makes such
determination, furnish the Company and the Executive an opinion that the
Executive has substantial authority not to report any Excise Tax on his
federal, state or local income or other tax return. As a result of the
uncertainty in the application of Section 4999 of the Code (or any successor
provision thereto) and the possibility of similar uncertainty regarding
applicable state or local tax law at the time of any determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made (an "Underpayment"),
consistent with the calculations required to be made hereunder. In the
16
<PAGE> 17
event that the Company exhausts or fails to pursue its remedies pursuant to
Section 5(f) and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination
and detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days
after receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment.
If prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting
17
<PAGE> 18
Firm determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 5(b) shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within five business days after receipt
from the Executive of a statement therefor and reasonable evidence of his
payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment or
any additional Gross-Up Payment. Such notification shall be given as promptly
as practicable but no later than 10 business days after the Executive actually
receives notice of such claim and the Executive shall further apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid (in each case, to the extent known by the Executive). The
Executive shall not pay such claim prior to the earlier of (x) the expiration
of the 30-calendar-day period following the date on which he gives such notice
to the Company and (y) the date that any payment of amount with respect to such
claim is due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including without
18
<PAGE> 19
limitation accepting legal representation with respect to
such claim by an attorney competent in respect of the subject
matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such contest and payment
of costs and expenses. Without limiting the foregoing provisions of this
Section 5(f), the Company shall control all proceedings taken in connection
with the contest of any claim contemplated by this Section 5(f) and, at its
sole option, may pursue or forego any and all administrative appeals,
proceedings, hearings and conferences with the taxing authority in respect of
such claim (provided, however, that the Executive may participate therein at
his own cost and expense) and may, at its option, either direct the Executive
to pay the tax claimed and sue for a refund or contest the claim in any
permissible manner, and the Executive agrees to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
the tax claimed and sue for a refund, the Company shall advance the amount of
such payment to the Executive on an interest-free basis and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any
19
<PAGE> 20
Excise Tax or income or other tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, however,
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the contested
amount is claimed to be due is limited solely to such contested amount.
Furthermore, the Company's control of any such contested claim shall be limited
to issues with respect to which a Gross-Up Payment would be payable hereunder
and the Executive shall be entitled to settle or contest, as the case may be,
any other issue raised by the Internal Revenue Service or any other taxing
authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), the Executive receives any
refund with respect to such claim, the Executive shall (subject to the
Company's complying with the requirements of Section 5(f)) promptly pay to the
Company the amount of such refund (together with any interest paid or credited
thereon after any taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 5(f), a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such denial or refund prior to the expiration
of 30 calendar days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of any such
advance shall offset, to the extent thereof, the amount of Gross-Up Payment
required to be paid by the Company to the Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to the
contrary, if (i) but for this sentence, the Company would be obligated to make
a Gross-Up Payment to the Executive, (ii) the aggregate "present value" of the
"parachute payments" to be paid or provided
20
<PAGE> 21
to the Executive under this Agreement or otherwise does not exceed 1.15
multiplied by three times the Executive's "base amount," and (iii) but for this
sentence, the net after-tax benefit to the Executive of the Gross-Up Payment
would not exceed $50,000 (taking into account both income taxes and any Excise
Tax), then the payments and benefits to be paid or provided under this
Agreement (including any stock based compensation pursuant to Section 4(f))
will be reduced to the minimum extent necessary (but in no event to less than
zero) so that no portion of any payment or benefit to the Executive, as so
reduced, constitutes an "excess parachute payment." For purposes of this
Section 5(h), the terms "excess parachute payment," "present value," "parachute
payment," and "base amount" will have the meanings assigned to them by Section
280G of the Code. The determination of whether any reduction in such payments
or benefits to be provided under this Agreement is required pursuant to the
preceding sentence will be made at the expense of the Company, if requested by
the Executive or the Company, by the Accounting Firm. The fact that the
Executive's right to payments or benefits may be reduced by reason of the
limitations contained in this Section 5(h) will not of itself limit or
otherwise affect any other rights of the Executive other than pursuant to this
Agreement. In the event that any payment or benefit intended to be provided
under this Agreement or otherwise is required to be reduced pursuant to this
Section 5(h), the Executive will be entitled to designate the payments and/or
benefits to be so reduced in order to give effect to this Section 5(h). The
Company will provide the Executive with all information reasonably requested by
the Executive to permit the Executive to make such designation. In the event
that the Executive fails to make such designation within 10 business days of
the Termination Date, the Company may effect such reduction in any manner it
deems appropriate.
21
<PAGE> 22
6. No Mitigation Obligation. The Company hereby acknowledges that
it will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any source
whatsoever create any mitigation, offset, reduction or any other obligation on
the part of the Executive hereunder or otherwise, except as expressly provided
in the last sentence of Section 4(b).
7. Legal Fees and Expenses.
(a) It is the intent of the Company that the Executive not be
required to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Executive's rights under this
Agreement by litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the
Executive hereunder. Accordingly, if it should appear to the Executive that the
Company has failed to comply with any of its obligations under this Agreement
or in the event that the Company or any other person takes or threatens to take
any action to declare this Agreement void or unenforceable, or institutes any
litigation or other action or proceeding designed to deny, or to recover from,
the Executive any or all of the benefits provided or intended to be provided to
the Executive hereunder, the Company irrevocably authorizes the Executive from
time to time to retain counsel of Executive's choice, at the expense of the
Company as hereafter provided, to advise and represent the Executive in
connection with any such interpretation, enforcement or
22
<PAGE> 23
defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and
expenses incurred by the Executive in connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant
to Section 7(a) hereof, in the event a Change in Control occurs, the
performance of the Company's obligations under this Section 7 shall be secured
by amounts deposited or to be deposited in trust pursuant to certain trust
agreements to which the Company shall be a party, which amounts deposited shall
in the aggregate be not less than $2,000,000, providing that the fees and
expenses of counsel selected from time to time by the Executive pursuant to
Section 7(a) shall be paid, or reimbursed to the Executive if paid by the
Executive, either in accordance with the terms of such trust agreements, or, if
not so provided, on a regular, periodic basis upon presentation by the
Executive to the trustee of a statement or statements prepared by such counsel
in accordance with its customary practices. Any failure by the Company to
satisfy any of its obligations under this Section 7(b) shall not limit the
rights of the Executive hereunder. Subject to the foregoing, the Executive
shall have the status of a general unsecured creditor of the Company and shall
have no right to, or security interest in, any assets of the Company or any
subsidiary.
23
<PAGE> 24
8. Continuing Obligations
(a) The Executive hereby agrees that all documents, records,
techniques, business secrets and other information which have come into his
possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company and, except for
personal documents and records of the Executive, shall be returned to the
Company. The Executive further agrees to retain in confidence any confidential
information known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly disclosed,
except that Executive may disclose any such information required to be
disclosed in the normal course of his employment with the Company or pursuant
to any court order or other legal process.
(b) The Executive hereby agrees that during the Continuation
Period, he will not directly or indirectly solicit any employee of the Company
or any of its subsidiaries or affiliated companies to join the employ of any
entity that competes with the Company or any of its subsidiaries or affiliated
companies.
9. Successors
(a) The Company shall require any successor (whether direct
or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive to expressly assume and agree
to perform 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.
Failure of such successor entity to enter into such agreement prior to the
effective date of any such succession (or, if later, within three business days
after first receiving a written request for such agreement) shall constitute a
breach of this Agreement and shall entitle the Executive to
24
<PAGE> 25
terminate his employment pursuant to Section 2(a)(ii) and to receive the
payments and benefits provided under Section 4. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
Agreement provided for in this Section 9 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive dies while any amounts are payable to him hereunder, all such
amounts, unless otherwise provided herein, shall be paid in accordance with the
terms of this Agreement to his devisee, legatee or other designee or, if there
is no such designee, to his estate.
10. Notices
For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or
permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS,
or Purolator, addressed to the Company (to the attention of the Secretary of
the Company, with a copy to the General Counsel of the Company) at its
principal executive office and to the Executive at his principal residence, or
to such other address as any party may have furnished to the other in writing
and in accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
25
<PAGE> 26
11. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
12. Miscellaneous
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement (or in any
employment or other written agreement relating to the Executive).
Notwithstanding any provision of this Agreement to the contrary, the parties'
respective rights and obligations under Sections 4, 5 and 7 will survive any
termination or expiration of this Agreement or the termination of the
Executive's employment following a Change in Control for any reason whatsoever.
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any subsidiary prior to or following any Change in
Control. The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as the Company is required to withhold
pursuant to any law or government regulation or ruling. In the event that the
Company refuses or otherwise fails to make a payment when due and it is
ultimately decided that the Executive is entitled to such
26
<PAGE> 27
payment, such payment shall be increased to reflect an interest factor,
compounded annually, equal to the prime rate in effect as of the date the
payment was first due plus two points. For this purpose, the prime rate shall
be based on the rate identified by Chase Manhattan Bank as its prime rate.
13. Separability
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Non-assignability
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as provided in Section 9. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or by the
laws of descent or distribution, and in the event of any attempted assignment
or transfer by Executive contrary to this Section 14 the Company shall have no
liability to pay any amount so attempted to be assigned or transferred to any
person other than the Executive or, in the event of his death, his designated
beneficiary or, in the absence of an effective beneficiary designation, the
Executive's estate.
15. Effectiveness; Term
This Agreement will be effective and binding as of the date first
above written immediately upon its execution, but, anything in this Agreement
to the contrary notwithstanding, this Agreement will not be operative unless
and until a Change in Control occurs. Upon the
27
<PAGE> 28
occurrence of a Change in Control at any time during the Term (as defined
below), without further action, this Agreement shall become immediately
operative. For purposes of this Agreement, "Term" means the period commencing
as of the date first above written and expiring as of the later of (i) the
fifth anniversary of the date first above written or (ii) the second
anniversary of the first occurrence of a Change in Control; provided, however,
that (A) commencing on the fifth anniversary of the date first above written
and each fifth anniversary date thereafter, the Term of this Agreement will
automatically be extended for an additional five years unless, not later than
180 days preceding each such fifth anniversary date, the Company or the
Executive shall have given notice that it or the Executive, as the case may be,
does not wish to have the Term extended and (B) subject to Section 2(e), if,
prior to a Change in Control, the Executive ceases for any reason to be an
employee of the Company and any subsidiary, thereupon without further action
the Term shall be deemed to have expired and this Agreement will immediately
terminate and be of no further effect. For purposes of this Section 15, the
Executive shall not be deemed to have ceased to be an employee of the Company
and any subsidiary by reason of the transfer of Executive's employment between
the Company and any subsidiary, or among any subsidiaries.
16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
17 Prior Agreement. This Agreement supersedes and terminates any and
all prior Executive Termination Benefits Agreements by and among Company and
the Executive.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth, thereby
mutually and voluntarily agreeing that this Agreement supersedes and replaces
any prior similar agreements for such termination benefits.
AMR CORPORATION
By: /s/ Donald J. Carty
-----------------------------
AMERICAN AIRLINES, INC.
By: /s/ Thomas J. Kiernan
-----------------------------
DANIEL P. GARTON
/s/ Daniel P. Garton
--------------------------------
29
<PAGE> 1
EXHIBIT 10.67
AMENDED AND RESTATED
EXECUTIVE TERMINATION BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE TERMINATION BENEFITS AGREEMENT (this
"Agreement"), dated as of the 21st day of May, 1998 is among AMR CORPORATION, a
Delaware corporation, AMERICAN AIRLINES, INC., a Delaware corporation
(collectively the "Company"), and MICHAEL W. GUNN (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company considers it essential to the best interests of the
Company and its stockholders that its management be encouraged to remain with
the Company and to continue to devote full attention to the Company's business
in the event an effort is made to obtain control of the Company through a tender
offer or otherwise;
WHEREAS, the Company recognizes that the possibility of a change in control
and the uncertainty and questions which it may raise among management may result
in the departure or distraction of management personnel to the detriment of the
Company and its stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has determined that
appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company;
WHEREAS, the Executive is a key Executive of the Company;
<PAGE> 2
WHEREAS, the Company believes the Executive has made valuable contributions
to the productivity and profitability of the Company;
WHEREAS, should the Company receive any proposal from a third person
concerning a possible business combination with or acquisition of equity
securities of the Company, the Board believes it imperative that the Company and
the Board be able to rely upon the Executive to continue in his position, and
that the Company be able to receive and rely upon his advice as to the best
interests of the Company and its stockholders without concern that he might be
distracted by the personal uncertainties and risks created by such a proposal;
and
WHEREAS, should the Company receive any such proposals, in addition to the
Executive's regular duties, he may be called upon to assist in the assessment of
such proposals, advise management and the Board as to whether such proposals
would be in the best interests of the Company and its stockholders, and to take
such other actions as the Board might determine to be appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
undivided attention and services of the Executive and the availability of his
advice and counsel notwithstanding the possibility, threat or occurrence of a
bid to take over control of the Company, and to induce the Executive to remain
in the employ of the Company, and for other good and valuable consideration, the
Company and the Executive agree as follows:
1. Change in Control
For purposes of this Agreement, a Change in Control of the Company shall be
deemed to have taken place if:
(a) any person as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended from time to time (the "Exchange Act"), and as
used in Sections 13(d) and
2
<PAGE> 3
14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange
Act (a "Person"), but excluding the Company, any subsidiary of the Company and
any employee benefit plan sponsored or maintained by the Company or any
subsidiary of the Company (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13(d)-3 under the Exchange Act, as amended from time to time) of securities
of the Company representing 15% or more of the combined voting power of the
Company's then outstanding securities; or
(b) individuals who, as of the date hereof, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a majority of the
Board; provided, however, that any individual becoming a director subsequent to
the date hereof whose election, or nomination for election by the Company's
stockholders, was approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of an actual or threatened election contest with respect to the election
or removal of directors or other actual or threatened solicitation of proxies or
consents by or on behalf of a Person other than the Board; or
(c) consummation of a reorganization, merger or consolidation or sale
or other disposition of all or substantially all of the assets of the Company or
the acquisition of the assets of another corporation (a "Business Combination"),
in each case, unless, following such Business Combination, (i) all or
substantially all of the individuals and entities who were the beneficial
owners, respectively, of the then outstanding shares of common stock of the
Company and the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors
immediately prior to such Business Combination
3
<PAGE> 4
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries), (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 15% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination, and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Incumbent Board, providing for
such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. Circumstances Triggering Receipt of Severance Benefits
(a) Subject to Section 2(c), the Company will provide the Executive
with the benefits set forth in Section 4 upon any termination of the Executive's
employment:
(i) by the Company at any time within the first 24 months
after a Change in Control;
4
<PAGE> 5
(ii) by the Executive for "Good Reason" (as defined in Section
2(b) below) at any time within the first 24 months after a Change in
Control;
(iii) by the Executive pursuant to Section 2(d); or
(iv) by the Company or the Executive pursuant to Section 2(e).
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and/or any subsidiary for
"Good Reason" with the right to benefits set forth in Section 4 upon the
occurrence of one or more of the following events (regardless of whether any
other reason, other than Cause as provided below, for such termination exists or
has occurred, including without limitation other employment):
(i) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially equivalent
office or position, of or with the Company and/or a subsidiary, as the
case may be, which the Executive held immediately prior to a Change in
Control, or the removal of the Executive as a director of the Company
and/or a subsidiary (or any successor thereto) if the Executive shall
have been a director of the Company and/or a subsidiary immediately
prior to the Change in Control;
(ii) (A) A significant adverse change in the nature or scope
of the authorities, powers, functions, responsibilities or duties
attached to the position with the Company and/or any subsidiary which
the Executive held immediately prior to the Change in Control, (B) a
reduction in the aggregate of the Executive's annual base salary rate
and annual incentive compensation target to be received from the
Company and/or any subsidiary, or (C) the termination or denial of the
Executive's rights to Employee Benefits (as defined below) or a
reduction in the
5
<PAGE> 6
scope or value thereof, any of which is not remedied by the Company
within 10 calendar days after receipt by the Company of written notice
from the Executive of such change, reduction or termination, as the
case may be;
(iii) A determination by the Executive (which determination
will be conclusive and binding upon the parties hereto provided it has
been made in good faith and in all events will be presumed to have
been made in good faith unless otherwise shown by the Company by clear
and convincing evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation, a change
in the scope of the business or other activities for which the
Executive was responsible immediately prior to the Change in Control,
which has rendered the Executive substantially unable to carry out,
has substantially hindered Executive's performance of, or has caused
the Executive to suffer a substantial reduction in, any of the
authorities, powers, functions, responsibilities or duties attached to
the position held by the Executive immediately prior to the Change in
Control, which situation is not remedied within 10 calendar days after
written notice to the Company from the Executive of such
determination;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all
of its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer or
otherwise) to which all or substantially all of its business and/or
assets have been transferred (directly or by operation of
6
<PAGE> 7
law) assumed all duties and obligations of the Company under this
Agreement pursuant to Section 9(a);
(v) The Company relocates its principal executive offices, or
requires the Executive to have his principal location of work changed,
to any location that is in excess of 50 miles from the location
thereof immediately prior to the Change in Control, or requires the
Executive to travel away from his office in the course of discharging
his responsibilities or duties hereunder at least 20% more (in terms
of aggregate days in any calendar year or in any calendar quarter when
annualized for purposes of comparison to any prior year) than was
required of Executive in any of the three full years immediately prior
to the Change in Control without, in either case, his prior written
consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the Company or any
successor thereto, which breach is not remedied within 10 calendar
days after written notice to the Company from the Executive describing
the nature of such breach.
(c) Notwithstanding Sections 2(a) and (b) above, no benefits shall be
payable by reason of this Agreement in the event of:
(i) Termination of the Executive's employment with the
Company and its subsidiaries by reason of the Executive's death or
Disability, provided that the Executive has not previously given a
valid "Notice of Termination" pursuant to Section 3. For purposes
hereof, "Disability" shall be defined as the inability of Executive
due to illness, accident or other physical or mental disability to
perform his duties for any period of six consecutive months or for any
period of eight
7
<PAGE> 8
months out of any 12-month period, as determined by an independent
physician selected by the Company and reasonably acceptable to the
Executive (or his legal representative), provided that the Executive
does not return to work on substantially a full-time basis within 30
days after written notice from the Company, pursuant to Section 3, of
an intent to terminate the Executive's employment due to Disability;
(ii) Termination of the Executive's employment with the
Company and its subsidiaries on account of the Executive's retirement
at or after age 65, pursuant to the Company's Retirement Benefit Plan;
or
(iii) Termination of the Executive's employment with the
Company and its subsidiaries for Cause. For the purposes hereof,
"Cause" shall be defined as a felony conviction of the Executive or
the failure of the Executive to contest prosecution for a felony, or
the Executive's willful misconduct or dishonesty, any of which is
directly and materially harmful to the business or reputation of the
Company or any subsidiary or affiliate. Notwithstanding the foregoing,
the Executive shall not be deemed to have been terminated for "Cause"
hereunder unless and until there shall have been delivered to the
Executive a copy of a resolution duly adopted by the affirmative vote
of not less than three quarters of the Board then in office at a
meeting of the Board called and held for such purpose, after
reasonable notice to the Executive and an opportunity for the
Executive, together with his counsel (if the Executive chooses to have
counsel present at such meeting), to be heard before the Board,
finding that, in the good faith opinion of the Board, the Executive
had committed an act constituting
8
<PAGE> 9
"Cause" as herein defined and specifying the particulars thereof in
detail. Nothing herein will limit the right of the Executive or his
beneficiaries to contest the validity or propriety of any such
determination.
This Section 2(c) shall not preclude the payment of any amounts otherwise
payable to the Executive under any of the Company's employee benefit plans,
stock plans, programs and arrangements and/or under any Employment Agreement.
(d) Notwithstanding anything contained in this Agreement to the
contrary, in the event of a Change in Control, the Executive may terminate
employment with the Company and any subsidiary for any reason, or without
reason, by providing Notice of Termination pursuant to Section 3 during the
30-day period immediately following the first anniversary of the first
occurrence of a Change in Control with the right to the benefits set forth in
Section 4.
(e) Any termination of employment of the Executive, including a
termination for "Good Reason," but excluding a termination for "Cause," or the
removal of the Executive from the office or position in the Company or any
subsidiary that occurs (i) not more than 180 days prior to the date on which a
Change in Control occurs and (ii) following the commencement of any discussion
with a third person that ultimately results in a Change in Control shall be
deemed to be a termination or removal of the Executive after a Change in Control
for purposes of this Agreement.
3. Notice of Termination
Any termination of the Executive's employment with the Company and its
subsidiaries as contemplated by Section 2 shall be communicated by written
"Notice of Termination" to the other party hereto. Any "Notice of Termination"
shall indicate the effective date of termination which shall not be less than 30
days or more than 60 days after the date the Notice of
9
<PAGE> 10
Termination is delivered (the "Termination Date"), the specific provision in
this Agreement relied upon, and, except for a termination pursuant to Section
2(d), will set forth in reasonable detail the facts and circumstances claimed to
provide a basis for such termination including, if applicable, the failure after
provision of written notice by the Executive to effect a remedy pursuant to the
final clause of Section 2(b)(ii), 2(b)(iii) or 2(b)(vi).
4. Termination Benefits
Subject to the conditions set forth in Section 2, the following benefits
shall be paid or provided to the Executive:
(a) Compensation
The Company shall pay to the Executive three times the sum of (i)
"Base Pay", which shall be an amount equal to the greater of (A) the Executive's
effective annual base salary at the Termination Date or (B) the Executive's
effective annual base salary immediately prior to the Change in Control, plus
(ii) "Incentive Pay" equal to the greater of (x) the target annual bonus payable
to the Executive under the Company's Incentive Compensation Plan or any other
annual bonus plan for the fiscal year of the Company in which the Change in
Control occurred or (y) the highest annual bonus earned by the Executive under
the Company's Incentive Compensation Plan or any other annual bonus plan
(whether paid currently or on a deferred basis) with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred, plus (iii) "Performance Returns" equal to the highest annual
payment of performance returns paid to the Executive with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred.
10
<PAGE> 11
(b) Welfare Benefits
For a period of 36 months following the Termination Date (the
"Continuation Period"), the Company shall arrange to provide the Executive with
benefits, including travel accident, major medical, dental, vision care and
other welfare benefit programs in effect immediately prior to the Change in
Control ("Employee Benefits") substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination, or denial
described in Section 2(b)(ii)(C)). If and to the extent that any benefit
described in this Section 4(b) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any subsidiary, as the
case may be, then the Company will itself pay or provide for the payment to the
Executive, his dependents and beneficiaries, of such Employee Benefits along
with, in the case of any benefit which is subject to tax because it is not or
cannot be paid or provided under any such policy, plan, program or arrangement
of the Company or any subsidiary, an additional amount such that after payment
by the Executive, or his dependents or beneficiaries, as the case may be, of all
taxes so imposed, the recipient retains an amount equal to such taxes. Employee
Benefits otherwise receivable by the Executive pursuant to this Section 4(b)
will be reduced to the extent comparable welfare benefits are actually received
by the Executive from another employer during the Continuation Period, and any
such benefits actually received by the Executive shall be reported by the
Executive to the Company.
(c) Retirement Benefits
The Executive shall be deemed to be completely vested in Executive's
currently accrued benefits under the Company's Retirement Benefit Plan and
Supplemental Executive Retirement Plan ("SERP") in effect as of the date of
Change in Control (collectively, the
11
<PAGE> 12
"Plans"), regardless of his actual vesting service credit thereunder. In
addition, the Executive shall be deemed to earn service credit for benefit
calculation purposes thereunder for the Continuation Period. Benefits under the
Plans will become payable at any time designated by the Executive following
termination of the Executive's employment with the Company and its subsidiaries
after the Executive reaches age 55, subject to the terms of the Plans regarding
the actuarial adjustment of benefit payments commencing prior to normal
retirement age. The benefits to be paid pursuant to the Plans shall be
calculated as though the Executive's compensation rate for each of the five
years immediately preceding his retirement equaled the sum of Base Pay plus
Incentive Pay plus Performance Returns. Any benefits payable pursuant to this
Section 4(c) that are not payable out of the Plans for any reason (including but
not limited to any applicable benefit limitations under the Employee Retirement
Income Security Act of 1974, as amended, or any restrictions relating to the
qualification of the Company's Retirement Benefit Plan under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code")) shall be paid
directly by the Company out of its general assets.
(d) Relocation Benefits
If the Executive moves his residence in order to pursue other business
or employment opportunities during the Continuation Period and requests in
writing that the Company provide relocation services, he will be reimbursed for
any expenses incurred in that initial relocation (including taxes payable on the
reimbursement) which are not reimbursed by another employer. Benefits under this
provision will include assistance in selling the Executive's home and all other
assistance and benefits which were customarily provided by the Company to
transferred executives prior to the Change in Control.
12
<PAGE> 13
(e) Executive Outplacement Counseling
At the request of the Executive made in writing during the
Continuation Period, the Company shall engage an outplacement counseling service
of national reputation to assist the Executive in obtaining employment.
(f) Stock Based Compensation Plans
(i) Any issued and outstanding Stock Options (to the extent
they have not already become exercisable) shall become exercisable as
of the date on which the Change in Control occurs, unless otherwise
specifically provided at the time such options are granted.
(ii) The Company's right to rescind any award of stock to the
Executive under the Company's 1988 Long Term Incentive Plan or the
Company's 1998 Long Term Incentive Plan (or any successor plan) shall
terminate upon a Change in Control, and all restrictions on the sale,
pledge, hypothecation or other disposition of shares of stock awarded
pursuant to such plan shall be removed at the Termination Date, unless
otherwise specifically provided at the time such award(s) are made.
(iii) The Executive's rights under any other stock based
compensation plan shall vest (to the extent they have not already
vested) and any performance criteria shall be deemed met at target as
of the date on which a Change in Control occurs, unless otherwise
specifically provided at the time such right(s) are granted.
(g) Split Dollar Life Insurance
The Company shall pay to the Executive a lump sum equal to the cost on
the Termination Date of purchasing, at standard independent insurance premium
rates, an individual
13
<PAGE> 14
paid up insurance policy providing benefits equal to the benefits provided by
the Company's Split Dollar Life Insurance coverage immediately prior to the date
of the Change in Control.
(h) Other Benefits
(i) The Executive shall have all flight privileges provided by
the Company to Directors as of the date of Change in Control until the
Executive reaches age 55, at which time he shall have all flight
privileges provided by the Company to its retirees who held the same
or similar position as the Executive immediately prior to the Change
in Control.
(ii) The Executive, at the Executive's option, shall be
entitled to continue the use of the Executive's Company-provided
automobile during the Continuation Period under the same terms that
applied to the automobile immediately prior to the Change in Control,
or to purchase the automobile at its book value as of the Termination
Date.
(iii) The Company shall pay to the Executive an amount equal to
the cost to the Company of providing any other perquisites and
benefits of the Company in effect immediately prior to the Change in
Control, calculated as if such benefits were continued during the
Continuation Period. (i) Accrued Amounts The Company shall pay to the
Executive all other amounts accrued or earned by the Executive through
the Termination Date and amounts otherwise owing under the then
existing plans and policies of the Company, including but not limited
to all amounts of compensation previously deferred by the Executive
(together with any accrued interest thereon) and not yet paid by the
Company, and any accrued vacation pay not yet paid by the Company.
14
<PAGE> 15
(j) The Company shall pay to the Executive the amounts due pursuant
to Sections 4(a), 4(g) and 4(h)(iii) in a lump sum on the first business day of
the month following the Termination Date. The Company shall pay to the Executive
the amounts due pursuant to Section 4(i) in accordance with the terms and
conditions of the existing plans and policies of the Company.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstanding, but
subject to Section 5(h), in the event that this Agreement shall become operative
and it shall be determined (as hereafter provided) that any payment (other than
the Gross-Up payments provided for in this Section 5) or distribution by the
Company or any of its subsidiaries to or for the benefit of the Executive,
whether paid or payable or distributed or distributable pursuant to the terms of
this Agreement or otherwise pursuant to or by reason of any other agreement,
policy, plan, program or arrangement, including without limitation any stock
option, stock appreciation right or similar right, restricted stock, deferred
stock or the lapse or termination of any restriction on, deferral period or the
vesting or exercisability of any of the foregoing (a "Payment"), would be
subject to the excise tax imposed by Section 4999 of the Code (or any successor
provision thereto) by reason of being considered "contingent on a change in
ownership or control" of the Company, within the meaning of Section 280G of the
Code (or any successor provision thereto) or to any similar tax imposed by state
or local law, or any interest or penalties with respect to such tax (such tax or
taxes, together with any such interest and penalties, being hereafter
collectively referred to as the "Excise Tax"), then the Executive shall be
entitled to receive an additional payment or payments (collectively, a "Gross-Up
Payment"). The Gross-Up Payment shall be in an amount such that, after payment
by the Executive of all taxes (including any interest or
15
<PAGE> 16
penalties imposed with respect to such taxes), including any Excise Tax and any
income tax imposed upon the Gross-Up Payment, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all determinations
required to be made under this Section 5, including whether an Excise Tax is
payable by the Executive and the amount of such Excise Tax and whether a
Gross-Up Payment is required to be paid by the Company to the Executive and the
amount of such Gross-Up Payment, if any, shall be made by a nationally
recognized accounting firm (the "Accounting Firm") selected by the Executive in
his sole discretion. The Executive shall direct the Accounting Firm to submit
its determination and detailed supporting calculations to both the Company and
the Executive within 30 calendar days after the Change in Control Date, the
Termination Date, if applicable, and any such other time or times as may be
requested by the Company or the Executive. If the Accounting Firm determines
that any Excise Tax is payable by the Executive, the Company shall pay the
required Gross-Up Payment to the Executive within five business days after
receipt of such determination and calculations with respect to any Payment to
the Executive. If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall, at the same time as it makes such determination,
furnish the Company and the Executive an opinion that the Executive has
substantial authority not to report any Excise Tax on his federal, state or
local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto) and
the possibility of similar uncertainty regarding applicable state or local tax
law at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the
16
<PAGE> 17
event that the Company exhausts or fails to pursue its remedies pursuant to
Section 5(f) and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the Accounting
Firm access to and copies of any books, records and documents in the possession
of the Company or the Executive, as the case may be, reasonably requested by the
Accounting Firm, and otherwise cooperate with the Accounting Firm in connection
with the preparation and issuance of the determinations and calculations
contemplated by Section 5(b). Any determination by the Accounting Firm as to the
amount of the Gross-Up Payment shall be binding upon the Company and the
Executive.
(d) The federal, state and local income or other tax returns filed by
the Executive shall be prepared and filed on a consistent basis with the
determination of the Accounting Firm with respect to the Excise Tax payable by
the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting
17
<PAGE> 18
Firm determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its services in
connection with the determinations and calculations contemplated by Section 5(b)
shall be borne by the Company. If such fees and expenses are initially paid by
the Executive, the Company shall reimburse the Executive the full amount of such
fees and expenses within five business days after receipt from the Executive of
a statement therefor and reasonable evidence of his payment thereof.
(f) The Executive shall notify the Company in writing of any claim by
the Internal Revenue Service or any other taxing authority that, if successful,
would require the payment by the Company of a Gross-Up Payment or any additional
Gross-Up Payment. Such notification shall be given as promptly as practicable
but no later than 10 business days after the Executive actually receives notice
of such claim and the Executive shall further apprise the Company of the nature
of such claim and the date on which such claim is requested to be paid (in each
case, to the extent known by the Executive). The Executive shall not pay such
claim prior to the earlier of (x) the expiration of the 30-calendar-day period
following the date on which he gives such notice to the Company and (y) the date
that any payment of amount with respect to such claim is due. If the Company
notifies the Executive in writing prior to the expiration of such period that it
desires to contest such claim, the Executive shall:
(i) provide the Company with any written records or documents
in his possession relating to such claim reasonably requested by the
Company;
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including without
18
<PAGE> 19
limitation accepting legal representation with respect to such claim
by an attorney competent in respect of the subject matter and
reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such contest and payment
of costs and expenses. Without limiting the foregoing provisions of this Section
5(f), the Company shall control all proceedings taken in connection with the
contest of any claim contemplated by this Section 5(f) and, at its sole option,
may pursue or forego any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim (provided,
however, that the Executive may participate therein at his own cost and expense)
and may, at its option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any
19
<PAGE> 20
Excise Tax or income or other tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, however,
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the contested amount
is claimed to be due is limited solely to such contested amount. Furthermore,
the Company's control of any such contested claim shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount advanced by the
Company pursuant to Section 5(f), the Executive receives any refund with respect
to such claim, the Executive shall (subject to the Company's complying with the
requirements of Section 5(f)) promptly pay to the Company the amount of such
refund (together with any interest paid or credited thereon after any taxes
applicable thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), a determination is made that
the Executive shall not be entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing of its intent to contest
such denial or refund prior to the expiration of 30 calendar days after such
determination, then such advance shall be forgiven and shall not be required to
be repaid and the amount of any such advance shall offset, to the extent
thereof, the amount of Gross-Up Payment required to be paid by the Company to
the Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to the contrary, if
(i) but for this sentence, the Company would be obligated to make a Gross-Up
Payment to the Executive, (ii) the aggregate "present value" of the "parachute
payments" to be paid or provided
20
<PAGE> 21
to the Executive under this Agreement or otherwise does not exceed 1.15
multiplied by three times the Executive's "base amount," and (iii) but for this
sentence, the net after-tax benefit to the Executive of the Gross-Up Payment
would not exceed $50,000 (taking into account both income taxes and any Excise
Tax), then the payments and benefits to be paid or provided under this Agreement
(including any stock based compensation pursuant to Section 4(f)) will be
reduced to the minimum extent necessary (but in no event to less than zero) so
that no portion of any payment or benefit to the Executive, as so reduced,
constitutes an "excess parachute payment." For purposes of this Section 5(h),
the terms "excess parachute payment," "present value," "parachute payment," and
"base amount" will have the meanings assigned to them by Section 280G of the
Code. The determination of whether any reduction in such payments or benefits to
be provided under this Agreement is required pursuant to the preceding sentence
will be made at the expense of the Company, if requested by the Executive or the
Company, by the Accounting Firm. The fact that the Executive's right to payments
or benefits may be reduced by reason of the limitations contained in this
Section 5(h) will not of itself limit or otherwise affect any other rights of
the Executive other than pursuant to this Agreement. In the event that any
payment or benefit intended to be provided under this Agreement or otherwise is
required to be reduced pursuant to this Section 5(h), the Executive will be
entitled to designate the payments and/or benefits to be so reduced in order to
give effect to this Section 5(h). The Company will provide the Executive with
all information reasonably requested by the Executive to permit the Executive to
make such designation. In the event that the Executive fails to make such
designation within 10 business days of the Termination Date, the Company may
effect such reduction in any manner it deems appropriate.
21
<PAGE> 22
6. No Mitigation Obligation. The Company hereby acknowledges that it will
be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any source
whatsoever create any mitigation, offset, reduction or any other obligation on
the part of the Executive hereunder or otherwise, except as expressly provided
in the last sentence of Section 4(b).
7. Legal Fees and Expenses.
(a) It is the intent of the Company that the Executive not be
required to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Executive's rights under this
Agreement by litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the Executive
hereunder. Accordingly, if it should appear to the Executive that the Company
has failed to comply with any of its obligations under this Agreement or in the
event that the Company or any other person takes or threatens to take any action
to declare this Agreement void or unenforceable, or institutes any litigation or
other action or proceeding designed to deny, or to recover from, the Executive
any or all of the benefits provided or intended to be provided to the Executive
hereunder, the Company irrevocably authorizes the Executive from time to time to
retain counsel of Executive's choice, at the expense of the Company as hereafter
provided, to advise and represent the Executive in connection with any such
interpretation, enforcement or
22
<PAGE> 23
defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and expenses
incurred by the Executive in connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant to
Section 7(a) hereof, in the event a Change in Control occurs, the performance of
the Company's obligations under this Section 7 shall be secured by amounts
deposited or to be deposited in trust pursuant to certain trust agreements to
which the Company shall be a party, which amounts deposited shall in the
aggregate be not less than $2,000,000, providing that the fees and expenses of
counsel selected from time to time by the Executive pursuant to Section 7(a)
shall be paid, or reimbursed to the Executive if paid by the Executive, either
in accordance with the terms of such trust agreements, or, if not so provided,
on a regular, periodic basis upon presentation by the Executive to the trustee
of a statement or statements prepared by such counsel in accordance with its
customary practices. Any failure by the Company to satisfy any of its
obligations under this Section 7(b) shall not limit the rights of the Executive
hereunder. Subject to the foregoing, the Executive shall have the status of a
general unsecured creditor of the Company and shall have no right to, or
security interest in, any assets of the Company or any subsidiary.
23
<PAGE> 24
8. Continuing Obligations
(a) The Executive hereby agrees that all documents, records,
techniques, business secrets and other information which have come into his
possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company and, except for
personal documents and records of the Executive, shall be returned to the
Company. The Executive further agrees to retain in confidence any confidential
information known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly disclosed,
except that Executive may disclose any such information required to be disclosed
in the normal course of his employment with the Company or pursuant to any court
order or other legal process.
(b) The Executive hereby agrees that during the Continuation Period,
he will not directly or indirectly solicit any employee of the Company or any of
its subsidiaries or affiliated companies to join the employ of any entity that
competes with the Company or any of its subsidiaries or affiliated companies.
9. Successors
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive to expressly assume and agree
to perform 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.
Failure of such successor entity to enter into such agreement prior to the
effective date of any such succession (or, if later, within three business days
after first receiving a written request for such agreement) shall constitute a
breach of this Agreement and shall entitle the Executive to
24
<PAGE> 25
terminate his employment pursuant to Section 2(a)(ii) and to receive the
payments and benefits provided under Section 4. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
Agreement provided for in this Section 9 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be enforceable
by the Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If the Executive dies
while any amounts are payable to him hereunder, all such amounts, unless
otherwise provided herein, shall be paid in accordance with the terms of this
Agreement to his devisee, legatee or other designee or, if there is no such
designee, to his estate.
10. Notices
For all purposes of this Agreement, all communications, including without
limitation notices, consents, requests or approvals, required or permitted to be
given hereunder will be in writing and will be deemed to have been duly given
when hand delivered or dispatched by electronic facsimile transmission (with
receipt thereof orally confirmed), or five business days after having been
mailed by United States registered or certified mail, return receipt requested,
postage prepaid, or three business days after having been sent by a nationally
recognized overnight courier service such as FedEx, UPS, or Purolator, addressed
to the Company (to the attention of the Secretary of the Company, with a copy to
the General Counsel of the Company) at its principal executive office and to the
Executive at his principal residence, or to such other address as any party may
have furnished to the other in writing and in accordance herewith, except that
notices of changes of address shall be effective only upon receipt.
25
<PAGE> 26
11. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
12. Miscellaneous
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement (or in any
employment or other written agreement relating to the Executive).
Notwithstanding any provision of this Agreement to the contrary, the parties'
respective rights and obligations under Sections 4, 5 and 7 will survive any
termination or expiration of this Agreement or the termination of the
Executive's employment following a Change in Control for any reason whatsoever.
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any subsidiary prior to or following any Change in
Control. The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as the Company is required to withhold
pursuant to any law or government regulation or ruling. In the event that the
Company refuses or otherwise fails to make a payment when due and it is
ultimately decided that the Executive is entitled to such payment, such
26
<PAGE> 27
payment shall be increased to reflect an interest factor, compounded annually,
equal to the prime rate in effect as of the date the payment was first due plus
two points. For this purpose, the prime rate shall be based on the rate
identified by Chase Manhattan Bank as its prime rate.
13. Separability
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Non-assignability
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as provided in Section 9. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or by the laws
of descent or distribution, and in the event of any attempted assignment or
transfer by Executive contrary to this Section 14 the Company shall have no
liability to pay any amount so attempted to be assigned or transferred to any
person other than the Executive or, in the event of his death, his designated
beneficiary or, in the absence of an effective beneficiary designation, the
Executive's estate.
15. Effectiveness; Term
This Agreement will be effective and binding as of the date first above
written immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs. Upon the
27
<PAGE> 28
occurrence of a Change in Control at any time during the Term (as defined
below), without further action, this Agreement shall become immediately
operative. For purposes of this Agreement, "Term" means the period commencing as
of the date first above written and expiring as of the later of (i) the fifth
anniversary of the date first above written or (ii) the second anniversary of
the first occurrence of a Change in Control; provided, however, that (A)
commencing on the fifth anniversary of the date first above written and each
fifth anniversary date thereafter, the Term of this Agreement will automatically
be extended for an additional five years unless, not later than 180 days
preceding each such fifth anniversary date, the Company or the Executive shall
have given notice that it or the Executive, as the case may be, does not wish to
have the Term extended and (B) subject to Section 2(e), if, prior to a Change in
Control, the Executive ceases for any reason to be an employee of the Company
and any subsidiary, thereupon without further action the Term shall be deemed to
have expired and this Agreement will immediately terminate and be of no further
effect. For purposes of this Section 15, the Executive shall not be deemed to
have ceased to be an employee of the Company and any subsidiary by reason of the
transfer of Executive's employment between the Company and any subsidiary, or
among any subsidiaries.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
17. Prior Agreement. This Agreement supersedes and terminates any and all
prior Executive Termination Benefits Agreements by and among Company and the
Executive.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year first above set forth, thereby mutually and
voluntarily agreeing that this Agreement supersedes and replaces any prior
similar agreements for such termination benefits.
AMR CORPORATION
By: /s/ Donald J. Carty
--------------------------
AMERICAN AIRLINES, INC.
By: /s/ Thomas J. Kiernan
--------------------------
MICHAEL W. GUNN
/s/ Michael W. Gunn
----------------------------
29
<PAGE> 1
EXHIBIT 10.68
AMENDED AND RESTATED
EXECUTIVE TERMINATION BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE TERMINATION BENEFITS AGREEMENT
(this "Agreement"), dated as of the 21st day of May, 1998 is among AMR
CORPORATION, a Delaware corporation, AMERICAN AIRLINES, INC., a Delaware
corporation (collectively the "Company"), and THOMAS J. KIERNAN (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company considers it essential to the best interests of
the Company and its stockholders that its management be encouraged to remain
with the Company and to continue to devote full attention to the Company's
business in the event an effort is made to obtain control of the Company through
a tender offer or otherwise;
WHEREAS, the Company recognizes that the possibility of a change in
control and the uncertainty and questions which it may raise among management
may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company;
WHEREAS, the Executive is a key Executive of the Company;
<PAGE> 2
WHEREAS, the Company believes the Executive has made valuable
contributions to the productivity and profitability of the Company;
WHEREAS, should the Company receive any proposal from a third person
concerning a possible business combination with or acquisition of equity
securities of the Company, the Board believes it imperative that the Company and
the Board be able to rely upon the Executive to continue in his position, and
that the Company be able to receive and rely upon his advice as to the best
interests of the Company and its stockholders without concern that he might be
distracted by the personal uncertainties and risks created by such a proposal;
and
WHEREAS, should the Company receive any such proposals, in addition to
the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether such
proposals would be in the best interests of the Company and its stockholders,
and to take such other actions as the Board might determine to be appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
undivided attention and services of the Executive and the availability of his
advice and counsel notwithstanding the possibility, threat or occurrence of a
bid to take over control of the Company, and to induce the Executive to remain
in the employ of the Company, and for other good and valuable consideration, the
Company and the Executive agree as follows:
1. Change in Control
For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have taken place if:
(a) any person as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended from time to time (the "Exchange Act"), and as
used in Sections 13(d) and
2
<PAGE> 3
14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange
Act (a "Person"), but excluding the Company, any subsidiary of the Company and
any employee benefit plan sponsored or maintained by the Company or any
subsidiary of the Company (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13(d)-3 under the Exchange Act, as amended from time to time) of securities
of the Company representing 15% or more of the combined voting power of the
Company's then outstanding securities; or
(b) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of the assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the then outstanding shares of common stock of the
Company and the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors
immediately prior to such Business Combination
3
<PAGE> 4
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries), (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 15% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination, and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Incumbent Board, providing for
such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. Circumstances Triggering Receipt of Severance Benefits
(a) Subject to Section 2(c), the Company will provide the
Executive with the benefits set forth in Section 4 upon any termination of the
Executive's employment:
(i) by the Company at any time within the first 24
months after a Change in Control;
4
<PAGE> 5
(ii) by the Executive for "Good Reason" (as defined
in Section 2(b) below) at any time within the first 24 months
after a Change in Control;
(iii) by the Executive pursuant to Section 2(d); or
(iv) by the Company or the Executive pursuant to
Section 2(e).
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and/or any subsidiary for
"Good Reason" with the right to benefits set forth in Section 4 upon the
occurrence of one or more of the following events (regardless of whether any
other reason, other than Cause as provided below, for such termination exists or
has occurred, including without limitation other employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent office or position, of or with the
Company and/or a subsidiary, as the case may be, which the
Executive held immediately prior to a Change in Control, or
the removal of the Executive as a director of the Company
and/or a subsidiary (or any successor thereto) if the
Executive shall have been a director of the Company and/or a
subsidiary immediately prior to the Change in Control;
(ii) (A) A significant adverse change in the nature
or scope of the authorities, powers, functions,
responsibilities or duties attached to the position with the
Company and/or any subsidiary which the Executive held
immediately prior to the Change in Control, (B) a reduction in
the aggregate of the Executive's annual base salary rate and
annual incentive compensation target to be received from the
Company and/or any subsidiary, or (C) the termination or
denial of the Executive's rights to Employee Benefits (as
defined below) or a reduction in the
5
<PAGE> 6
scope or value thereof, any of which is not remedied by the
Company within 10 calendar days after receipt by the Company
of written notice from the Executive of such change, reduction
or termination, as the case may be;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the parties
hereto provided it has been made in good faith and in all
events will be presumed to have been made in good faith unless
otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation,
a change in the scope of the business or other activities for
which the Executive was responsible immediately prior to the
Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused the Executive to
suffer a substantial reduction in, any of the authorities,
powers, functions, responsibilities or duties attached to the
position held by the Executive immediately prior to the Change
in Control, which situation is not remedied within 10 calendar
days after written notice to the Company from the Executive of
such determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or transfer of
all or substantially all of its business and/or assets, unless
the successor or successors (by liquidation, merger,
consolidation, reorganization, transfer or otherwise) to which
all or substantially all of its business and/or assets have
been transferred (directly or by operation of
6
<PAGE> 7
law) assumed all duties and obligations of the Company under
this Agreement pursuant to Section 9(a);
(v) The Company relocates its principal executive
offices, or requires the Executive to have his principal
location of work changed, to any location that is in excess of
50 miles from the location thereof immediately prior to the
Change in Control, or requires the Executive to travel away
from his office in the course of discharging his
responsibilities or duties hereunder at least 20% more (in
terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to
any prior year) than was required of Executive in any of the
three full years immediately prior to the Change in Control
without, in either case, his prior written consent; or
(vi) Without limiting the generality or effect of
the foregoing, any material breach of this Agreement by the
Company or any successor thereto, which breach is not remedied
within 10 calendar days after written notice to the Company
from the Executive describing the nature of such breach.
(c) Notwithstanding Sections 2(a) and (b) above, no benefits
shall be payable by reason of this Agreement in the event of:
(i) Termination of the Executive's employment with
the Company and its subsidiaries by reason of the Executive's
death or Disability, provided that the Executive has not
previously given a valid "Notice of Termination" pursuant to
Section 3. For purposes hereof, "Disability" shall be defined
as the inability of Executive due to illness, accident or
other physical or mental disability to perform his duties for
any period of six consecutive months or for any period of
eight
7
<PAGE> 8
months out of any 12-month period, as determined by an
independent physician selected by the Company and reasonably
acceptable to the Executive (or his legal representative),
provided that the Executive does not return to work on
substantially a full-time basis within 30 days after written
notice from the Company, pursuant to Section 3, of an intent
to terminate the Executive's employment due to Disability;
(ii) Termination of the Executive's employment with
the Company and its subsidiaries on account of the Executive's
retirement at or after age 65, pursuant to the Company's
Retirement Benefit Plan; or
(iii) Termination of the Executive's employment with
the Company and its subsidiaries for Cause. For the purposes
hereof, "Cause" shall be defined as a felony conviction of the
Executive or the failure of the Executive to contest
prosecution for a felony, or the Executive's wilful misconduct
or dishonesty, any of which is directly and materially harmful
to the business or reputation of the Company or any subsidiary
or affiliate. Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for "Cause"
hereunder unless and until there shall have been delivered to
the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three quarters of the Board
then in office at a meeting of the Board called and held for
such purpose, after reasonable notice to the Executive and an
opportunity for the Executive, together with his counsel (if
the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the
good faith opinion of the Board, the Executive had committed
an act constituting
8
<PAGE> 9
"Cause" as herein defined and specifying the particulars
thereof in detail. Nothing herein will limit the right of the
Executive or his beneficiaries to contest the validity or
propriety of any such determination.
This Section 2(c) shall not preclude the payment of any amounts
otherwise payable to the Executive under any of the Company's employee benefit
plans, stock plans, programs and arrangements and/or under any Employment
Agreement.
(d) Notwithstanding anything contained in this Agreement to
the contrary, in the event of a Change in Control, the Executive may terminate
employment with the Company and any subsidiary for any reason, or without
reason, by providing Notice of Termination pursuant to Section 3 during the
30-day period immediately following the first anniversary of the first
occurrence of a Change in Control with the right to the benefits set forth in
Section 4.
(e) Any termination of employment of the Executive, including
a termination for "Good Reason," but excluding a termination for "Cause," or the
removal of the Executive from the office or position in the Company or any
subsidiary that occurs (i) not more than 180 days prior to the date on which a
Change in Control occurs and (ii) following the commencement of any discussion
with a third person that ultimately results in a Change in Control shall be
deemed to be a termination or removal of the Executive after a Change in Control
for purposes of this Agreement.
3. Notice of Termination
Any termination of the Executive's employment with the Company and its
subsidiaries as contemplated by Section 2 shall be communicated by written
"Notice of Termination" to the other party hereto. Any "Notice of Termination"
shall indicate the effective date of termination which shall not be less than 30
days or more than 60 days after the date the Notice of
9
<PAGE> 10
Termination is delivered (the "Termination Date"), the specific provision in
this Agreement relied upon, and, except for a termination pursuant to Section
2(d), will set forth in reasonable detail the facts and circumstances claimed to
provide a basis for such termination including, if applicable, the failure after
provision of written notice by the Executive to effect a remedy pursuant to the
final clause of Section 2(b)(ii), 2(b)(iii) or 2(b)(vi).
4. Termination Benefits
Subject to the conditions set forth in Section 2, the following
benefits shall be paid or provided to the Executive:
(a) Compensation
The Company shall pay to the Executive three times the sum of
(i) "Base Pay", which shall be an amount equal to the greater of (A) the
Executive's effective annual base salary at the Termination Date or (B) the
Executive's effective annual base salary immediately prior to the Change in
Control, plus (ii) "Incentive Pay" equal to the greater of (x) the target annual
bonus payable to the Executive under the Company's Incentive Compensation Plan
or any other annual bonus plan for the fiscal year of the Company in which the
Change in Control occurred or (y) the highest annual bonus earned by the
Executive under the Company's Incentive Compensation Plan or any other annual
bonus plan (whether paid currently or on a deferred basis) with respect to any
12 consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred, plus (iii) "Performance Returns" equal to the highest annual
payment of performance returns paid to the Executive with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred.
10
<PAGE> 11
(b) Welfare Benefits
For a period of 36 months following the Termination Date (the
"Continuation Period"), the Company shall arrange to provide the Executive with
benefits, including travel accident, major medical, dental, vision care and
other welfare benefit programs in effect immediately prior to the Change in
Control ("Employee Benefits") substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination, or denial
described in Section 2(b)(ii)(C)). If and to the extent that any benefit
described in this Section 4(b) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any subsidiary, as the
case may be, then the Company will itself pay or provide for the payment to the
Executive, his dependents and beneficiaries, of such Employee Benefits along
with, in the case of any benefit which is subject to tax because it is not or
cannot be paid or provided under any such policy, plan, program or arrangement
of the Company or any subsidiary, an additional amount such that after payment
by the Executive, or his dependents or beneficiaries, as the case may be, of all
taxes so imposed, the recipient retains an amount equal to such taxes. Employee
Benefits otherwise receivable by the Executive pursuant to this Section 4(b)
will be reduced to the extent comparable welfare benefits are actually received
by the Executive from another employer during the Continuation Period, and any
such benefits actually received by the Executive shall be reported by the
Executive to the Company.
(c) Retirement Benefits
The Executive shall be deemed to be completely vested in
Executive's currently accrued benefits under the Company's Retirement Benefit
Plan and Supplemental Executive Retirement Plan ("SERP") in effect as of the
date of Change in Control (collectively, the
11
<PAGE> 12
"Plans"), regardless of his actual vesting service credit thereunder. In
addition, the Executive shall be deemed to earn service credit for benefit
calculation purposes thereunder for the Continuation Period. Benefits under the
Plans will become payable at any time designated by the Executive following
termination of the Executive's employment with the Company and its subsidiaries
after the Executive reaches age 55, subject to the terms of the Plans regarding
the actuarial adjustment of benefit payments commencing prior to normal
retirement age. The benefits to be paid pursuant to the Plans shall be
calculated as though the Executive's compensation rate for each of the five
years immediately preceding his retirement equaled the sum of Base Pay plus
Incentive Pay plus Performance Returns. Any benefits payable pursuant to this
Section 4(c) that are not payable out of the Plans for any reason (including but
not limited to any applicable benefit limitations under the Employee Retirement
Income Security Act of 1974, as amended, or any restrictions relating to the
qualification of the Company's Retirement Benefit Plan under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code")) shall be paid
directly by the Company out of its general assets.
(d) Relocation Benefits
If the Executive moves his residence in order to pursue other
business or employment opportunities during the Continuation Period and requests
in writing that the Company provide relocation services, he will be reimbursed
for any expenses incurred in that initial relocation (including taxes payable on
the reimbursement) which are not reimbursed by another employer. Benefits under
this provision will include assistance in selling the Executive's home and all
other assistance and benefits which were customarily provided by the Company to
transferred executives prior to the Change in Control.
12
<PAGE> 13
(e) Executive Outplacement Counseling
At the request of the Executive made in writing during the
Continuation Period, the Company shall engage an outplacement counseling service
of national reputation to assist the Executive in obtaining employment.
(f) Stock Based Compensation Plans
(i) Any issued and outstanding Stock Options (to
the extent they have not already become exercisable) shall
become exercisable as of the date on which the Change in
Control occurs, unless otherwise specifically provided at the
time such options are granted.
(ii) The Company's right to rescind any award of
stock to the Executive under the Company's 1988 Long Term
Incentive Plan or the Company's 1998 Long Term Incentive Plan
(or any successor plan) shall terminate upon a Change in
Control, and all restrictions on the sale, pledge,
hypothecation or other disposition of shares of stock awarded
pursuant to such plan shall be removed at the Termination
Date, unless otherwise specifically provided at the time such
award(s) are made.
(iii) The Executive's rights under any other stock
based compensation plan shall vest (to the extent they have
not already vested) and any performance criteria shall be
deemed met at target as of the date on which a Change in
Control occurs, unless otherwise specifically provided at the
time such right(s) are granted.
(g) Split Dollar Life Insurance
The Company shall pay to the Executive a lump sum equal to the
cost on the Termination Date of purchasing, at standard independent insurance
premium rates, an individual
13
<PAGE> 14
paid up insurance policy providing benefits equal to the benefits provided by
the Company's Split Dollar Life Insurance coverage immediately prior to the date
of the Change in Control.
(h) Other Benefits
(i) The Executive shall have all flight privileges
provided by the Company to Directors as of the date of Change
in Control until the Executive reaches age 55, at which time
he shall have all flight privileges provided by the Company to
its retirees who held the same or similar position as the
Executive immediately prior to the Change in Control.
(ii) The Executive, at the Executive's option, shall
be entitled to continue the use of the Executive's
Company-provided automobile during the Continuation Period
under the same terms that applied to the automobile
immediately prior to the Change in Control, or to purchase the
automobile at its book value as of the Termination Date.
(iii) The Company shall pay to the Executive an
amount equal to the cost to the Company of providing any other
perquisites and benefits of the Company in effect immediately
prior to the Change in Control, calculated as if such benefits
were continued during the Continuation Period.
(i) Accrued Amounts
The Company shall pay to the Executive all other amounts
accrued or earned by the Executive through the Termination Date and amounts
otherwise owing under the then existing plans and policies of the Company,
including but not limited to all amounts of compensation previously deferred by
the Executive (together with any accrued interest thereon) and not yet paid by
the Company, and any accrued vacation pay not yet paid by the Company.
14
<PAGE> 15
(j) The Company shall pay to the Executive the amounts due
pursuant to Sections 4(a), 4(g) and 4(h)(iii) in a lump sum on the first
business day of the month following the Termination Date. The Company shall pay
to the Executive the amounts due pursuant to Section 4(i) in accordance with the
terms and conditions of the existing plans and policies of the Company.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, but subject to Section 5(h), in the event that this Agreement
shall become operative and it shall be determined (as hereafter provided) that
any payment (other than the Gross-Up payments provided for in this Section 5) or
distribution by the Company or any of its subsidiaries to or for the benefit of
the Executive, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right,
restricted stock, deferred stock or the lapse or termination of any restriction
on, deferral period or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties with
respect to such tax (such tax or taxes, together with any such interest and
penalties, being hereafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in an amount
such that, after payment by the Executive of all taxes (including any interest
or
15
<PAGE> 16
penalties imposed with respect to such taxes), including any Excise Tax and
any income tax imposed upon the Gross-Up Payment, the Executive retains an
amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive in his sole discretion. The Executive shall direct the Accounting Firm
to submit its determination and detailed supporting calculations to both the
Company and the Executive within 30 calendar days after the Change in Control
Date, the Termination Date, if applicable, and any such other time or times as
may be requested by the Company or the Executive. If the Accounting Firm
determines that any Excise Tax is payable by the Executive, the Company shall
pay the required Gross-Up Payment to the Executive within five business days
after receipt of such determination and calculations with respect to any Payment
to the Executive. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall, at the same time as it makes such
determination, furnish the Company and the Executive an opinion that the
Executive has substantial authority not to report any Excise Tax on his federal,
state or local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto) and
the possibility of similar uncertainty regarding applicable state or local tax
law at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the
16
<PAGE> 17
event that the Company exhausts or fails to pursue its remedies pursuant to
Section 5(f) and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting
17
<PAGE> 18
Firm determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 5(b) shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within five business days after receipt
from the Executive of a statement therefor and reasonable evidence of his
payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment or
any additional Gross-Up Payment. Such notification shall be given as promptly as
practicable but no later than 10 business days after the Executive actually
receives notice of such claim and the Executive shall further apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid (in each case, to the extent known by the Executive). The
Executive shall not pay such claim prior to the earlier of (x) the expiration of
the 30-calendar-day period following the date on which he gives such notice to
the Company and (y) the date that any payment of amount with respect to such
claim is due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including without
18
<PAGE> 19
limitation accepting legal representation with respect to such
claim by an attorney competent in respect of the subject
matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such contest and payment
of costs and expenses. Without limiting the foregoing provisions of this Section
5(f), the Company shall control all proceedings taken in connection with the
contest of any claim contemplated by this Section 5(f) and, at its sole option,
may pursue or forego any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim (provided,
however, that the Executive may participate therein at his own cost and expense)
and may, at its option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any
19
<PAGE> 20
Excise Tax or income or other tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, however,
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the contested amount
is claimed to be due is limited solely to such contested amount. Furthermore,
the Company's control of any such contested claim shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), the Executive receives any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(f)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
any taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5(f), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial or refund prior to the expiration of 30 calendar days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of any such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid by the
Company to the Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to the
contrary, if (i) but for this sentence, the Company would be obligated to make a
Gross-Up Payment to the Executive, (ii) the aggregate "present value" of the
"parachute payments" to be paid or provided
20
<PAGE> 21
to the Executive under this Agreement or otherwise does not exceed 1.15
multiplied by three times the Executive's "base amount," and (iii) but for this
sentence, the net after-tax benefit to the Executive of the Gross-Up Payment
would not exceed $50,000 (taking into account both income taxes and any Excise
Tax), then the payments and benefits to be paid or provided under this Agreement
(including any stock based compensation pursuant to Section 4(f)) will be
reduced to the minimum extent necessary (but in no event to less than zero) so
that no portion of any payment or benefit to the Executive, as so reduced,
constitutes an "excess parachute payment." For purposes of this Section 5(h),
the terms "excess parachute payment," "present value," "parachute payment," and
"base amount" will have the meanings assigned to them by Section 280G of the
Code. The determination of whether any reduction in such payments or benefits to
be provided under this Agreement is required pursuant to the preceding sentence
will be made at the expense of the Company, if requested by the Executive or the
Company, by the Accounting Firm. The fact that the Executive's right to payments
or benefits may be reduced by reason of the limitations contained in this
Section 5(h) will not of itself limit or otherwise affect any other rights of
the Executive other than pursuant to this Agreement. In the event that any
payment or benefit intended to be provided under this Agreement or otherwise is
required to be reduced pursuant to this Section 5(h), the Executive will be
entitled to designate the payments and/or benefits to be so reduced in order to
give effect to this Section 5(h). The Company will provide the Executive with
all information reasonably requested by the Executive to permit the Executive to
make such designation. In the event that the Executive fails to make such
designation within 10 business days of the Termination Date, the Company may
effect such reduction in any manner it deems appropriate.
21
<PAGE> 22
6. No Mitigation Obligation. The Company hereby acknowledges that
it will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any source
whatsoever create any mitigation, offset, reduction or any other obligation on
the part of the Executive hereunder or otherwise, except as expressly provided
in the last sentence of Section 4(b).
7. Legal Fees and Expenses.
(a) It is the intent of the Company that the Executive not be
required to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Executive's rights under this
Agreement by litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the Executive
hereunder. Accordingly, if it should appear to the Executive that the Company
has failed to comply with any of its obligations under this Agreement or in the
event that the Company or any other person takes or threatens to take any action
to declare this Agreement void or unenforceable, or institutes any litigation or
other action or proceeding designed to deny, or to recover from, the Executive
any or all of the benefits provided or intended to be provided to the Executive
hereunder, the Company irrevocably authorizes the Executive from time to time to
retain counsel of Executive's choice, at the expense of the Company as hereafter
provided, to advise and represent the Executive in connection with any such
interpretation, enforcement or
22
<PAGE> 23
defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and expenses
incurred by the Executive in connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant
to Section 7(a) hereof, in the event a Change in Control occurs, the performance
of the Company's obligations under this Section 7 shall be secured by amounts
deposited or to be deposited in trust pursuant to certain trust agreements to
which the Company shall be a party, which amounts deposited shall in the
aggregate be not less than $2,000,000, providing that the fees and expenses of
counsel selected from time to time by the Executive pursuant to Section 7(a)
shall be paid, or reimbursed to the Executive if paid by the Executive, either
in accordance with the terms of such trust agreements, or, if not so provided,
on a regular, periodic basis upon presentation by the Executive to the trustee
of a statement or statements prepared by such counsel in accordance with its
customary practices. Any failure by the Company to satisfy any of its
obligations under this Section 7(b) shall not limit the rights of the Executive
hereunder. Subject to the foregoing, the Executive shall have the status of a
general unsecured creditor of the Company and shall have no right to, or
security interest in, any assets of the Company or any subsidiary.
23
<PAGE> 24
8. Continuing Obligations
(a) The Executive hereby agrees that all documents, records,
techniques, business secrets and other information which have come into his
possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company and, except for
personal documents and records of the Executive, shall be returned to the
Company. The Executive further agrees to retain in confidence any confidential
information known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly disclosed,
except that Executive may disclose any such information required to be disclosed
in the normal course of his employment with the Company or pursuant to any court
order or other legal process.
(b) The Executive hereby agrees that during the Continuation
Period, he will not directly or indirectly solicit any employee of the Company
or any of its subsidiaries or affiliated companies to join the employ of any
entity that competes with the Company or any of its subsidiaries or affiliated
companies.
9. Successors
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive to expressly assume and agree
to perform 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.
Failure of such successor entity to enter into such agreement prior to the
effective date of any such succession (or, if later, within three business days
after first receiving a written request for such agreement) shall constitute a
breach of this Agreement and shall entitle the Executive to
24
<PAGE> 25
terminate his employment pursuant to Section 2(a)(ii) and to receive the
payments and benefits provided under Section 4. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
Agreement provided for in this Section 9 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive dies while any amounts are payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to his devisee, legatee or other designee or, if there is no such
designee, to his estate.
10. Notices
For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or
permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company, with a copy to the General Counsel of the Company) at its principal
executive office and to the Executive at his principal residence, or to such
other address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
25
<PAGE> 26
11. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
12. Miscellaneous
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement (or in any
employment or other written agreement relating to the Executive).
Notwithstanding any provision of this Agreement to the contrary, the parties'
respective rights and obligations under Sections 4, 5 and 7 will survive any
termination or expiration of this Agreement or the termination of the
Executive's employment following a Change in Control for any reason whatsoever.
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any subsidiary prior to or following any Change in
Control. The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as the Company is required to withhold
pursuant to any law or government regulation or ruling. In the event that the
Company refuses or otherwise fails to make a payment when due and it is
ultimately decided that the Executive is entitled to such
26
<PAGE> 27
payment, such payment shall be increased to reflect an interest factor,
compounded annually, equal to the prime rate in effect as of the date the
payment was first due plus two points. For this purpose, the prime rate shall be
based on the rate identified by Chase Manhattan Bank as its prime rate.
13. Separability
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Non-assignability
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as provided in Section 9. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or by the laws
of descent or distribution, and in the event of any attempted assignment or
transfer by Executive contrary to this Section 14 the Company shall have no
liability to pay any amount so attempted to be assigned or transferred to any
person other than the Executive or, in the event of his death, his designated
beneficiary or, in the absence of an effective beneficiary designation, the
Executive's estate.
15. Effectiveness; Term
This Agreement will be effective and binding as of the date first above
written immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs. Upon the
27
<PAGE> 28
occurrence of a Change in Control at any time during the Term (as defined
below), without further action, this Agreement shall become immediately
operative. For purposes of this Agreement, "Term" means the period commencing as
of the date first above written and expiring as of the later of (i) the fifth
anniversary of the date first above written or (ii) the second anniversary of
the first occurrence of a Change in Control; provided, however, that (A)
commencing on the fifth anniversary of the date first above written and each
fifth anniversary date thereafter, the Term of this Agreement will automatically
be extended for an additional five years unless, not later than 180 days
preceding each such fifth anniversary date, the Company or the Executive shall
have given notice that it or the Executive, as the case may be, does not wish to
have the Term extended and (B) subject to Section 2(e), if, prior to a Change in
Control, the Executive ceases for any reason to be an employee of the Company
and any subsidiary, thereupon without further action the Term shall be deemed to
have expired and this Agreement will immediately terminate and be of no further
effect. For purposes of this Section 15, the Executive shall not be deemed to
have ceased to be an employee of the Company and any subsidiary by reason of the
transfer of Executive's employment between the Company and any subsidiary, or
among any subsidiaries.
16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
17 Prior Agreement. This Agreement supersedes and terminates any
and all prior Executive Termination Benefits Agreements by and among Company and
the Executive.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth, thereby
mutually and voluntarily agreeing that this Agreement supersedes and replaces
any prior similar agreements for such termination benefits.
AMR CORPORATION
By: /s/ Donald J. Carty
--------------------------------------
AMERICAN AIRLINES, INC.
By: /s/ Anne H. McNamara
--------------------------------------
THOMAS J. KIERNAN
/s/ Thomas J. Kiernan
-----------------------------------------
29
<PAGE> 1
EXHIBIT 10.69
AMENDED AND RESTATED
EXECUTIVE TERMINATION BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE TERMINATION BENEFITS AGREEMENT
(this "Agreement"), dated as of the 21st day of May, 1998 is among AMR
CORPORATION, a Delaware corporation, AMERICAN AIRLINES, INC., a Delaware
corporation (collectively the "Company"), and DAVID L. KRUSE (the "Executive").
W I T N E S S E T H:
WHEREAS, the Company considers it essential to the best interests of
the Company and its stockholders that its management be encouraged to remain
with the Company and to continue to devote full attention to the Company's
business in the event an effort is made to obtain control of the Company through
a tender offer or otherwise;
WHEREAS, the Company recognizes that the possibility of a change in
control and the uncertainty and questions which it may raise among management
may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company;
WHEREAS, the Executive is a key Executive of the Company;
<PAGE> 2
WHEREAS, the Company believes the Executive has made valuable
contributions to the productivity and profitability of the Company;
WHEREAS, should the Company receive any proposal from a third person
concerning a possible business combination with or acquisition of equity
securities of the Company, the Board believes it imperative that the Company and
the Board be able to rely upon the Executive to continue in his position, and
that the Company be able to receive and rely upon his advice as to the best
interests of the Company and its stockholders without concern that he might be
distracted by the personal uncertainties and risks created by such a proposal;
and
WHEREAS, should the Company receive any such proposals, in addition to
the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether such
proposals would be in the best interests of the Company and its stockholders,
and to take such other actions as the Board might determine to be appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
undivided attention and services of the Executive and the availability of his
advice and counsel notwithstanding the possibility, threat or occurrence of a
bid to take over control of the Company, and to induce the Executive to remain
in the employ of the Company, and for other good and valuable consideration, the
Company and the Executive agree as follows:
1. Change in Control
For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have taken place if:
(a) any person as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended from time to time (the "Exchange Act"), and as
used in Sections 13(d) and
2
<PAGE> 3
14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange
Act (a "Person"), but excluding the Company, any subsidiary of the Company and
any employee benefit plan sponsored or maintained by the Company or any
subsidiary of the Company (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13(d)-3 under the Exchange Act, as amended from time to time) of securities
of the Company representing 15% or more of the combined voting power of the
Company's then outstanding securities; or
(b) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of the assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the then outstanding shares of common stock of the
Company and the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors
immediately prior to such Business Combination
3
<PAGE> 4
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries), (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 15% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination, and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Incumbent Board, providing for
such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. Circumstances Triggering Receipt of Severance Benefits
(a) Subject to Section 2(c), the Company will provide the
Executive with the benefits set forth in Section 4 upon any termination of the
Executive's employment:
(i) by the Company at any time within the first 24
months after a Change in Control;
4
<PAGE> 5
(ii) by the Executive for "Good Reason" (as defined
in Section 2(b) below) at any time within the first 24 months
after a Change in Control;
(iii) by the Executive pursuant to Section 2(d); or
(iv) by the Company or the Executive pursuant to
Section 2(e).
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and/or any subsidiary for
"Good Reason" with the right to benefits set forth in Section 4 upon the
occurrence of one or more of the following events (regardless of whether any
other reason, other than Cause as provided below, for such termination exists or
has occurred, including without limitation other employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent office or position, of or with the
Company and/or a subsidiary, as the case may be, which the
Executive held immediately prior to a Change in Control, or
the removal of the Executive as a director of the Company
and/or a subsidiary (or any successor thereto) if the
Executive shall have been a director of the Company and/or a
subsidiary immediately prior to the Change in Control;
(ii) (A) A significant adverse change in the nature
or scope of the authorities, powers, functions,
responsibilities or duties attached to the position with the
Company and/or any subsidiary which the Executive held
immediately prior to the Change in Control, (B) a reduction in
the aggregate of the Executive's annual base salary rate and
annual incentive compensation target to be received from the
Company and/or any subsidiary, or (C) the termination or
denial of the Executive's rights to Employee Benefits (as
defined below) or a reduction in the
5
<PAGE> 6
scope or value thereof, any of which is not remedied by the
Company within 10 calendar days after receipt by the Company
of written notice from the Executive of such change, reduction
or termination, as the case may be;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the parties
hereto provided it has been made in good faith and in all
events will be presumed to have been made in good faith unless
otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation,
a change in the scope of the business or other activities for
which the Executive was responsible immediately prior to the
Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused the Executive to
suffer a substantial reduction in, any of the authorities,
powers, functions, responsibilities or duties attached to the
position held by the Executive immediately prior to the Change
in Control, which situation is not remedied within 10 calendar
days after written notice to the Company from the Executive of
such determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or transfer of
all or substantially all of its business and/or assets, unless
the successor or successors (by liquidation, merger,
consolidation, reorganization, transfer or otherwise) to which
all or substantially all of its business and/or assets have
been transferred (directly or by operation of
6
<PAGE> 7
law) assumed all duties and obligations of the Company under
this Agreement pursuant to Section 9(a);
(v) The Company relocates its principal executive
offices, or requires the Executive to have his principal
location of work changed, to any location that is in excess of
50 miles from the location thereof immediately prior to the
Change in Control, or requires the Executive to travel away
from his office in the course of discharging his
responsibilities or duties hereunder at least 20% more (in
terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to
any prior year) than was required of Executive in any of the
three full years immediately prior to the Change in Control
without, in either case, his prior written consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the
Company or any successor thereto, which breach is not remedied
within 10 calendar days after written notice to the Company
from the Executive describing the nature of such breach.
(c) Notwithstanding Sections 2(a) and (b) above, no benefits
shall be payable by reason of this Agreement in the event of:
(i) Termination of the Executive's employment with
the Company and its subsidiaries by reason of the Executive's
death or Disability, provided that the Executive has not
previously given a valid "Notice of Termination" pursuant to
Section 3. For purposes hereof, "Disability" shall be defined
as the inability of Executive due to illness, accident or
other physical or mental disability to perform his duties for
any period of six consecutive months or for any period of
eight
7
<PAGE> 8
months out of any 12-month period, as determined by an
independent physician selected by the Company and reasonably
acceptable to the Executive (or his legal representative),
provided that the Executive does not return to work on
substantially a full-time basis within 30 days after written
notice from the Company, pursuant to Section 3, of an intent
to terminate the Executive's employment due to Disability;
(ii) Termination of the Executive's employment with
the Company and its subsidiaries on account of the Executive's
retirement at or after age 65, pursuant to the Company's
Retirement Benefit Plan; or
(iii) Termination of the Executive's employment with
the Company and its subsidiaries for Cause. For the purposes
hereof, "Cause" shall be defined as a felony conviction of the
Executive or the failure of the Executive to contest
prosecution for a felony, or the Executive's wilful misconduct
or dishonesty, any of which is directly and materially harmful
to the business or reputation of the Company or any subsidiary
or affiliate. Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for "Cause"
hereunder unless and until there shall have been delivered to
the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three quarters of the Board
then in office at a meeting of the Board called and held for
such purpose, after reasonable notice to the Executive and an
opportunity for the Executive, together with his counsel (if
the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the
good faith opinion of the Board, the Executive had committed
an act constituting
8
<PAGE> 9
"Cause" as herein defined and specifying the particulars
thereof in detail. Nothing herein will limit the right of the
Executive or his beneficiaries to contest the validity or
propriety of any such determination.
This Section 2(c) shall not preclude the payment of any amounts
otherwise payable to the Executive under any of the Company's employee benefit
plans, stock plans, programs and arrangements and/or under any Employment
Agreement.
(d) Notwithstanding anything contained in this Agreement to
the contrary, in the event of a Change in Control, the Executive may terminate
employment with the Company and any subsidiary for any reason, or without
reason, by providing Notice of Termination pursuant to Section 3 during the
30-day period immediately following the first anniversary of the first
occurrence of a Change in Control with the right to the benefits set forth in
Section 4.
(e) Any termination of employment of the Executive, including
a termination for "Good Reason," but excluding a termination for "Cause," or the
removal of the Executive from the office or position in the Company or any
subsidiary that occurs (i) not more than 180 days prior to the date on which a
Change in Control occurs and (ii) following the commencement of any discussion
with a third person that ultimately results in a Change in Control shall be
deemed to be a termination or removal of the Executive after a Change in Control
for purposes of this Agreement.
3. Notice of Termination
Any termination of the Executive's employment with the Company and its
subsidiaries as contemplated by Section 2 shall be communicated by written
"Notice of Termination" to the other party hereto. Any "Notice of Termination"
shall indicate the effective date of termination which shall not be less than 30
days or more than 60 days after the date the Notice of
9
<PAGE> 10
Termination is delivered (the "Termination Date"), the specific provision in
this Agreement relied upon, and, except for a termination pursuant to Section
2(d), will set forth in reasonable detail the facts and circumstances claimed to
provide a basis for such termination including, if applicable, the failure after
provision of written notice by the Executive to effect a remedy pursuant to the
final clause of Section 2(b)(ii), 2(b)(iii) or 2(b)(vi).
4. Termination Benefits
Subject to the conditions set forth in Section 2, the following
benefits shall be paid or provided to the Executive:
(a) Compensation
The Company shall pay to the Executive three times the sum of
(i) "Base Pay", which shall be an amount equal to the greater of (A) the
Executive's effective annual base salary at the Termination Date or (B) the
Executive's effective annual base salary immediately prior to the Change in
Control, plus (ii) "Incentive Pay" equal to the greater of (x) the target annual
bonus payable to the Executive under the Company's Incentive Compensation Plan
or any other annual bonus plan for the fiscal year of the Company in which the
Change in Control occurred or (y) the highest annual bonus earned by the
Executive under the Company's Incentive Compensation Plan or any other annual
bonus plan (whether paid currently or on a deferred basis) with respect to any
12 consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred, plus (iii) "Performance Returns" equal to the highest annual
payment of performance returns paid to the Executive with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred.
10
<PAGE> 11
(b) Welfare Benefits
For a period of 36 months following the Termination Date (the
"Continuation Period"), the Company shall arrange to provide the Executive with
benefits, including travel accident, major medical, dental, vision care and
other welfare benefit programs in effect immediately prior to the Change in
Control ("Employee Benefits") substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination, or denial
described in Section 2(b)(ii)(C)). If and to the extent that any benefit
described in this Section 4(b) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any subsidiary, as the
case may be, then the Company will itself pay or provide for the payment to the
Executive, his dependents and beneficiaries, of such Employee Benefits along
with, in the case of any benefit which is subject to tax because it is not or
cannot be paid or provided under any such policy, plan, program or arrangement
of the Company or any subsidiary, an additional amount such that after payment
by the Executive, or his dependents or beneficiaries, as the case may be, of all
taxes so imposed, the recipient retains an amount equal to such taxes. Employee
Benefits otherwise receivable by the Executive pursuant to this Section 4(b)
will be reduced to the extent comparable welfare benefits are actually received
by the Executive from another employer during the Continuation Period, and any
such benefits actually received by the Executive shall be reported by the
Executive to the Company.
(c) Retirement Benefits
The Executive shall be deemed to be completely vested in
Executive's currently accrued benefits under the Company's Retirement Benefit
Plan and Supplemental Executive Retirement Plan ("SERP") in effect as of the
date of Change in Control (collectively, the
11
<PAGE> 12
"Plans"), regardless of his actual vesting service credit thereunder. In
addition, the Executive shall be deemed to earn service credit for benefit
calculation purposes thereunder for the Continuation Period. Benefits under the
Plans will become payable at any time designated by the Executive following
termination of the Executive's employment with the Company and its subsidiaries
after the Executive reaches age 55, subject to the terms of the Plans regarding
the actuarial adjustment of benefit payments commencing prior to normal
retirement age. The benefits to be paid pursuant to the Plans shall be
calculated as though the Executive's compensation rate for each of the five
years immediately preceding his retirement equaled the sum of Base Pay plus
Incentive Pay plus Performance Returns. Any benefits payable pursuant to this
Section 4(c) that are not payable out of the Plans for any reason (including but
not limited to any applicable benefit limitations under the Employee Retirement
Income Security Act of 1974, as amended, or any restrictions relating to the
qualification of the Company's Retirement Benefit Plan under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code")) shall be paid
directly by the Company out of its general assets.
(d) Relocation Benefits
If the Executive moves his residence in order to pursue other
business or employment opportunities during the Continuation Period and requests
in writing that the Company provide relocation services, he will be reimbursed
for any expenses incurred in that initial relocation (including taxes payable on
the reimbursement) which are not reimbursed by another employer. Benefits under
this provision will include assistance in selling the Executive's home and all
other assistance and benefits which were customarily provided by the Company to
transferred executives prior to the Change in Control.
12
<PAGE> 13
(e) Executive Outplacement Counseling
At the request of the Executive made in writing during the
Continuation Period, the Company shall engage an outplacement counseling service
of national reputation to assist the Executive in obtaining employment.
(f) Stock Based Compensation Plans
(i) Any issued and outstanding Stock Options (to the
extent they have not already become exercisable) shall become
exercisable as of the date on which the Change in Control
occurs, unless otherwise specifically provided at the time
such options are granted.
(ii) The Company's right to rescind any award of
stock to the Executive under the Company's 1988 Long Term
Incentive Plan or the Company?s 1998 Long Term Incentive Plan
(or any successor plan) shall terminate upon a Change in
Control, and all restrictions on the sale, pledge,
hypothecation or other disposition of shares of stock awarded
pursuant to such plan shall be removed at the Termination
Date, unless otherwise specifically provided at the time such
award(s) are made.
(iii) The Executive's rights under any other stock
based compensation plan shall vest (to the extent they have
not already vested) and any performance criteria shall be
deemed met at target as of the date on which a Change in
Control occurs, unless otherwise specifically provided at the
time such right(s) are granted.
(g) Split Dollar Life Insurance
The Company shall pay to the Executive a lump sum equal to the
cost on the Termination Date of purchasing, at standard independent insurance
premium rates, an individual
13
<PAGE> 14
paid up insurance policy providing benefits equal to the benefits provided by
the Company's Split Dollar Life Insurance coverage immediately prior to the date
of the Change in Control.
(h) Other Benefits
(i) The Executive shall have all flight privileges
provided by the Company to Directors as of the date of Change
in Control until the Executive reaches age 55, at which time
he shall have all flight privileges provided by the Company to
its retirees who held the same or similar position as the
Executive immediately prior to the Change in Control.
(ii) The Executive, at the Executive's option, shall
be entitled to continue the use of the Executive's
Company-provided automobile during the Continuation Period
under the same terms that applied to the automobile
immediately prior to the Change in Control, or to purchase the
automobile at its book value as of the Termination Date.
(iii) The Company shall pay to the Executive an
amount equal to the cost to the Company of providing any other
perquisites and benefits of the Company in effect immediately
prior to the Change in Control, calculated as if such benefits
were continued during the Continuation Period.
(i) Accrued Amounts The Company shall pay to the
Executive all other amounts accrued or earned by the Executive
through the Termination Date and amounts otherwise owing under the then existing
plans and policies of the Company, including but not limited to all amounts of
compensation previously deferred by the Executive (together with any accrued
interest thereon) and not yet paid by the Company, and any accrued vacation pay
not yet paid by the Company.
14
<PAGE> 15
(j) The Company shall pay to the Executive the amounts due
pursuant to Sections 4(a), 4(g) and 4(h)(iii) in a lump sum on the first
business day of the month following the Termination Date. The Company shall pay
to the Executive the amounts due pursuant to Section 4(i) in accordance with the
terms and conditions of the existing plans and policies of the Company.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, but subject to Section 5(h), in the event that this Agreement
shall become operative and it shall be determined (as hereafter provided) that
any payment (other than the Gross-Up payments provided for in this Section 5) or
distribution by the Company or any of its subsidiaries to or for the benefit of
the Executive, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right,
restricted stock, deferred stock or the lapse or termination of any restriction
on, deferral period or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties with
respect to such tax (such tax or taxes, together with any such interest and
penalties, being hereafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in an amount
such that, after payment by the Executive of all taxes (including any interest
or
15
<PAGE> 16
penalties imposed with respect to such taxes), including any Excise Tax and any
income tax imposed upon the Gross-Up Payment, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive in his sole discretion. The Executive shall direct the Accounting Firm
to submit its determination and detailed supporting calculations to both the
Company and the Executive within 30 calendar days after the Change in Control
Date, the Termination Date, if applicable, and any such other time or times as
may be requested by the Company or the Executive. If the Accounting Firm
determines that any Excise Tax is payable by the Executive, the Company shall
pay the required Gross-Up Payment to the Executive within five business days
after receipt of such determination and calculations with respect to any Payment
to the Executive. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall, at the same time as it makes such
determination, furnish the Company and the Executive an opinion that the
Executive has substantial authority not to report any Excise Tax on his federal,
state or local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto) and
the possibility of similar uncertainty regarding applicable state or local tax
law at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the
16
<PAGE> 17
event that the Company exhausts or fails to pursue its remedies pursuant to
Section 5(f) and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting
17
<PAGE> 18
Firm determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 5(b) shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within five business days after receipt
from the Executive of a statement therefor and reasonable evidence of his
payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment or
any additional Gross-Up Payment. Such notification shall be given as promptly as
practicable but no later than 10 business days after the Executive actually
receives notice of such claim and the Executive shall further apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid (in each case, to the extent known by the Executive). The
Executive shall not pay such claim prior to the earlier of (x) the expiration of
the 30-calendar-day period following the date on which he gives such notice to
the Company and (y) the date that any payment of amount with respect to such
claim is due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including without
18
<PAGE> 19
limitation accepting legal representation with respect to such
claim by an attorney competent in respect of the subject
matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such contest and payment
of costs and expenses. Without limiting the foregoing provisions of this Section
5(f), the Company shall control all proceedings taken in connection with the
contest of any claim contemplated by this Section 5(f) and, at its sole option,
may pursue or forego any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim (provided,
however, that the Executive may participate therein at his own cost and expense)
and may, at its option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any
19
<PAGE> 20
Excise Tax or income or other tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, however,
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the contested amount
is claimed to be due is limited solely to such contested amount. Furthermore,
the Company's control of any such contested claim shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), the Executive receives any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(f)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
any taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5(f), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial or refund prior to the expiration of 30 calendar days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of any such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid by the
Company to the Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to the
contrary, if (i) but for this sentence, the Company would be obligated to make a
Gross-Up Payment to the Executive, (ii) the aggregate "present value" of the
"parachute payments" to be paid or provided
20
<PAGE> 21
to the Executive under this Agreement or otherwise does not exceed 1.15
multiplied by three times the Executive's "base amount," and (iii) but for this
sentence, the net after-tax benefit to the Executive of the Gross-Up Payment
would not exceed $50,000 (taking into account both income taxes and any Excise
Tax), then the payments and benefits to be paid or provided under this Agreement
(including any stock based compensation pursuant to Section 4(f)) will be
reduced to the minimum extent necessary (but in no event to less than zero) so
that no portion of any payment or benefit to the Executive, as so reduced,
constitutes an "excess parachute payment." For purposes of this Section 5(h),
the terms "excess parachute payment," "present value," "parachute payment," and
"base amount" will have the meanings assigned to them by Section 280G of the
Code. The determination of whether any reduction in such payments or benefits to
be provided under this Agreement is required pursuant to the preceding sentence
will be made at the expense of the Company, if requested by the Executive or the
Company, by the Accounting Firm. The fact that the Executive's right to payments
or benefits may be reduced by reason of the limitations contained in this
Section 5(h) will not of itself limit or otherwise affect any other rights of
the Executive other than pursuant to this Agreement. In the event that any
payment or benefit intended to be provided under this Agreement or otherwise is
required to be reduced pursuant to this Section 5(h), the Executive will be
entitled to designate the payments and/or benefits to be so reduced in order to
give effect to this Section 5(h). The Company will provide the Executive with
all information reasonably requested by the Executive to permit the Executive to
make such designation. In the event that the Executive fails to make such
designation within 10 business days of the Termination Date, the Company may
effect such reduction in any manner it deems appropriate.
21
<PAGE> 22
6. No Mitigation Obligation. The Company hereby acknowledges that it
will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any source
whatsoever create any mitigation, offset, reduction or any other obligation on
the part of the Executive hereunder or otherwise, except as expressly provided
in the last sentence of Section 4(b).
7. Legal Fees and Expenses.
(a) It is the intent of the Company that the Executive not be
required to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Executive's rights under this
Agreement by litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the Executive
hereunder. Accordingly, if it should appear to the Executive that the Company
has failed to comply with any of its obligations under this Agreement or in the
event that the Company or any other person takes or threatens to take any action
to declare this Agreement void or unenforceable, or institutes any litigation or
other action or proceeding designed to deny, or to recover from, the Executive
any or all of the benefits provided or intended to be provided to the Executive
hereunder, the Company irrevocably authorizes the Executive from time to time to
retain counsel of Executive's choice, at the expense of the Company as hereafter
provided, to advise and represent the Executive in connection with any such
interpretation, enforcement or
22
<PAGE> 23
defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and expenses
incurred by the Executive in connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant
to Section 7(a) hereof, in the event a Change in Control occurs, the performance
of the Company's obligations under this Section 7 shall be secured by amounts
deposited or to be deposited in trust pursuant to certain trust agreements to
which the Company shall be a party, which amounts deposited shall in the
aggregate be not less than $2,000,000, providing that the fees and expenses of
counsel selected from time to time by the Executive pursuant to Section 7(a)
shall be paid, or reimbursed to the Executive if paid by the Executive, either
in accordance with the terms of such trust agreements, or, if not so provided,
on a regular, periodic basis upon presentation by the Executive to the trustee
of a statement or statements prepared by such counsel in accordance with its
customary practices. Any failure by the Company to satisfy any of its
obligations under this Section 7(b) shall not limit the rights of the Executive
hereunder. Subject to the foregoing, the Executive shall have the status of a
general unsecured creditor of the Company and shall have no right to, or
security interest in, any assets of the Company or any subsidiary.
23
<PAGE> 24
8. Continuing Obligations
(a) The Executive hereby agrees that all documents, records,
techniques, business secrets and other information which have come into his
possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company and, except for
personal documents and records of the Executive, shall be returned to the
Company. The Executive further agrees to retain in confidence any confidential
information known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly disclosed,
except that Executive may disclose any such information required to be disclosed
in the normal course of his employment with the Company or pursuant to any court
order or other legal process.
(b) The Executive hereby agrees that during the Continuation
Period, he will not directly or indirectly solicit any employee of the Company
or any of its subsidiaries or affiliated companies to join the employ of any
entity that competes with the Company or any of its subsidiaries or affiliated
companies.
9. Successors
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive to expressly assume and agree
to perform 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.
Failure of such successor entity to enter into such agreement prior to the
effective date of any such succession (or, if later, within three business days
after first receiving a written request for such agreement) shall constitute a
breach of this Agreement and shall entitle the Executive to
24
<PAGE> 25
terminate his employment pursuant to Section 2(a)(ii) and to receive the
payments and benefits provided under Section 4. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
Agreement provided for in this Section 9 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive dies while any amounts are payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to his devisee, legatee or other designee or, if there is no such
designee, to his estate.
10. Notices
For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or
permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company, with a copy to the General Counsel of the Company) at its principal
executive office and to the Executive at his principal residence, or to such
other address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
25
<PAGE> 26
11. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
12. Miscellaneous
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement (or in any
employment or other written agreement relating to the Executive).
Notwithstanding any provision of this Agreement to the contrary, the parties'
respective rights and obligations under Sections 4, 5 and 7 will survive any
termination or expiration of this Agreement or the termination of the
Executive's employment following a Change in Control for any reason whatsoever.
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any subsidiary prior to or following any Change in
Control. The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as the Company is required to withhold
pursuant to any law or government regulation or ruling. In the event that the
Company refuses or otherwise fails to make a payment when due and it is
ultimately decided that the Executive is entitled to such
26
<PAGE> 27
payment, such payment shall be increased to reflect an interest factor,
compounded annually, equal to the prime rate in effect as of the date the
payment was first due plus two points. For this purpose, the prime rate shall be
based on the rate identified by Chase Manhattan Bank as its prime rate.
13. Separability
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Non-assignability
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as provided in Section 9. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or by the laws
of descent or distribution, and in the event of any attempted assignment or
transfer by Executive contrary to this Section 14 the Company shall have no
liability to pay any amount so attempted to be assigned or transferred to any
person other than the Executive or, in the event of his death, his designated
beneficiary or, in the absence of an effective beneficiary designation, the
Executive's estate.
15. Effectiveness; Term
This Agreement will be effective and binding as of the date first above
written immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs. Upon the
27
<PAGE> 28
occurrence of a Change in Control at any time during the Term (as defined
below), without further action, this Agreement shall become immediately
operative. For purposes of this Agreement, "Term" means the period commencing as
of the date first above written and expiring as of the later of (i) the fifth
anniversary of the date first above written or (ii) the second anniversary of
the first occurrence of a Change in Control; provided, however, that (A)
commencing on the fifth anniversary of the date first above written and each
fifth anniversary date thereafter, the Term of this Agreement will automatically
be extended for an additional five years unless, not later than 180 days
preceding each such fifth anniversary date, the Company or the Executive shall
have given notice that it or the Executive, as the case may be, does not wish to
have the Term extended and (B) subject to Section 2(e), if, prior to a Change in
Control, the Executive ceases for any reason to be an employee of the Company
and any subsidiary, thereupon without further action the Term shall be deemed to
have expired and this Agreement will immediately terminate and be of no further
effect. For purposes of this Section 15, the Executive shall not be deemed to
have ceased to be an employee of the Company and any subsidiary by reason of the
transfer of Executive's employment between the Company and any subsidiary, or
among any subsidiaries.
16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
17 Prior Agreement. This Agreement supersedes and terminates any and
all prior Executive Termination Benefits Agreements by and among Company and the
Executive.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth, thereby
mutually and voluntarily agreeing that this Agreement supersedes and replaces
any prior similar agreements for such termination benefits.
AMR CORPORATION
By: /s/ Donald J. Carty
--------------------------
AMERICAN AIRLINES, INC.
By: /s/ Thomas J. Kiernan
--------------------------
DAVID L. KRUSE
/s/ David L. Kruse
-----------------------------
29
<PAGE> 1
EXHIBIT 10.70
AMENDED AND RESTATED
EXECUTIVE TERMINATION BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE TERMINATION BENEFITS AGREEMENT
(this "Agreement"), dated as of the 21st day of May, 1998 is among AMR
CORPORATION, a Delaware corporation, AMERICAN AIRLINES, INC., a Delaware
corporation (collectively the "Company"), and CHARLES D. MARLETT (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company considers it essential to the best interests of
the Company and its stockholders that its management be encouraged to remain
with the Company and to continue to devote full attention to the Company's
business in the event an effort is made to obtain control of the Company through
a tender offer or otherwise;
WHEREAS, the Company recognizes that the possibility of a change in
control and the uncertainty and questions which it may raise among management
may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company;
WHEREAS, the Executive is a key Executive of the Company;
<PAGE> 2
WHEREAS, the Company believes the Executive has made valuable
contributions to the productivity and profitability of the Company;
WHEREAS, should the Company receive any proposal from a third person
concerning a possible business combination with or acquisition of equity
securities of the Company, the Board believes it imperative that the Company and
the Board be able to rely upon the Executive to continue in his position, and
that the Company be able to receive and rely upon his advice as to the best
interests of the Company and its stockholders without concern that he might be
distracted by the personal uncertainties and risks created by such a proposal;
and
WHEREAS, should the Company receive any such proposals, in addition to
the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether such
proposals would be in the best interests of the Company and its stockholders,
and to take such other actions as the Board might determine to be appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
undivided attention and services of the Executive and the availability of his
advice and counsel notwithstanding the possibility, threat or occurrence of a
bid to take over control of the Company, and to induce the Executive to remain
in the employ of the Company, and for other good and valuable consideration, the
Company and the Executive agree as follows:
1. Change in Control
For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have taken place if:
(a) any person as defined in Section 3(a)(9) of the Securities
Exchange Act of 1934, as amended from time to time (the "Exchange Act"), and as
used in Sections 13(d) and
<PAGE> 3
14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange
Act (a "Person"), but excluding the Company, any subsidiary of the Company and
any employee benefit plan sponsored or maintained by the Company or any
subsidiary of the Company (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13(d)-3 under the Exchange Act, as amended from time to time) of securities
of the Company representing 15% or more of the combined voting power of the
Company's then outstanding securities; or
(b) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of the assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the then outstanding shares of common stock of the
Company and the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors
immediately prior to such Business Combination
3
<PAGE> 4
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries), (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 15% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination, and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Incumbent Board, providing for
such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. Circumstances Triggering Receipt of Severance Benefits
(a) Subject to Section 2(c), the Company will provide the
Executive with the benefits set forth in Section 4 upon any termination of the
Executive's employment:
(i) by the Company at any time within the first 24
months after a Change in Control;
4
<PAGE> 5
(ii) by the Executive for "Good Reason" (as defined
in Section 2(b) below) at any time within the first 24 months
after a Change in Control;
(iii) by the Executive pursuant to Section 2(d); or
(iv) by the Company or the Executive pursuant to
Section 2(e).
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and/or any subsidiary for
"Good Reason" with the right to benefits set forth in Section 4 upon the
occurrence of one or more of the following events (regardless of whether any
other reason, other than Cause as provided below, for such termination exists or
has occurred, including without limitation other employment):
(i) Failure to elect or reelect or otherwise to
maintain the Executive in the office or the position, or a
substantially equivalent office or position, of or with the
Company and/or a subsidiary, as the case may be, which the
Executive held immediately prior to a Change in Control, or
the removal of the Executive as a director of the Company
and/or a subsidiary (or any successor thereto) if the
Executive shall have been a director of the Company and/or a
subsidiary immediately prior to the Change in Control;
(ii) (A) A significant adverse change in the nature
or scope of the authorities, powers, functions,
responsibilities or duties attached to the position with the
Company and/or any subsidiary which the Executive held
immediately prior to the Change in Control, (B) a reduction in
the aggregate of the Executive's annual base salary rate and
annual incentive compensation target to be received from the
Company and/or any subsidiary, or (C) the termination or
denial of the Executive's rights to Employee Benefits (as
defined below) or a reduction in the
5
<PAGE> 6
scope or value thereof, any of which is not remedied by the
Company within 10 calendar days after receipt by the Company
of written notice from the Executive of such change, reduction
or termination, as the case may be;
(iii) A determination by the Executive (which
determination will be conclusive and binding upon the parties
hereto provided it has been made in good faith and in all
events will be presumed to have been made in good faith unless
otherwise shown by the Company by clear and convincing
evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation,
a change in the scope of the business or other activities for
which the Executive was responsible immediately prior to the
Change in Control, which has rendered the Executive
substantially unable to carry out, has substantially hindered
Executive's performance of, or has caused the Executive to
suffer a substantial reduction in, any of the authorities,
powers, functions, responsibilities or duties attached to the
position held by the Executive immediately prior to the Change
in Control, which situation is not remedied within 10 calendar
days after written notice to the Company from the Executive of
such determination;
(iv) The liquidation, dissolution, merger,
consolidation or reorganization of the Company or transfer of
all or substantially all of its business and/or assets, unless
the successor or successors (by liquidation, merger,
consolidation, reorganization, transfer or otherwise) to which
all or substantially all of its business and/or assets have
been transferred (directly or by operation of
6
<PAGE> 7
law) assumed all duties and obligations of the Company under
this Agreement pursuant to Section 9(a);
(v) The Company relocates its principal executive
offices, or requires the Executive to have his principal
location of work changed, to any location that is in excess of
50 miles from the location thereof immediately prior to the
Change in Control, or requires the Executive to travel away
from his office in the course of discharging his
responsibilities or duties hereunder at least 20% more (in
terms of aggregate days in any calendar year or in any
calendar quarter when annualized for purposes of comparison to
any prior year) than was required of Executive in any of the
three full years immediately prior to the Change in Control
without, in either case, his prior written consent; or
(vi) Without limiting the generality or effect of the
foregoing, any material breach of this Agreement by the
Company or any successor thereto, which breach is not remedied
within 10 calendar days after written notice to the Company
from the Executive describing the nature of such breach.
(c) Notwithstanding Sections 2(a) and (b) above, no benefits
shall be payable by reason of this Agreement in the event of:
(i) Termination of the Executive's employment with
the Company and its subsidiaries by reason of the Executive's
death or Disability, provided that the Executive has not
previously given a valid "Notice of Termination" pursuant to
Section 3. For purposes hereof, "Disability" shall be defined
as the inability of Executive due to illness, accident or
other physical or mental disability to perform his duties for
any period of six consecutive months or for any period of
eight
7
<PAGE> 8
months out of any 12-month period, as determined by an
independent physician selected by the Company and reasonably
acceptable to the Executive (or his legal representative),
provided that the Executive does not return to work on
substantially a full-time basis within 30 days after written
notice from the Company, pursuant to Section 3, of an intent
to terminate the Executive's employment due to Disability;
(ii) Termination of the Executive's employment with
the Company and its subsidiaries on account of the Executive's
retirement at or after age 65, pursuant to the Company's
Retirement Benefit Plan; or
(iii) Termination of the Executive's employment with
the Company and its subsidiaries for Cause. For the purposes
hereof, "Cause" shall be defined as a felony conviction of the
Executive or the failure of the Executive to contest
prosecution for a felony, or the Executive's wilful misconduct
or dishonesty, any of which is directly and materially harmful
to the business or reputation of the Company or any subsidiary
or affiliate. Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for "Cause"
hereunder unless and until there shall have been delivered to
the Executive a copy of a resolution duly adopted by the
affirmative vote of not less than three quarters of the Board
then in office at a meeting of the Board called and held for
such purpose, after reasonable notice to the Executive and an
opportunity for the Executive, together with his counsel (if
the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the
good faith opinion of the Board, the Executive had committed
an act constituting
8
<PAGE> 9
"Cause" as herein defined and specifying the particulars
thereof in detail. Nothing herein will limit the right of the
Executive or his beneficiaries to contest the validity or
propriety of any such determination.
This Section 2(c) shall not preclude the payment of any amounts
otherwise payable to the Executive under any of the Company's employee benefit
plans, stock plans, programs and arrangements and/or under any Employment
Agreement.
(d) Notwithstanding anything contained in this Agreement to
the contrary, in the event of a Change in Control, the Executive may terminate
employment with the Company and any subsidiary for any reason, or without
reason, by providing Notice of Termination pursuant to Section 3 during the
30-day period immediately following the first anniversary of the first
occurrence of a Change in Control with the right to the benefits set forth in
Section 4.
(e) Any termination of employment of the Executive, including
a termination for ?Good Reason,? but excluding a termination for ?Cause,? or the
removal of the Executive from the office or position in the Company or any
subsidiary that occurs (i) not more than 180 days prior to the date on which a
Change in Control occurs and (ii) following the commencement of any discussion
with a third person that ultimately results in a Change in Control shall be
deemed to be a termination or removal of the Executive after a Change in Control
for purposes of this Agreement.
3. Notice of Termination
Any termination of the Executive's employment with the Company and its
subsidiaries as contemplated by Section 2 shall be communicated by written
"Notice of Termination" to the other party hereto. Any "Notice of Termination"
shall indicate the effective date of termination which shall not be less than 30
days or more than 60 days after the date the Notice of
9
<PAGE> 10
Termination is delivered (the "Termination Date"), the specific provision in
this Agreement relied upon, and, except for a termination pursuant to Section
2(d), will set forth in reasonable detail the facts and circumstances claimed to
provide a basis for such termination including, if applicable, the failure after
provision of written notice by the Executive to effect a remedy pursuant to the
final clause of Section 2(b)(ii), 2(b)(iii) or 2(b)(vi).
4. Termination Benefits
Subject to the conditions set forth in Section 2, the following
benefits shall be paid or provided to the Executive:
(a) Compensation
The Company shall pay to the Executive three times the sum of
(i) "Base Pay", which shall be an amount equal to the greater of (A) the
Executive's effective annual base salary at the Termination Date or (B) the
Executive's effective annual base salary immediately prior to the Change in
Control, plus (ii) "Incentive Pay" equal to the greater of (x) the target annual
bonus payable to the Executive under the Company's Incentive Compensation Plan
or any other annual bonus plan for the fiscal year of the Company in which the
Change in Control occurred or (y) the highest annual bonus earned by the
Executive under the Company's Incentive Compensation Plan or any other annual
bonus plan (whether paid currently or on a deferred basis) with respect to any
12 consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred, plus (iii) "Performance Returns" equal to the highest annual
payment of performance returns paid to the Executive with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred.
10
<PAGE> 11
(b) Welfare Benefits
For a period of 36 months following the Termination Date (the
"Continuation Period"), the Company shall arrange to provide the Executive with
benefits, including travel accident, major medical, dental, vision care and
other welfare benefit programs in effect immediately prior to the Change in
Control ("Employee Benefits") substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination, or denial
described in Section 2(b)(ii)(C)). If and to the extent that any benefit
described in this Section 4(b) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any subsidiary, as the
case may be, then the Company will itself pay or provide for the payment to the
Executive, his dependents and beneficiaries, of such Employee Benefits along
with, in the case of any benefit which is subject to tax because it is not or
cannot be paid or provided under any such policy, plan, program or arrangement
of the Company or any subsidiary, an additional amount such that after payment
by the Executive, or his dependents or beneficiaries, as the case may be, of all
taxes so imposed, the recipient retains an amount equal to such taxes. Employee
Benefits otherwise receivable by the Executive pursuant to this Section 4(b)
will be reduced to the extent comparable welfare benefits are actually received
by the Executive from another employer during the Continuation Period, and any
such benefits actually received by the Executive shall be reported by the
Executive to the Company.
(c) Retirement Benefits
The Executive shall be deemed to be completely vested in
Executive's currently accrued benefits under the Company's Retirement Benefit
Plan and Supplemental Executive Retirement Plan ("SERP") in effect as of the
date of Change in Control (collectively, the
11
<PAGE> 12
"Plans"), regardless of his actual vesting service credit thereunder. In
addition, the Executive shall be deemed to earn service credit for benefit
calculation purposes thereunder for the Continuation Period. Benefits under the
Plans will become payable at any time designated by the Executive following
termination of the Executive's employment with the Company and its subsidiaries
after the Executive reaches age 55, subject to the terms of the Plans regarding
the actuarial adjustment of benefit payments commencing prior to normal
retirement age. The benefits to be paid pursuant to the Plans shall be
calculated as though the Executive's compensation rate for each of the five
years immediately preceding his retirement equaled the sum of Base Pay plus
Incentive Pay plus Performance Returns. Any benefits payable pursuant to this
Section 4(c) that are not payable out of the Plans for any reason (including but
not limited to any applicable benefit limitations under the Employee Retirement
Income Security Act of 1974, as amended, or any restrictions relating to the
qualification of the Company's Retirement Benefit Plan under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code")) shall be paid
directly by the Company out of its general assets.
(d) Relocation Benefits
If the Executive moves his residence in order to pursue other
business or employment opportunities during the Continuation Period and requests
in writing that the Company provide relocation services, he will be reimbursed
for any expenses incurred in that initial relocation (including taxes payable on
the reimbursement) which are not reimbursed by another employer. Benefits under
this provision will include assistance in selling the Executive's home and all
other assistance and benefits which were customarily provided by the Company to
transferred executives prior to the Change in Control.
12
<PAGE> 13
(e) Executive Outplacement Counseling
At the request of the Executive made in writing during the
Continuation Period, the Company shall engage an outplacement counseling service
of national reputation to assist the Executive in obtaining employment.
(f) Stock Based Compensation Plans
(i) Any issued and outstanding Stock Options (to the
extent they have not already become exercisable) shall become
exercisable as of the date on which the Change in Control
occurs, unless otherwise specifically provided at the time
such options are granted.
(ii) The Company's right to rescind any award of
stock to the Executive under the Company's 1988 Long Term
Incentive Plan or the Company?s 1998 Long Term Incentive Plan
(or any successor plan) shall terminate upon a Change in
Control, and all restrictions on the sale, pledge,
hypothecation or other disposition of shares of stock awarded
pursuant to such plan shall be removed at the Termination
Date, unless otherwise specifically provided at the time such
award(s) are made.
(iii) The Executive's rights under any other stock
based compensation plan shall vest (to the extent they have
not already vested) and any performance criteria shall be
deemed met at target as of the date on which a Change in
Control occurs, unless otherwise specifically provided at the
time such right(s) are granted.
(g) Split Dollar Life Insurance
The Company shall pay to the Executive a lump sum equal to the
cost on the Termination Date of purchasing, at standard independent insurance
premium rates, an individual
13
<PAGE> 14
paid up insurance policy providing benefits equal to the benefits provided by
the Company's Split Dollar Life Insurance coverage immediately prior to the date
of the Change in Control.
(h) Other Benefits
(i) The Executive shall have all flight privileges
provided by the Company to Directors as of the date of Change
in Control until the Executive reaches age 55, at which time
he shall have all flight privileges provided by the Company to
its retirees who held the same or similar position as the
Executive immediately prior to the Change in Control.
(ii) The Executive, at the Executive's option, shall
be entitled to continue the use of the Executive's
Company-provided automobile during the Continuation Period
under the same terms that applied to the automobile
immediately prior to the Change in Control, or to purchase the
automobile at its book value as of the Termination Date.
(iii) The Company shall pay to the Executive an
amount equal to the cost to the Company of providing any other
perquisites and benefits of the Company in effect immediately
prior to the Change in Control, calculated as if such benefits
were continued during the Continuation Period.
(i) Accrued Amounts
The Company shall pay to the Executive all other amounts
accrued or earned by the Executive through the Termination Date and amounts
otherwise owing under the then existing plans and policies of the Company,
including but not limited to all amounts of compensation previously deferred by
the Executive (together with any accrued interest thereon) and not yet paid by
the Company, and any accrued vacation pay not yet paid by the Company.
14
<PAGE> 15
(j) The Company shall pay to the Executive the amounts due
pursuant to Sections 4(a), 4(g) and 4(h)(iii) in a lump sum on the first
business day of the month following the Termination Date. The Company shall pay
to the Executive the amounts due pursuant to Section 4(i) in accordance with the
terms and conditions of the existing plans and policies of the Company.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, but subject to Section 5(h), in the event that this Agreement
shall become operative and it shall be determined (as hereafter provided) that
any payment (other than the Gross-Up payments provided for in this Section 5) or
distribution by the Company or any of its subsidiaries to or for the benefit of
the Executive, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right,
restricted stock, deferred stock or the lapse or termination of any restriction
on, deferral period or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties with
respect to such tax (such tax or taxes, together with any such interest and
penalties, being hereafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in an amount
such that, after payment by the Executive of all taxes (including any interest
or
15
<PAGE> 16
penalties imposed with respect to such taxes), including any Excise Tax and any
income tax imposed upon the Gross-Up Payment, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive in his sole discretion. The Executive shall direct the Accounting Firm
to submit its determination and detailed supporting calculations to both the
Company and the Executive within 30 calendar days after the Change in Control
Date, the Termination Date, if applicable, and any such other time or times as
may be requested by the Company or the Executive. If the Accounting Firm
determines that any Excise Tax is payable by the Executive, the Company shall
pay the required Gross-Up Payment to the Executive within five business days
after receipt of such determination and calculations with respect to any Payment
to the Executive. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall, at the same time as it makes such
determination, furnish the Company and the Executive an opinion that the
Executive has substantial authority not to report any Excise Tax on his federal,
state or local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto) and
the possibility of similar uncertainty regarding applicable state or local tax
law at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the
16
<PAGE> 17
event that the Company exhausts or fails to pursue its remedies pursuant to
Section 5(f) and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting
17
<PAGE> 18
Firm determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 5(b) shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within five business days after receipt
from the Executive of a statement therefor and reasonable evidence of his
payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment or
any additional Gross-Up Payment. Such notification shall be given as promptly as
practicable but no later than 10 business days after the Executive actually
receives notice of such claim and the Executive shall further apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid (in each case, to the extent known by the Executive). The
Executive shall not pay such claim prior to the earlier of (x) the expiration of
the 30-calendar-day period following the date on which he gives such notice to
the Company and (y) the date that any payment of amount with respect to such
claim is due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(ii) take such action in connection with contesting
such claim as the Company shall reasonably request in writing
from time to time, including without
18
<PAGE> 19
limitation accepting legal representation with respect to such
claim by an attorney competent in respect of the subject
matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in
order effectively to contest such claim; and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such contest and payment
of costs and expenses. Without limiting the foregoing provisions of this Section
5(f), the Company shall control all proceedings taken in connection with the
contest of any claim contemplated by this Section 5(f) and, at its sole option,
may pursue or forego any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim (provided,
however, that the Executive may participate therein at his own cost and expense)
and may, at its option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any
19
<PAGE> 20
Excise Tax or income or other tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, however,
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the contested amount
is claimed to be due is limited solely to such contested amount. Furthermore,
the Company's control of any such contested claim shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), the Executive receives any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(f)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
any taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5(f), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial or refund prior to the expiration of 30 calendar days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of any such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid by the
Company to the Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to the
contrary, if (i) but for this sentence, the Company would be obligated to make a
Gross-Up Payment to the Executive, (ii) the aggregate "present value" of the
"parachute payments" to be paid or provided
20
<PAGE> 21
to the Executive under this Agreement or otherwise does not exceed 1.15
multiplied by three times the Executive's "base amount," and (iii) but for this
sentence, the net after-tax benefit to the Executive of the Gross-Up Payment
would not exceed $50,000 (taking into account both income taxes and any Excise
Tax), then the payments and benefits to be paid or provided under this Agreement
(including any stock based compensation pursuant to Section 4(f)) will be
reduced to the minimum extent necessary (but in no event to less than zero) so
that no portion of any payment or benefit to the Executive, as so reduced,
constitutes an "excess parachute payment." For purposes of this Section 5(h),
the terms "excess parachute payment," "present value," "parachute payment," and
"base amount" will have the meanings assigned to them by Section 280G of the
Code. The determination of whether any reduction in such payments or benefits to
be provided under this Agreement is required pursuant to the preceding sentence
will be made at the expense of the Company, if requested by the Executive or the
Company, by the Accounting Firm. The fact that the Executive's right to payments
or benefits may be reduced by reason of the limitations contained in this
Section 5(h) will not of itself limit or otherwise affect any other rights of
the Executive other than pursuant to this Agreement. In the event that any
payment or benefit intended to be provided under this Agreement or otherwise is
required to be reduced pursuant to this Section 5(h), the Executive will be
entitled to designate the payments and/or benefits to be so reduced in order to
give effect to this Section 5(h). The Company will provide the Executive with
all information reasonably requested by the Executive to permit the Executive to
make such designation. In the event that the Executive fails to make such
designation within 10 business days of the Termination Date, the Company may
effect such reduction in any manner it deems appropriate.
21
<PAGE> 22
6. No Mitigation Obligation. The Company hereby acknowledges that it
will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any source
whatsoever create any mitigation, offset, reduction or any other obligation on
the part of the Executive hereunder or otherwise, except as expressly provided
in the last sentence of Section 4(b).
7. Legal Fees and Expenses.
(a) It is the intent of the Company that the Executive not be
required to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Executive's rights under this
Agreement by litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the Executive
hereunder. Accordingly, if it should appear to the Executive that the Company
has failed to comply with any of its obligations under this Agreement or in the
event that the Company or any other person takes or threatens to take any action
to declare this Agreement void or unenforceable, or institutes any litigation or
other action or proceeding designed to deny, or to recover from, the Executive
any or all of the benefits provided or intended to be provided to the Executive
hereunder, the Company irrevocably authorizes the Executive from time to time to
retain counsel of Executive's choice, at the expense of the Company as hereafter
provided, to advise and represent the Executive in connection with any such
interpretation, enforcement or
22
<PAGE> 23
defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and expenses
incurred by the Executive in connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant
to Section 7(a) hereof, in the event a Change in Control occurs, the performance
of the Company's obligations under this Section 7 shall be secured by amounts
deposited or to be deposited in trust pursuant to certain trust agreements to
which the Company shall be a party, which amounts deposited shall in the
aggregate be not less than $2,000,000, providing that the fees and expenses of
counsel selected from time to time by the Executive pursuant to Section 7(a)
shall be paid, or reimbursed to the Executive if paid by the Executive, either
in accordance with the terms of such trust agreements, or, if not so provided,
on a regular, periodic basis upon presentation by the Executive to the trustee
of a statement or statements prepared by such counsel in accordance with its
customary practices. Any failure by the Company to satisfy any of its
obligations under this Section 7(b) shall not limit the rights of the Executive
hereunder. Subject to the foregoing, the Executive shall have the status of a
general unsecured creditor of the Company and shall have no right to, or
security interest in, any assets of the Company or any subsidiary.
23
<PAGE> 24
8. Continuing Obligations
(a) The Executive hereby agrees that all documents, records,
techniques, business secrets and other information which have come into his
possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company and, except for
personal documents and records of the Executive, shall be returned to the
Company. The Executive further agrees to retain in confidence any confidential
information known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly disclosed,
except that Executive may disclose any such information required to be disclosed
in the normal course of his employment with the Company or pursuant to any court
order or other legal process.
(b) The Executive hereby agrees that during the Continuation
Period, he will not directly or indirectly solicit any employee of the Company
or any of its subsidiaries or affiliated companies to join the employ of any
entity that competes with the Company or any of its subsidiaries or affiliated
companies.
9. Successors
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive to expressly assume and agree
to perform 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.
Failure of such successor entity to enter into such agreement prior to the
effective date of any such succession (or, if later, within three business days
after first receiving a written request for such agreement) shall constitute a
breach of this Agreement and shall entitle the Executive to
24
<PAGE> 25
terminate his employment pursuant to Section 2(a)(ii) and to receive the
payments and benefits provided under Section 4. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
Agreement provided for in this Section 9 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive dies while any amounts are payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to his devisee, legatee or other designee or, if there is no such
designee, to his estate.
10. Notices
For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or
permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company, with a copy to the General Counsel of the Company) at its principal
executive office and to the Executive at his principal residence, or to such
other address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
25
<PAGE> 26
11. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
12. Miscellaneous
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement (or in any
employment or other written agreement relating to the Executive).
Notwithstanding any provision of this Agreement to the contrary, the parties'
respective rights and obligations under Sections 4, 5 and 7 will survive any
termination or expiration of this Agreement or the termination of the
Executive's employment following a Change in Control for any reason whatsoever.
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any subsidiary prior to or following any Change in
Control. The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as the Company is required to withhold
pursuant to any law or government regulation or ruling. In the event that the
Company refuses or otherwise fails to make a payment when due and it is
ultimately decided that the Executive is entitled to such
26
<PAGE> 27
payment, such payment shall be increased to reflect an interest factor,
compounded annually, equal to the prime rate in effect as of the date the
payment was first due plus two points. For this purpose, the prime rate shall be
based on the rate identified by Chase Manhattan Bank as its prime rate.
13. Separability
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Non-assignability
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as provided in Section 9. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or by the laws
of descent or distribution, and in the event of any attempted assignment or
transfer by Executive contrary to this Section 14 the Company shall have no
liability to pay any amount so attempted to be assigned or transferred to any
person other than the Executive or, in the event of his death, his designated
beneficiary or, in the absence of an effective beneficiary designation, the
Executive's estate.
15. Effectiveness; Term
This Agreement will be effective and binding as of the date first above
written immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs. Upon the
27
<PAGE> 28
occurrence of a Change in Control at any time during the Term (as defined
below), without further action, this Agreement shall become immediately
operative. For purposes of this Agreement, "Term" means the period commencing as
of the date first above written and expiring as of the later of (i) the fifth
anniversary of the date first above written or (ii) the second anniversary of
the first occurrence of a Change in Control; provided, however, that (A)
commencing on the fifth anniversary of the date first above written and each
fifth anniversary date thereafter, the Term of this Agreement will automatically
be extended for an additional five years unless, not later than 180 days
preceding each such fifth anniversary date, the Company or the Executive shall
have given notice that it or the Executive, as the case may be, does not wish to
have the Term extended and (B) subject to Section 2(e), if, prior to a Change in
Control, the Executive ceases for any reason to be an employee of the Company
and any subsidiary, thereupon without further action the Term shall be deemed to
have expired and this Agreement will immediately terminate and be of no further
effect. For purposes of this Section 15, the Executive shall not be deemed to
have ceased to be an employee of the Company and any subsidiary by reason of the
transfer of Executive's employment between the Company and any subsidiary, or
among any subsidiaries.
16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
17 Prior Agreement. This Agreement supersedes and terminates any and
all prior Executive Termination Benefits Agreements by and among Company and the
Executive.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth, thereby
mutually and voluntarily agreeing that this Agreement supersedes and replaces
any prior similar agreements for such termination benefits.
AMR CORPORATION
By: /s/ Donald J. Carty
------------------------------------
AMERICAN AIRLINES, INC.
By: /s/ Thomas J. Kiernan
------------------------------------
CHARLES D. MARLETT
/s/ Charles D. MarLett
---------------------------------------
<PAGE> 1
EXHIBIT 10.71
AMENDED AND RESTATED
EXECUTIVE TERMINATION BENEFITS AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE TERMINATION BENEFITS AGREEMENT
(this "Agreement"), dated as of the 21st day of May, 1998 is among AMR
CORPORATION, a Delaware corporation, AMERICAN AIRLINES, INC., a Delaware
corporation (collectively the "Company"), and ANNE H. MCNAMARA (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company considers it essential to the best interests of
the Company and its stockholders that its management be encouraged to remain
with the Company and to continue to devote full attention to the Company's
business in the event an effort is made to obtain control of the Company through
a tender offer or otherwise;
WHEREAS, the Company recognizes that the possibility of a change in
control and the uncertainty and questions which it may raise among management
may result in the departure or distraction of management personnel to the
detriment of the Company and its stockholders;
WHEREAS, the Company's Board of Directors (the "Board") has determined
that appropriate steps should be taken to reinforce and encourage the continued
attention and dedication of members of the Company's management to their
assigned duties without distraction in the face of the potentially disturbing
circumstances arising from the possibility of a change in control of the
Company;
WHEREAS, the Executive is a key Executive of the Company;
<PAGE> 2
WHEREAS, the Company believes the Executive has made valuable
contributions to the productivity and profitability of the Company;
WHEREAS, should the Company receive any proposal from a third person
concerning a possible business combination with or acquisition of equity
securities of the Company, the Board believes it imperative that the Company and
the Board be able to rely upon the Executive to continue in his position, and
that the Company be able to receive and rely upon his advice as to the best
interests of the Company and its stockholders without concern that he might be
distracted by the personal uncertainties and risks created by such a proposal;
and
WHEREAS, should the Company receive any such proposals, in addition to
the Executive's regular duties, he may be called upon to assist in the
assessment of such proposals, advise management and the Board as to whether such
proposals would be in the best interests of the Company and its stockholders,
and to take such other actions as the Board might determine to be appropriate.
NOW, THEREFORE, to assure the Company that it will have the continued
undivided attention and services of the Executive and the availability of his
advice and counsel notwithstanding the possibility, threat or occurrence of a
bid to take over control of the Company, and to induce the Executive to remain
in the employ of the Company, and for other good and valuable consideration, the
Company and the Executive agree as follows:
1. Change in Control
For purposes of this Agreement, a Change in Control of the Company
shall be deemed to have taken place if:
(a) any person as defined in Section 3(a)(9) of the Securities Exchange
Act of 1934, as amended from time to time (the "Exchange Act"), and as used in
Sections 13(d) and
2
<PAGE> 3
14(d) thereof, including a "group" as defined in Section 13(d) of the Exchange
Act (a "Person"), but excluding the Company, any subsidiary of the Company and
any employee benefit plan sponsored or maintained by the Company or any
subsidiary of the Company (including any trustee of such plan acting as
trustee), directly or indirectly, becomes the "beneficial owner" (as defined in
Rule 13(d)-3 under the Exchange Act, as amended from time to time) of securities
of the Company representing 15% or more of the combined voting power of the
Company's then outstanding securities; or
(b) individuals who, as of the date hereof, constitute the
Board (the "Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board shall be
considered as though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial assumption of
office occurs as a result of an actual or threatened election contest with
respect to the election or removal of directors or other actual or threatened
solicitation of proxies or consents by or on behalf of a Person other than the
Board; or
(c) consummation of a reorganization, merger or consolidation
or sale or other disposition of all or substantially all of the assets of the
Company or the acquisition of the assets of another corporation (a "Business
Combination"), in each case, unless, following such Business Combination, (i)
all or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the then outstanding shares of common stock of the
Company and the combined voting power of the then outstanding voting securities
of the Company entitled to vote generally in the election of directors
immediately prior to such Business Combination
3
<PAGE> 4
beneficially own, directly or indirectly, more than 60% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such Business
Combination (including, without limitation, a corporation which as a result of
such transaction owns the Company or all or substantially all of the Company's
assets either directly or through one or more subsidiaries), (ii) no Person
(excluding any employee benefit plan (or related trust) of the Company or such
corporation resulting from such Business Combination) beneficially owns,
directly or indirectly, 15% or more of, respectively, the then outstanding
shares of common stock of the corporation resulting from such Business
Combination or the combined voting power of the then outstanding voting
securities of such corporation except to the extent that such ownership existed
prior to the Business Combination, and (iii) at least a majority of the members
of the board of directors of the corporation resulting from such Business
Combination were members of the Incumbent Board at the time of the execution of
the initial agreement, or of the action of the Incumbent Board, providing for
such Business Combination; or
(d) approval by the stockholders of the Company of a complete
liquidation or dissolution of the Company.
2. Circumstances Triggering Receipt of Severance Benefits
(a) Subject to Section 2(c), the Company will provide the Executive
with the benefits set forth in Section 4 upon any termination of the Executive's
employment:
(i) by the Company at any time within the first 24 months after a
Change in Control;
4
<PAGE> 5
(ii) by the Executive for "Good Reason" (as defined in Section 2(b)
below) at any time within the first 24 months after a Change in
Control;
(iii) by the Executive pursuant to Section 2(d); or
(iv) by the Company or the Executive pursuant to Section 2(e).
(b) In the event of the occurrence of a Change in Control, the
Executive may terminate employment with the Company and/or any subsidiary for
"Good Reason" with the right to benefits set forth in Section 4 upon the
occurrence of one or more of the following events (regardless of whether any
other reason, other than Cause as provided below, for such termination exists or
has occurred, including without limitation other employment):
(i) Failure to elect or reelect or otherwise to maintain the
Executive in the office or the position, or a substantially equivalent
office or position, of or with the Company and/or a subsidiary, as the
case may be, which the Executive held immediately prior to a Change in
Control, or the removal of the Executive as a director of the Company
and/or a subsidiary (or any successor thereto) if the Executive shall
have been a director of the Company and/or a subsidiary immediately
prior to the Change in Control;
(ii) (A) A significant adverse change in the nature or scope of the
authorities, powers, functions, responsibilities or duties attached to
the position with the Company and/or any subsidiary which the Executive
held immediately prior to the Change in Control, (B) a reduction in the
aggregate of the Executive's annual base salary rate and annual
incentive compensation target to be received from the Company and/or
any subsidiary, or (C) the termination or denial of the Executive's
rights to Employee Benefits (as defined below) or a reduction in the
5
<PAGE> 6
scope or value thereof, any of which is not remedied by the Company
within 10 calendar days after receipt by the Company of written notice
from the Executive of such change, reduction or termination, as the
case may be;
(iii) A determination by the Executive (which determination will be
conclusive and binding upon the parties hereto provided it has been
made in good faith and in all events will be presumed to have been made
in good faith unless otherwise shown by the Company by clear and
convincing evidence) that a change in circumstances has occurred
following a Change in Control, including, without limitation, a change
in the scope of the business or other activities for which the
Executive was responsible immediately prior to the Change in Control,
which has rendered the Executive substantially unable to carry out, has
substantially hindered Executive's performance of, or has caused the
Executive to suffer a substantial reduction in, any of the authorities,
powers, functions, responsibilities or duties attached to the position
held by the Executive immediately prior to the Change in Control, which
situation is not remedied within 10 calendar days after written notice
to the Company from the Executive of such determination;
(iv) The liquidation, dissolution, merger, consolidation or
reorganization of the Company or transfer of all or substantially all
of its business and/or assets, unless the successor or successors (by
liquidation, merger, consolidation, reorganization, transfer or
otherwise) to which all or substantially all of its business and/or
assets have been transferred (directly or by operation of
6
<PAGE> 7
law) assumed all duties and obligations of the Company under this
Agreement pursuant to Section 9(a);
(v) The Company relocates its principal executive offices, or
requires the Executive to have his principal location of work changed,
to any location that is in excess of 50 miles from the location thereof
immediately prior to the Change in Control, or requires the Executive
to travel away from his office in the course of discharging his
responsibilities or duties hereunder at least 20% more (in terms of
aggregate days in any calendar year or in any calendar quarter when
annualized for purposes of comparison to any prior year) than was
required of Executive in any of the three full years immediately prior
to the Change in Control without, in either case, his prior written
consent; or
(vi) Without limiting the generality or effect of the foregoing,
any material breach of this Agreement by the Company or any successor
thereto, which breach is not remedied within 10 calendar days after
written notice to the Company from the Executive describing the nature
of such breach.
(c) Notwithstanding Sections 2(a) and (b) above, no benefits shall
be payable by reason of this Agreement in the event of:
(i) Termination of the Executive's employment with the Company and
its subsidiaries by reason of the Executive's death or Disability,
provided that the Executive has not previously given a valid "Notice of
Termination" pursuant to Section 3. For purposes hereof, "Disability"
shall be defined as the inability of Executive due to illness, accident
or other physical or mental disability to perform his duties for any
period of six consecutive months or for any period of eight
7
<PAGE> 8
months out of any 12-month period, as determined by an independent
physician selected by the Company and reasonably acceptable to the
Executive (or his legal representative), provided that the Executive
does not return to work on substantially a full-time basis within 30
days after written notice from the Company, pursuant to Section 3, of
an intent to terminate the Executive's employment due to Disability;
(ii) Termination of the Executive's employment with the Company and
its subsidiaries on account of the Executive's retirement at or after
age 65, pursuant to the Company's Retirement Benefit Plan; or
(iii) Termination of the Executive's employment with the Company
and its subsidiaries for Cause. For the purposes hereof, "Cause" shall
be defined as a felony conviction of the Executive or the failure of
the Executive to contest prosecution for a felony, or the Executive's
wilful misconduct or dishonesty, any of which is directly and
materially harmful to the business or reputation of the Company or any
subsidiary or affiliate. Notwithstanding the foregoing, the Executive
shall not be deemed to have been terminated for "Cause" hereunder
unless and until there shall have been delivered to the Executive a
copy of a resolution duly adopted by the affirmative vote of not less
than three quarters of the Board then in office at a meeting of the
Board called and held for such purpose, after reasonable notice to the
Executive and an opportunity for the Executive, together with his
counsel (if the Executive chooses to have counsel present at such
meeting), to be heard before the Board, finding that, in the good faith
opinion of the Board, the Executive had committed an act constituting
8
<PAGE> 9
"Cause" as herein defined and specifying the particulars thereof in
detail. Nothing herein will limit the right of the Executive or his
beneficiaries to contest the validity or propriety of any such
determination.
This Section 2(c) shall not preclude the payment of any amounts otherwise
payable to the Executive under any of the Company's employee benefit plans,
stock plans, programs and arrangements and/or under any Employment Agreement.
(d) Notwithstanding anything contained in this Agreement to the
contrary, in the event of a Change in Control, the Executive may terminate
employment with the Company and any subsidiary for any reason, or without
reason, by providing Notice of Termination pursuant to Section 3 during the
30-day period immediately following the first anniversary of the first
occurrence of a Change in Control with the right to the benefits set forth in
Section 4.
(e) Any termination of employment of the Executive, including
a termination for "Good Reason," but excluding a termination for "Cause," or the
removal of the Executive from the office or position in the Company or any
subsidiary that occurs (i) not more than 180 days prior to the date on which a
Change in Control occurs and (ii) following the commencement of any discussion
with a third person that ultimately results in a Change in Control shall be
deemed to be a termination or removal of the Executive after a Change in Control
for purposes of this Agreement.
3. Notice of Termination
Any termination of the Executive's employment with the Company and its
subsidiaries as contemplated by Section 2 shall be communicated by written
"Notice of Termination" to the other party hereto. Any "Notice of Termination"
shall indicate the effective date of termination which shall not be less than 30
days or more than 60 days after the date the Notice of
9
<PAGE> 10
Termination is delivered (the "Termination Date"), the specific provision in
this Agreement relied upon, and, except for a termination pursuant to Section
2(d), will set forth in reasonable detail the facts and circumstances claimed to
provide a basis for such termination including, if applicable, the failure after
provision of written notice by the Executive to effect a remedy pursuant to the
final clause of Section 2(b)(ii), 2(b)(iii) or 2(b)(vi).
4. Termination Benefits
Subject to the conditions set forth in Section 2, the following
benefits shall be paid or provided to the Executive:
(a) Compensation
The Company shall pay to the Executive three times the sum of
(i) "Base Pay", which shall be an amount equal to the greater of (A) the
Executive's effective annual base salary at the Termination Date or (B) the
Executive's effective annual base salary immediately prior to the Change in
Control, plus (ii) "Incentive Pay" equal to the greater of (x) the target annual
bonus payable to the Executive under the Company's Incentive Compensation Plan
or any other annual bonus plan for the fiscal year of the Company in which the
Change in Control occurred or (y) the highest annual bonus earned by the
Executive under the Company's Incentive Compensation Plan or any other annual
bonus plan (whether paid currently or on a deferred basis) with respect to any
12 consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred, plus (iii) "Performance Returns" equal to the highest annual
payment of performance returns paid to the Executive with respect to any 12
consecutive month period during the three fiscal years of the Company
immediately preceding the fiscal year of the Company in which the Change in
Control occurred.
10
<PAGE> 11
(b) Welfare Benefits
For a period of 36 months following the Termination Date (the
"Continuation Period"), the Company shall arrange to provide the Executive with
benefits, including travel accident, major medical, dental, vision care and
other welfare benefit programs in effect immediately prior to the Change in
Control ("Employee Benefits") substantially similar to those that the Executive
was receiving or entitled to receive immediately prior to the Termination Date
(or, if greater, immediately prior to the reduction, termination, or denial
described in Section 2(b)(ii)(C)). If and to the extent that any benefit
described in this Section 4(b) is not or cannot be paid or provided under any
policy, plan, program or arrangement of the Company or any subsidiary, as the
case may be, then the Company will itself pay or provide for the payment to the
Executive, his dependents and beneficiaries, of such Employee Benefits along
with, in the case of any benefit which is subject to tax because it is not or
cannot be paid or provided under any such policy, plan, program or arrangement
of the Company or any subsidiary, an additional amount such that after payment
by the Executive, or his dependents or beneficiaries, as the case may be, of all
taxes so imposed, the recipient retains an amount equal to such taxes. Employee
Benefits otherwise receivable by the Executive pursuant to this Section 4(b)
will be reduced to the extent comparable welfare benefits are actually received
by the Executive from another employer during the Continuation Period, and any
such benefits actually received by the Executive shall be reported by the
Executive to the Company.
(c) Retirement Benefits
The Executive shall be deemed to be completely vested in
Executive's currently accrued benefits under the Company's Retirement Benefit
Plan and Supplemental Executive Retirement Plan ("SERP") in effect as of the
date of Change in Control (collectively, the
11
<PAGE> 12
"Plans"), regardless of his actual vesting service credit thereunder. In
addition, the Executive shall be deemed to earn service credit for benefit
calculation purposes thereunder for the Continuation Period. Benefits under the
Plans will become payable at any time designated by the Executive following
termination of the Executive's employment with the Company and its subsidiaries
after the Executive reaches age 55, subject to the terms of the Plans regarding
the actuarial adjustment of benefit payments commencing prior to normal
retirement age. The benefits to be paid pursuant to the Plans shall be
calculated as though the Executive's compensation rate for each of the five
years immediately preceding his retirement equaled the sum of Base Pay plus
Incentive Pay plus Performance Returns. Any benefits payable pursuant to this
Section 4(c) that are not payable out of the Plans for any reason (including but
not limited to any applicable benefit limitations under the Employee Retirement
Income Security Act of 1974, as amended, or any restrictions relating to the
qualification of the Company's Retirement Benefit Plan under Section 401(a) of
the Internal Revenue Code of 1986, as amended (the "Code")) shall be paid
directly by the Company out of its general assets.
(d) Relocation Benefits
If the Executive moves his residence in order to pursue other
business or employment opportunities during the Continuation Period and requests
in writing that the Company provide relocation services, he will be reimbursed
for any expenses incurred in that initial relocation (including taxes payable on
the reimbursement) which are not reimbursed by another employer. Benefits under
this provision will include assistance in selling the Executive's home and all
other assistance and benefits which were customarily provided by the Company to
transferred executives prior to the Change in Control.
12
<PAGE> 13
(e) Executive Outplacement Counseling
At the request of the Executive made in writing during the
Continuation Period, the Company shall engage an outplacement counseling service
of national reputation to assist the Executive in obtaining employment.
(f) Stock Based Compensation Plans
(i) Any issued and outstanding Stock Options (to the
extent they have not already become exercisable) shall become
exercisable as of the date on which the Change in Control
occurs, unless otherwise specifically provided at the time
such options are granted.
(ii) The Company's right to rescind any award of
stock to the Executive under the Company's 1988 Long Term
Incentive Plan or the Company?s 1998 Long Term Incentive Plan
(or any successor plan) shall terminate upon a Change in
Control, and all restrictions on the sale, pledge,
hypothecation or other disposition of shares of stock awarded
pursuant to such plan shall be removed at the Termination
Date, unless otherwise specifically provided at the time such
award(s) are made.
(iii) The Executive's rights under any other stock
based compensation plan shall vest (to the extent they have
not already vested) and any performance criteria shall be
deemed met at target as of the date on which a Change in
Control occurs, unless otherwise specifically provided at the
time such right(s) are granted.
(g) Split Dollar Life Insurance
The Company shall pay to the Executive a lump sum equal to the
cost on the Termination Date of purchasing, at standard independent insurance
premium rates, an individual
13
<PAGE> 14
paid up insurance policy providing benefits equal to the benefits provided by
the Company's Split Dollar Life Insurance coverage immediately prior to the date
of the Change in Control.
(h) Other Benefits
(i) The Executive shall have all flight privileges
provided by the Company to Directors as of the date of Change
in Control until the Executive reaches age 55, at which time
he shall have all flight privileges provided by the Company to
its retirees who held the same or similar position as the
Executive immediately prior to the Change in Control.
(ii) The Executive, at the Executive's option, shall
be entitled to continue the use of the Executive's
Company-provided automobile during the Continuation Period
under the same terms that applied to the automobile
immediately prior to the Change in Control, or to purchase the
automobile at its book value as of the Termination Date.
(iii) The Company shall pay to the Executive an
amount equal to the cost to the Company of providing any other
perquisites and benefits of the Company in effect immediately
prior to the Change in Control, calculated as if such benefits
were continued during the Continuation Period.
(i) Accrued Amounts
The Company shall pay to the Executive all other amounts
accrued or earned by the Executive through the Termination Date and amounts
otherwise owing under the then existing plans and policies of the Company,
including but not limited to all amounts of compensation previously deferred by
the Executive (together with any accrued interest thereon) and not yet paid by
the Company, and any accrued vacation pay not yet paid by the Company.
14
<PAGE> 15
(j) The Company shall pay to the Executive the amounts due
pursuant to Sections 4(a), 4(g) and 4(h)(iii) in a lump sum on the first
business day of the month following the Termination Date. The Company shall pay
to the Executive the amounts due pursuant to Section 4(i) in accordance with the
terms and conditions of the existing plans and policies of the Company.
5. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, but subject to Section 5(h), in the event that this Agreement
shall become operative and it shall be determined (as hereafter provided) that
any payment (other than the Gross-Up payments provided for in this Section 5) or
distribution by the Company or any of its subsidiaries to or for the benefit of
the Executive, whether paid or payable or distributed or distributable pursuant
to the terms of this Agreement or otherwise pursuant to or by reason of any
other agreement, policy, plan, program or arrangement, including without
limitation any stock option, stock appreciation right or similar right,
restricted stock, deferred stock or the lapse or termination of any restriction
on, deferral period or the vesting or exercisability of any of the foregoing (a
"Payment"), would be subject to the excise tax imposed by Section 4999 of the
Code (or any successor provision thereto) by reason of being considered
"contingent on a change in ownership or control" of the Company, within the
meaning of Section 280G of the Code (or any successor provision thereto) or to
any similar tax imposed by state or local law, or any interest or penalties with
respect to such tax (such tax or taxes, together with any such interest and
penalties, being hereafter collectively referred to as the "Excise Tax"), then
the Executive shall be entitled to receive an additional payment or payments
(collectively, a "Gross-Up Payment"). The Gross-Up Payment shall be in an amount
such that, after payment by the Executive of all taxes (including any interest
or
15
<PAGE> 16
penalties imposed with respect to such taxes), including any Excise Tax and any
income tax imposed upon the Gross-Up Payment, the Executive retains an amount of
the Gross-Up Payment equal to the Excise Tax imposed upon the Payment.
(b) Subject to the provisions of Section 5(f), all
determinations required to be made under this Section 5, including whether an
Excise Tax is payable by the Executive and the amount of such Excise Tax and
whether a Gross-Up Payment is required to be paid by the Company to the
Executive and the amount of such Gross-Up Payment, if any, shall be made by a
nationally recognized accounting firm (the "Accounting Firm") selected by the
Executive in his sole discretion. The Executive shall direct the Accounting Firm
to submit its determination and detailed supporting calculations to both the
Company and the Executive within 30 calendar days after the Change in Control
Date, the Termination Date, if applicable, and any such other time or times as
may be requested by the Company or the Executive. If the Accounting Firm
determines that any Excise Tax is payable by the Executive, the Company shall
pay the required Gross-Up Payment to the Executive within five business days
after receipt of such determination and calculations with respect to any Payment
to the Executive. If the Accounting Firm determines that no Excise Tax is
payable by the Executive, it shall, at the same time as it makes such
determination, furnish the Company and the Executive an opinion that the
Executive has substantial authority not to report any Excise Tax on his federal,
state or local income or other tax return. As a result of the uncertainty in the
application of Section 4999 of the Code (or any successor provision thereto) and
the possibility of similar uncertainty regarding applicable state or local tax
law at the time of any determination by the Accounting Firm hereunder, it is
possible that Gross-Up Payments which will not have been made by the Company
should have been made (an "Underpayment"), consistent with the calculations
required to be made hereunder. In the
16
<PAGE> 17
event that the Company exhausts or fails to pursue its remedies pursuant to
Section 5(f) and the Executive thereafter is required to make a payment of any
Excise Tax, the Executive shall direct the Accounting Firm to determine the
amount of the Underpayment that has occurred and to submit its determination and
detailed supporting calculations to both the Company and the Executive as
promptly as possible. Any such Underpayment shall be promptly paid by the
Company to, or for the benefit of, the Executive within five business days after
receipt of such determination and calculations.
(c) The Company and the Executive shall each provide the
Accounting Firm access to and copies of any books, records and documents in the
possession of the Company or the Executive, as the case may be, reasonably
requested by the Accounting Firm, and otherwise cooperate with the Accounting
Firm in connection with the preparation and issuance of the determinations and
calculations contemplated by Section 5(b). Any determination by the Accounting
Firm as to the amount of the Gross-Up Payment shall be binding upon the Company
and the Executive.
(d) The federal, state and local income or other tax returns
filed by the Executive shall be prepared and filed on a consistent basis with
the determination of the Accounting Firm with respect to the Excise Tax payable
by the Executive. The Executive shall make proper payment of the amount of any
Excise Payment, and at the request of the Company, provide to the Company true
and correct copies (with any amendments) of his federal income tax return as
filed with the Internal Revenue Service and corresponding state and local tax
returns, if relevant, as filed with the applicable taxing authority, and such
other documents reasonably requested by the Company, evidencing such payment. If
prior to the filing of the Executive's federal income tax return, or
corresponding state or local tax return, if relevant, the Accounting
17
<PAGE> 18
Firm determines that the amount of the Gross-Up Payment should be reduced, the
Executive shall within five business days pay to the Company the amount of such
reduction.
(e) The fees and expenses of the Accounting Firm for its
services in connection with the determinations and calculations contemplated by
Section 5(b) shall be borne by the Company. If such fees and expenses are
initially paid by the Executive, the Company shall reimburse the Executive the
full amount of such fees and expenses within five business days after receipt
from the Executive of a statement therefor and reasonable evidence of his
payment thereof.
(f) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service or any other taxing authority that, if
successful, would require the payment by the Company of a Gross-Up Payment or
any additional Gross-Up Payment. Such notification shall be given as promptly as
practicable but no later than 10 business days after the Executive actually
receives notice of such claim and the Executive shall further apprise the
Company of the nature of such claim and the date on which such claim is
requested to be paid (in each case, to the extent known by the Executive). The
Executive shall not pay such claim prior to the earlier of (x) the expiration of
the 30-calendar-day period following the date on which he gives such notice to
the Company and (y) the date that any payment of amount with respect to such
claim is due. If the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such claim, the Executive
shall:
(i) provide the Company with any written records or
documents in his possession relating to such claim reasonably
requested by the Company;
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including without
18
<PAGE> 19
limitation accepting legal representation with respect to such
claim by an attorney competent in respect of the subject
matter and reasonably selected by the Company;
(iii) cooperate with the Company in good faith in order
effectively to contest such claim; and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including interest and penalties) incurred in connection with such
contest and shall indemnify and hold harmless the Executive, on an after-tax
basis, for and against any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such contest and payment
of costs and expenses. Without limiting the foregoing provisions of this Section
5(f), the Company shall control all proceedings taken in connection with the
contest of any claim contemplated by this Section 5(f) and, at its sole option,
may pursue or forego any and all administrative appeals, proceedings, hearings
and conferences with the taxing authority in respect of such claim (provided,
however, that the Executive may participate therein at his own cost and expense)
and may, at its option, either direct the Executive to pay the tax claimed and
sue for a refund or contest the claim in any permissible manner, and the
Executive agrees to prosecute such contest to a determination before any
administrative tribunal, in a court of initial jurisdiction and in one or more
appellate courts, as the Company shall determine; provided, however, that if the
Company directs the Executive to pay the tax claimed and sue for a refund, the
Company shall advance the amount of such payment to the Executive on an
interest-free basis and shall indemnify and hold the Executive harmless, on an
after-tax basis, from any
19
<PAGE> 20
Excise Tax or income or other tax, including interest or penalties with respect
thereto, imposed with respect to such advance; and provided further, however,
that any extension of the statute of limitations relating to payment of taxes
for the taxable year of the Executive with respect to which the contested amount
is claimed to be due is limited solely to such contested amount. Furthermore,
the Company's control of any such contested claim shall be limited to issues
with respect to which a Gross-Up Payment would be payable hereunder and the
Executive shall be entitled to settle or contest, as the case may be, any other
issue raised by the Internal Revenue Service or any other taxing authority.
(g) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 5(f), the Executive receives any
refund with respect to such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 5(f)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited thereon after
any taxes applicable thereto). If, after the receipt by the Executive of an
amount advanced by the Company pursuant to Section 5(f), a determination is made
that the Executive shall not be entitled to any refund with respect to such
claim and the Company does not notify the Executive in writing of its intent to
contest such denial or refund prior to the expiration of 30 calendar days after
such determination, then such advance shall be forgiven and shall not be
required to be repaid and the amount of any such advance shall offset, to the
extent thereof, the amount of Gross-Up Payment required to be paid by the
Company to the Executive pursuant to this Section 5.
(h) Notwithstanding any provision of this Agreement to the
contrary, if (i) but for this sentence, the Company would be obligated to make a
Gross-Up Payment to the Executive, (ii) the aggregate "present value" of the
"parachute payments" to be paid or provided
20
<PAGE> 21
to the Executive under this Agreement or otherwise does not exceed 1.15
multiplied by three times the Executive's "base amount," and (iii) but for this
sentence, the net after-tax benefit to the Executive of the Gross-Up Payment
would not exceed $50,000 (taking into account both income taxes and any Excise
Tax), then the payments and benefits to be paid or provided under this Agreement
(including any stock based compensation pursuant to Section 4(f)) will be
reduced to the minimum extent necessary (but in no event to less than zero) so
that no portion of any payment or benefit to the Executive, as so reduced,
constitutes an "excess parachute payment." For purposes of this Section 5(h),
the terms "excess parachute payment," "present value," "parachute payment," and
"base amount" will have the meanings assigned to them by Section 280G of the
Code. The determination of whether any reduction in such payments or benefits to
be provided under this Agreement is required pursuant to the preceding sentence
will be made at the expense of the Company, if requested by the Executive or the
Company, by the Accounting Firm. The fact that the Executive's right to payments
or benefits may be reduced by reason of the limitations contained in this
Section 5(h) will not of itself limit or otherwise affect any other rights of
the Executive other than pursuant to this Agreement. In the event that any
payment or benefit intended to be provided under this Agreement or otherwise is
required to be reduced pursuant to this Section 5(h), the Executive will be
entitled to designate the payments and/or benefits to be so reduced in order to
give effect to this Section 5(h). The Company will provide the Executive with
all information reasonably requested by the Executive to permit the Executive to
make such designation. In the event that the Executive fails to make such
designation within 10 business days of the Termination Date, the Company may
effect such reduction in any manner it deems appropriate.
21
<PAGE> 22
6. No Mitigation Obligation. The Company hereby acknowledges that
it will be difficult and may be impossible for the Executive to find reasonably
comparable employment following the Termination Date. Accordingly, the payment
of the severance compensation by the Company to the Executive in accordance with
the terms of this Agreement is hereby acknowledged by the Company to be
reasonable, and the Executive will not be required to mitigate the amount of any
payment provided for in this Agreement by seeking other employment or otherwise,
nor will any profits, income, earnings or other benefits from any source
whatsoever create any mitigation, offset, reduction or any other obligation on
the part of the Executive hereunder or otherwise, except as expressly provided
in the last sentence of Section 4(b).
7. Legal Fees and Expenses.
(a) It is the intent of the Company that the Executive not be
required to incur legal fees and the related expenses associated with the
interpretation, enforcement or defense of Executive's rights under this
Agreement by litigation or otherwise because the cost and expense thereof would
substantially detract from the benefits intended to be extended to the Executive
hereunder. Accordingly, if it should appear to the Executive that the Company
has failed to comply with any of its obligations under this Agreement or in the
event that the Company or any other person takes or threatens to take any action
to declare this Agreement void or unenforceable, or institutes any litigation or
other action or proceeding designed to deny, or to recover from, the Executive
any or all of the benefits provided or intended to be provided to the Executive
hereunder, the Company irrevocably authorizes the Executive from time to time to
retain counsel of Executive's choice, at the expense of the Company as hereafter
provided, to advise and represent the Executive in connection with any such
interpretation, enforcement or
22
<PAGE> 23
defense, including without limitation the initiation or defense of any
litigation or other legal action, whether by or against the Company or any
director, officer, stockholder or other person affiliated with the Company, in
any jurisdiction. Notwithstanding any existing or prior attorney-client
relationship between the Company and such counsel, the Company irrevocably
consents to the Executive's entering into an attorney-client relationship with
such counsel, and in that connection the Company and the Executive agree that a
confidential relationship shall exist between the Executive and such counsel.
Without respect to whether the Executive prevails, in whole or in part, in
connection with any of the foregoing, the Company will pay and be solely
financially responsible for any and all attorneys' and related fees and expenses
incurred by the Executive in connection with any of the foregoing.
(b) Without limiting the obligations of the Company pursuant
to Section 7(a) hereof, in the event a Change in Control occurs, the performance
of the Company's obligations under this Section 7 shall be secured by amounts
deposited or to be deposited in trust pursuant to certain trust agreements to
which the Company shall be a party, which amounts deposited shall in the
aggregate be not less than $2,000,000, providing that the fees and expenses of
counsel selected from time to time by the Executive pursuant to Section 7(a)
shall be paid, or reimbursed to the Executive if paid by the Executive, either
in accordance with the terms of such trust agreements, or, if not so provided,
on a regular, periodic basis upon presentation by the Executive to the trustee
of a statement or statements prepared by such counsel in accordance with its
customary practices. Any failure by the Company to satisfy any of its
obligations under this Section 7(b) shall not limit the rights of the Executive
hereunder. Subject to the foregoing, the Executive shall have the status of a
general unsecured creditor of the Company and shall have no right to, or
security interest in, any assets of the Company or any subsidiary.
23
<PAGE> 24
8. Continuing Obligations
(a) The Executive hereby agrees that all documents, records,
techniques, business secrets and other information which have come into his
possession from time to time during his employment with the Company shall be
deemed to be confidential and proprietary to the Company and, except for
personal documents and records of the Executive, shall be returned to the
Company. The Executive further agrees to retain in confidence any confidential
information known to him concerning the Company and its subsidiaries and their
respective businesses so long as such information is not publicly disclosed,
except that Executive may disclose any such information required to be disclosed
in the normal course of his employment with the Company or pursuant to any court
order or other legal process.
(b) The Executive hereby agrees that during the Continuation
Period, he will not directly or indirectly solicit any employee of the Company
or any of its subsidiaries or affiliated companies to join the employ of any
entity that competes with the Company or any of its subsidiaries or affiliated
companies.
9. Successors
(a) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company, by agreement in
form and substance satisfactory to the Executive to expressly assume and agree
to perform 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.
Failure of such successor entity to enter into such agreement prior to the
effective date of any such succession (or, if later, within three business days
after first receiving a written request for such agreement) shall constitute a
breach of this Agreement and shall entitle the Executive to
24
<PAGE> 25
terminate his employment pursuant to Section 2(a)(ii) and to receive the
payments and benefits provided under Section 4. As used in this Agreement,
"Company" shall mean the Company as hereinbefore defined and any successor to
its business and/or assets as aforesaid which executes and delivers the
Agreement provided for in this Section 9 or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Executive dies while any amounts are payable to him hereunder, all such amounts,
unless otherwise provided herein, shall be paid in accordance with the terms of
this Agreement to his devisee, legatee or other designee or, if there is no such
designee, to his estate.
10. Notices
For all purposes of this Agreement, all communications, including
without limitation notices, consents, requests or approvals, required or
permitted to be given hereunder will be in writing and will be deemed to have
been duly given when hand delivered or dispatched by electronic facsimile
transmission (with receipt thereof orally confirmed), or five business days
after having been mailed by United States registered or certified mail, return
receipt requested, postage prepaid, or three business days after having been
sent by a nationally recognized overnight courier service such as FedEx, UPS, or
Purolator, addressed to the Company (to the attention of the Secretary of the
Company, with a copy to the General Counsel of the Company) at its principal
executive office and to the Executive at his principal residence, or to such
other address as any party may have furnished to the other in writing and in
accordance herewith, except that notices of changes of address shall be
effective only upon receipt.
25
<PAGE> 26
11. Governing Law
THE VALIDITY, INTERPRETATION, CONSTRUCTION AND PERFORMANCE OF THIS
AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF DELAWARE.
12. Miscellaneous
No provisions of this Agreement may be modified, waived or discharged
unless such waiver, modification or discharge is agreed to in writing signed by
the Executive and the Company. No waiver by either party hereto at any time of
any breach by the other party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other party shall be deemed
a waiver of similar or dissimilar provisions or conditions at the same or any
prior or subsequent time. No agreements or representations, oral or otherwise,
express or implied, with respect to the subject matter hereof have been made by
either party which are not set forth expressly in this Agreement (or in any
employment or other written agreement relating to the Executive).
Notwithstanding any provision of this Agreement to the contrary, the parties'
respective rights and obligations under Sections 4, 5 and 7 will survive any
termination or expiration of this Agreement or the termination of the
Executive's employment following a Change in Control for any reason whatsoever.
Nothing expressed or implied in this Agreement will create any right or duty on
the part of the Company or the Executive to have the Executive remain in the
employment of the Company or any subsidiary prior to or following any Change in
Control. The Company may withhold from any amounts payable under this Agreement
all federal, state, city or other taxes as the Company is required to withhold
pursuant to any law or government regulation or ruling. In the event that the
Company refuses or otherwise fails to make a payment when due and it is
ultimately decided that the Executive is entitled to such
26
<PAGE> 27
payment, such payment shall be increased to reflect an interest factor,
compounded annually, equal to the prime rate in effect as of the date the
payment was first due plus two points. For this purpose, the prime rate shall be
based on the rate identified by Chase Manhattan Bank as its prime rate.
13. Separability
The invalidity or unenforceability of any provisions of this Agreement
shall not affect the validity or enforceability of any other provision of this
Agreement, which shall remain in full force and effect.
14. Non-assignability
This Agreement is personal in nature and neither of the parties hereto
shall, without the consent of the other, assign or transfer this Agreement or
any rights or obligations hereunder, except as provided in Section 9. Without
limiting the foregoing, the Executive's right to receive payments hereunder
shall not be assignable or transferable, whether by pledge, creation of a
security interest or otherwise, other than a transfer by his will or by the laws
of descent or distribution, and in the event of any attempted assignment or
transfer by Executive contrary to this Section 14 the Company shall have no
liability to pay any amount so attempted to be assigned or transferred to any
person other than the Executive or, in the event of his death, his designated
beneficiary or, in the absence of an effective beneficiary designation, the
Executive's estate.
15. Effectiveness; Term
This Agreement will be effective and binding as of the date first above
written immediately upon its execution, but, anything in this Agreement to the
contrary notwithstanding, this Agreement will not be operative unless and until
a Change in Control occurs. Upon the
27
<PAGE> 28
occurrence of a Change in Control at any time during the Term (as defined
below), without further action, this Agreement shall become immediately
operative. For purposes of this Agreement, "Term" means the period commencing as
of the date first above written and expiring as of the later of (i) the fifth
anniversary of the date first above written or (ii) the second anniversary of
the first occurrence of a Change in Control; provided, however, that (A)
commencing on the fifth anniversary of the date first above written and each
fifth anniversary date thereafter, the Term of this Agreement will automatically
be extended for an additional five years unless, not later than 180 days
preceding each such fifth anniversary date, the Company or the Executive shall
have given notice that it or the Executive, as the case may be, does not wish to
have the Term extended and (B) subject to Section 2(e), if, prior to a Change in
Control, the Executive ceases for any reason to be an employee of the Company
and any subsidiary, thereupon without further action the Term shall be deemed to
have expired and this Agreement will immediately terminate and be of no further
effect. For purposes of this Section 15, the Executive shall not be deemed to
have ceased to be an employee of the Company and any subsidiary by reason of the
transfer of Executive's employment between the Company and any subsidiary, or
among any subsidiaries.
16 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same agreement.
17 Prior Agreement. This Agreement supersedes and terminates any and
all prior Executive Termination Benefits Agreements by and among Company and the
Executive.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered as of the day and year first above set forth, thereby
mutually and voluntarily agreeing that this Agreement supersedes and replaces
any prior similar agreements for such termination benefits.
AMR CORPORATION
By: /s/ Donald J. Carty
--------------------------------
AMERICAN AIRLINES, INC.
By: /s/ Thomas J. Kiernan
--------------------------------
ANNE H. MCNAMARA
/s/ Anne H. McNamara
-----------------------------------
29
<PAGE> 1
EXHIBIT 10.76
EMB-135
PURCHASE AGREEMENT NUMBER DCT-039/98
EMBRAER - EMPRESA BRASILEIRA
DE AERONAUTICA S.A.
AND
AMR EAGLE HOLDING CORPORATION
<PAGE> 2
INDEX
<TABLE>
<CAPTION>
ARTICLE PAGE
<S> <C>
1. DEFINITIONS 1
2. SUBJECT 3
3. PRICE 4
4. PAYMENT 4
5. DELIVERY 7
6. DOCUMENTS 9
7. ACCEPTANCE AND TRANSFER OF OWNERSHIP 9
8. DETAILED SPECIFICATIONS 11
9. ENGINES 11
10. STORAGE CHARGE 11
11. DELAYS IN DELIVERY 12
12. INSPECTION AND QUALITY CONTROL 13
13. CHANGES 14
14. WARRANTY/GUARANTEE 14
15. TECHNICAL ASSISTANCE SERVICES 14
16. SPARE PARTS SUPPLY 14
17. PUBLICATIONS 15
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
19. AIRCRAFT PURCHASE OPTIONS 15
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
24. ASSIGNMENT 16
25. RESTRICTIONS AND PATENT INDEMNITY 16
26. MARKETING / PROMOTIONAL RIGHTS [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] 16
27. TAXES 16
28. INTENTIONALLY LEFT BLANK 17
29. APPLICABLE LAW 17
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
31. COMPLIANCE WITH LAWS 17
32. TERMINATION 17
33. INDEMNITY 18
34. NOTICES 18
35. CONFIDENTIALITY 19
36. INTEGRATED AGREEMENT 20
37. EFFECT OF TERMINATION 20
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
38. COUNTERPARTS 20
</TABLE>
<PAGE> 3
<TABLE>
<S> <C>
39. ENTIRE AGREEMENT 20
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
41. TERMS 20
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
43. REMEDIES 21
44. INTENTIONALLY LEFT BLANK 21
45. INDEPENDENT CONTRACTOR 21
46. CAPTIONS, HEREOF, INCLUDING 21
47. INTENTIONALLY LEFT BLANK 21
48. REPRESENTATIONS AND WARRANTIES 21
49. TIME 23
50. FURTHER ASSISTANCE 23
51. SEVERABILITY 23
52. NO WAIVER 23
53. COSTS 24
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
</TABLE>
<PAGE> 4
ATTACHMENTS
"A" - AIRCRAFT SPECIFIC CONFIGURATION, FINISHING AND REGISTRATION
MARKS
"B" - FERRY EQUIPMENT [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION]
"C" - AIRCRAFT WARRANTY
"D" - EMB-135 ESCALATION FORMULA
"E" - [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
"F" - [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
"G" - [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
"H" - EMB-135 AND EMB-145 SPARE PARTS POLICY & PRODUCT SUPPORT
"I" - EMB-135 BUYER FURNISHED EQUIPMENT
"J" - [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
"K" - [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
"L" - FORM OF [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] GUARANTEE
<PAGE> 5
PURCHASE AGREEMENT NO. DCT -039/98
THIS PURCHASE AGREEMENT NO. DCT-039/98 IS ENTERED INTO AS OF THE 30th DAY OF
SEPTEMBER, 1998, BY AND BETWEEN EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA
S.A., A BRAZILIAN CORPORATION WITH ITS HEADQUARTERS LOCATED IN SAO JOSE DOS
CAMPOS, BRAZIL, AND AMR EAGLE HOLDING CORPORATION, A DELAWARE CORPORATION WITH
ITS HEADQUARTERS LOCATED IN FORT WORTH, TEXAS, FOR THE PURCHASE AND SALE OF
EMB-145, MODEL EMB-135LR VERSION AIRCRAFT, SERVICES AND RELATED SPARE PARTS.
THIS AGREEMENT SHALL NOT BE EFFECTIVE UNLESS AND UNTIL IT IS SIGNED BY AN
AUTHORIZED OFFICER OF AMR EAGLE HOLDING CORPORATION AND EXECUTED BY TWO
AUTHORIZED OFFICERS OF EMBRAER - EMPRESA BRASILEIRA DE AERONAUTICA S.A.
NOW, THEREFORE, in consideration of the mutual promises, covenants, terms and
conditions set forth herein, and other good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, the Parties agree as
follows:
1. DEFINITIONS
For the purpose of this Agreement, the following definitions are hereby
adopted by the Parties:
a. Actual Delivery Date - and Actual Delivery - shall have the
definitions provided for in Article 7.c. hereof.
b. Aircraft - shall mean the EMB-145, Model EMB-135LR version aircraft
or, where there is more than one of such aircraft, each of such
aircraft, manufactured by Embraer, for sale to Buyer pursuant to this
Agreement, according to the aircraft specification 135-MS-300,
Revision A dated July 27, 1998 (the "Specification"), and Attachment A
and Attachment G hereto.
c. Basic Price - shall mean the price per Aircraft as defined in Article
3.a.1.
d. Buyer - shall mean AMR Eagle Holding Corporation, a Delaware
corporation, and its successors and permitted assigns (as provided in
this Agreement).
e. CTA - shall mean the Aerospace Technical Center of the Brazilian
Ministry of Aeronautics.
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 1 of 49
<PAGE> 6
f. Day or Days - shall mean calendar days, unless expressly referenced as
a Business Day or Business Days, which shall mean any day other than a
Saturday, Sunday, or other day on which banking institutions in Fort
Worth, Texas, Sao Paulo, Brazil, Rio de Janeiro, Brazil or Sao Jose
dos Campos, Brazil are required or permitted by applicable law, rule
or regulation to be closed. As of December 15 of each year of
Scheduled Delivery Months, Embraer shall send Buyer a projected
holiday schedule of days on which the banking institutions in Sao
Paulo, Rio de Janeiro and Sao Jose dos Campos, Brazil will be closed,
and Embraer shall promptly advise Buyer of any changes to said
schedule.
g. Delivery Schedule - shall mean the Aircraft delivery schedule as
provided in Article 5.c.
h. Embraer - shall mean Embraer - EMPRESA BRASILEIRA DE AERONAUTICA S.A.,
a Brazilian corporation.
i. Engine or Engines - shall mean the two (2) hot and high enhanced
performance Allison AE3007A1/3 high bypass ratio turbofan engines
delivered fixed to each airframe.
j. FAA - shall mean the United States Federal Aviation Administration.
k. Financing Agreements - shall mean those financing documents to be
executed between Buyer and Agencia Especial de Financiamento
Industrial ("FINAME") and Banco Nacional de Desenvolvimento Economico
e Social ("BNDES") (FINAME and BNDES together, the " Lender"), and
including but not limited to a funding agreement and all agreements
related thereto (the "Funding Agreement") and any and all agreements
entered into pursuant to the Funding Agreement.
l. IP Spares - shall mean line replaceable units, spare parts and ground
support equipment, except engines, to be selected and purchased by
Buyer from Embraer in Brazil pursuant to a third-party financing
arrangement as initial provisions, based on the initial provisioning
list recommended by Embraer and mutually agreed to by Buyer ("IPL")
and delivered in connection with a specific Aircraft.
m. Party or Parties - shall mean Embraer and/or Buyer.
n. Purchase Agreement, or this Agreement - shall mean this Purchase
Agreement No. DCT-039/98 and all of its Attachments, and EMB-135 and
EMB-145 Letter Agreement I DCT-040/98 executed by Buyer and Embraer as
of the date hereof ("Letter Agreement I").
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 2 of 49
<PAGE> 7
o. Purchase Price - shall mean the total purchase price for each
Aircraft, effective on the relevant Aircraft's Scheduled Delivery
Date, resulting from the application of the escalation formula
established in Attachment D (the "Escalation Formula") to the Basic
Price as set forth in Article 3.a.1.
p. Scheduled Delivery Date - shall mean the targeted closing date for
each Actual Delivery of Aircraft per Article 5.
q. Scheduled Delivery Month - shall mean the month in which each Aircraft
is scheduled to be delivered per Article 5.
r. Scheduled Inspection Date - shall mean the date on which Embraer shall
make each Aircraft available to Buyer for inspection, which date shall
be at least [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION] prior to the Scheduled Delivery Date unless otherwise
mutually agreed to in writing by the Parties.
s. Services - shall mean all of the technical assistance services
specified in Article 15.
t. Spares - shall mean line replaceable units, spare parts and ground
support equipment purchased through Embraer, except engines, to be
selected from Embraer's illustrated parts catalog and purchased by
Buyer, excluding IP Spares.
u. U.S. or US - shall mean the United States of America.
v. U.S. dollars, US$, USD or dollars - shall mean United States dollars.
2. SUBJECT
a. Embraer shall sell and Buyer shall purchase and take delivery of
seventy-five (75) newly manufactured Aircraft ("Firm Aircraft") and,
if Buyer elects to purchase any or all of the same, seventy-five (75)
newly manufactured option Aircraft ("Option Aircraft") upon the terms
and conditions contained in this Agreement.
b. To the extent requested by Buyer, Embraer shall sell and Buyer shall
acquire IP Spares and Spares for each of the Aircraft referred to in
paragraph a. above.
c. Embraer shall sell and Buyer shall acquire the Services as specified
in Article 15.
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 3 of 49
<PAGE> 8
3. PRICE
a. Buyer agrees to pay Embraer, in United States dollars [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] the
following prices:
1. For each Firm Aircraft delivered to Buyer pursuant to this
Agreement, [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION]. The Basic Price shall be escalated
according to the Escalation Formula. The escalated Basic Price
(the "Purchase Price") shall be provided to Buyer one (1) month
prior to each Aircraft's Scheduled Delivery Date. Except as set
forth in this Article the Basic Price constitutes the entire
price Buyer shall pay for each individual Aircraft and Services.
2. For IP Spares ordered pursuant to this Agreement, the aggregate
price of all IP Spares with respect to each Aircraft shall not
exceed [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION] per Aircraft.
b. The Services shall be provided at no additional cost to Buyer. All
other services requested by Buyer to Embraer in writing shall be
billed to Buyer in accordance with Embraer's prevailing rates
therefor.
c. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
4. PAYMENT
To secure the Aircraft delivery positions set forth in Article 5.c. and
to ensure delivery of the Aircraft in accordance with the Delivery
Schedule, Buyer shall pay Embraer for each Aircraft and IP Spares as
follows:
a. Relative to each Firm Aircraft:
1. Embraer acknowledges receipt of deposits of [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION] per Firm
Aircraft from Buyer. Such deposits shall be non-refundable
(subject to the provisions of Articles 32.b. and Section 10 of
Letter Agreement I) and shall be considered part of the payment
towards the Basic Price of the relevant Aircraft. The Parties
acknowledge that each of the Firm Aircraft and the corresponding
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 4 of 49
<PAGE> 9
delivery positions have been reserved for purchase by Buyer and
such Firm Aircraft have been removed from the market.
2. A non-refundable (subject to the provisions of Article 32.b. and
Section 10 of Letter Agreement I) progress payment (which shall
be considered part of the payment toward the Basic Price of the
relevant Aircraft) equal to [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] excluding any increase due
to the Escalation Formula, is due and payable upon the later of
(i) the date which is eighteen (18) months prior to the first
(1st) day of the Scheduled Delivery Month of the relevant Firm
Aircraft and (ii) the date of execution of this Agreement.
3. A non-refundable (subject to the provisions of Article 32.b. and
Section 10 of Letter Agreement I) progress payment (which shall
be considered part of the payment toward the Basic Price of the
relevant Aircraft) [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] excluding any increase due to the
Escalation Formula, is due and payable upon the later of (i) the
date which is twelve (12) months prior to the first (1st) day of
the Scheduled Delivery Month of the relevant Firm Aircraft and
(ii) the date of execution of this Agreement.
4. A non-refundable (subject to the provisions of Article 32.b.and
Section 10 of Letter Agreement I) progress payment (which shall
be considered part of the payment toward the Basic Price of the
relevant Aircraft) equal to [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] excluding any increase due
to the Escalation Formula, is due and payable on the date which
is six (6) months prior to the first (1st) day of the Scheduled
Delivery Month of the relevant Firm Aircraft.
5. The balance of each Firm Aircraft's Purchase Price shall become
due and payable as provided herein on each Firm Aircraft's Actual
Delivery Date.
6. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
b. Relative to Option Aircraft:
In the event the Buyer exercises the option to acquire Option
Aircraft as provided for in Article 19, payment for each
individual Option Aircraft's Basic Price shall be made as
follows:
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 5 of 49
<PAGE> 10
1. A non-refundable (subject to the provisions of Article 32.b. and
Section 10 of Letter Agreement I) deposit of [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION] per
Option Aircraft is due and payable on the date of exercise of the
respective Option. This deposit shall be considered part of the
payment towards the Basic Price of the relevant Option Aircraft.
2. A non-refundable (subject to the provisions of Article 32.b. and
Section 10 of Letter Agreement I) progress payment (which shall
be considered part of the payment toward the Basic Price of the
relevant Option Aircraft) equal to [CONFIDENTIAL PORTION OMITTED
AND FILED SEPARATELY WITH THE COMMISSION] excluding any increase
due to the Escalation Formula, shall be due and payable on the
date which is eighteen (18) months prior to the first (1st) day
of the Scheduled Delivery Month of the relevant Option Aircraft.
3. A non-refundable (subject to the provisions of Article 32.b. and
Section 10 of Letter Agreement I) progress payment (which shall
be considered part of the payment toward the Basic Price of the
relevant Option Aircraft) equal to [CONFIDENTIAL PORTION OMITTED
AND FILED SEPARATELY WITH THE COMMISSION] excluding any increase
due to the Escalation Formula, shall be due and payable on the
date which is twelve (12) months prior to the first (1st) day of
the Scheduled Delivery Month of the relevant Option Aircraft.
4. A non-refundable (subject to the provisions of Article 32.b. and
Section 10 of Letter Agreement I) progress payment (which shall
be considered part of the payment toward the Basic Price of the
relevant Option Aircraft) equal to [CONFIDENTIAL PORTION OMITTED
AND FILED SEPARATELY WITH THE COMMISSION] excluding any increase
due to the Escalation Formula, shall be due and payable on the
date which is six (6) months prior to the first (1st) day of the
Scheduled Delivery Month of the relevant Option Aircraft.
5. The balance of each Option Aircraft's Purchase Price shall become
due and payable as provided herein upon Actual Delivery of the
relevant Option Aircraft from Embraer to Buyer.
6. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
c. Relative to IP Spares:
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 6 of 49
<PAGE> 11
1. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] of the price of the IP Spares for each Aircraft (as
set forth in Article 3.a.2 above) shall become due and payable on
the date which is three (3) months prior to the first (1st) day
of the Scheduled Delivery Month of such Aircraft as specified in
Article 5.c.
2. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] of such price of the IP Spares for each Aircraft
shall become due and payable on the date which is the date of
delivery of the IP Spares for such Aircraft as set forth in
Article 5.e.
3. All payments made pursuant to paragraphs c.1. and c.2. above
shall collectively be referred to as the "IP Spares Price."
d. Interest shall accrue at the rate of [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] per month or any part thereof
(prorated on the basis of a thirty (30) day month for any partial
months) on any amount which is due and owing and which is not paid to
Embraer as set forth in Articles 4.a. and 4.b. from the third Business
Day after the date on which such payments should have been made as
therein set forth, until the actual receipt by Embraer of such
amounts. Such interest shall be payable on demand by Embraer.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
5. DELIVERY
a. Scheduled Delivery Date: The Aircraft shall be delivered per the
Aircraft Delivery Schedule set forth in paragraph c. of this Article.
1. INTENTIONALLY LEFT BLANK
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 7 of 49
<PAGE> 12
2. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
b. Location: Each Aircraft shall be delivered to Buyer free and clear of
all liens, claims, charges, and encumbrances of any nature whatsoever.
Delivery of each Aircraft shall take place in Sao Jose dos Campos,
Brazil. At delivery, each Aircraft shall fully conform to the delivery
specifications set forth herein, and shall otherwise conform to the
terms of this Agreement.
c. Aircraft Delivery Schedule: Subject to payment in accordance with
Article 4 and each Party's compliance with the terms and conditions of
this Agreement, the Aircraft shall be made available for delivery by
Embraer to Buyer, in the condition provided by this Agreement, at Sao
Jose dos Campos, State of Sao Paulo, Brazil, according to the
following schedule:
FIRM AIRCRAFT
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 8 of 49
<PAGE> 13
OPTION AIRCRAFT
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
d. Limit on Delivery: Notwithstanding anything set forth in this
Agreement, in no event shall Buyer be obligated to take delivery of
any more than [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION] Aircraft in any month.
e. IP Spares: Subject to receipt by Embraer of the list of IP Spares
selected by Buyer from the IPL by the times contemplated by Article 2
of Attachment H and Embraer's acceptance of such list (which
acceptance shall not be unreasonably withheld or delayed), such IP
Spares shall be delivered by Embraer to Buyer, in F.C.A. (Free Carrier
- Incoterms 1990) condition, at Sao Jose dos Campos, State of Sao
Paulo, Brazil, or at any other port of clearance that is mutually
agreed to by Buyer and Embraer. [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] Should Buyer not inform Embraer
of IP Spares items selected by Buyer within times contemplated by
Article 2 of Attachment H, the IP Spares shall be provided to Buyer in
F.C.A. condition, at the same places above mentioned, one hundred
eighty (180) days after receipt by Embraer of the list of spares
selected by Buyer from the IPL, provided, however, that Buyer provides
such information to Embraer no later than the relevant Aircraft's
Actual Delivery Date. Spares shall be delivered in accordance with
Section M of Attachment H.
6. DOCUMENTS
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
At the time of Actual Delivery of each Aircraft, Embraer will possess a
valid type certificate issued by the FAA and applicable to the Aircraft.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
Embraer shall assist Buyer in obtaining such certificate. Subject to the
above, it shall be Buyer's responsibility to obtain such FAR Part 25
Individual Certificate of Airworthiness for the Aircraft, at Buyer's
sole expense, [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
7. ACCEPTANCE AND TRANSFER OF OWNERSHIP
a. The Aircraft shall be delivered in accordance with the Delivery
Schedule. Prior to the Scheduled Inspection Date, Embraer shall
perform and complete the ground and flight test.
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 9 of 49
<PAGE> 14
b. Embraer shall make each Aircraft available to Buyer for inspection on
the Scheduled Inspection Date. The date on which Embraer actually
makes the Aircraft available to Buyer for inspection shall be referred
to as the "Readiness Date". On or after the Readiness Date, Buyer
shall inspect and conduct an acceptance flight of the Aircraft at
Embraer's facilities in Sao Jose dos Campos, Brazil, which shall be
conducted jointly by Buyer and Embraer designated personnel. The
inspection and acceptance flight shall be completed at least three (3)
Business Days prior to the relevant Aircraft's Scheduled Delivery Date
or as Embraer and Buyer shall agree in writing. The fuel for the
Aircraft's acceptance flight test shall be provided by Embraer.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] Upon ground check(s) and acceptance test flight(s)
acceptable to Buyer, Buyer shall provide Embraer with a Certificate of
Technical Acceptance.
c. If Buyer finds an Aircraft acceptable, then on the relevant Scheduled
Delivery Date, it shall acquire the Aircraft and make the payments due
according to Article 4 and accept delivery of such Aircraft, whereupon
the following shall occur: (i) Embraer shall provide Buyer a Warranty
Bill of Sale [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION] an FAA Form Bill of Sale and an invoice marked "paid
in full"; (ii) Buyer shall provide Embraer with a Certificate of
Technical Acceptance and Certificate of Acceptance and Delivery
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] indicating that the relevant Aircraft has met or exceeded
all of the criteria set forth in the Aircraft Acceptance Guide and
satisfies the terms and conditions of this Agreement; and (iii)
Embraer shall provide to Buyer a CTA Certificate of Export. Upon
delivery of the above-referenced bills of sale and certificates, title
and risk of loss with respect to the relevant Aircraft shall pass from
Embraer to Buyer and actual delivery ("Actual Delivery") of the
relevant Aircraft shall be deemed to have taken place on such date
(the "Actual Delivery Date").
d. If Buyer declines to accept an Aircraft because it reasonably believes
that the Aircraft does not meet the conditions specified in this
Agreement, Buyer shall promptly give Embraer written notice of all
specific reasons for such refusal and Embraer shall have five (5)
days, commencing on the first (1st) day after receipt of such notice,
to take all necessary actions in order to resubmit the Aircraft to
Buyer for re-inspection. Buyer shall reinspect the Aircraft within
five (5) days after receipt of notice from Embraer that all necessary
actions were taken.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 10 of 49
<PAGE> 15
f. Embraer shall ensure that the IP Spares for each Aircraft are
available for inspection by Buyer on or before the date of delivery in
accordance with Article 5.e. and shall notify Buyer of such
availability. Buyer shall be allowed to inspect the IP Spares to be
delivered in connection with each Aircraft.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
g. Should Buyer or Embraer fail to comply with the procedures specified
in any of the preceding items of this Article 7, the other Party shall
not be held liable for any delay in delivery to the extent such delay
was caused by such failure to comply.
8. DETAILED SPECIFICATIONS
Each Aircraft shall be manufactured in accordance with and at Actual
Delivery shall meet or exceed the specifications and requirements
contained in (i) this Agreement and (ii) the Specification.
9. ENGINES
Each of the Engines shall be manufactured in accordance with, and, on the
Actual Delivery Date shall meet or exceed, the specifications and
requirements of Allison Specification C1051, dated September 1, 1998.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
10. STORAGE CHARGE
a. A per day storage charge equal to [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] per applicable Aircraft shall be
charged by Embraer to Buyer commencing on:
1. The Scheduled Inspection Date if Buyer fails to perform
inspection or re-inspection of an Aircraft, within the times
specified in this Agreement, until such inspection or
re-inspection is performed and if this Agreement is not
terminated earlier.
2. The Aircraft's Actual Delivery Date if Buyer fails when otherwise
required by this Agreement to remove an Aircraft from Embraer's
facilities within three (3) Business Days of the Actual Delivery
Date of such Aircraft until such Aircraft is removed, and if this
Agreement is not terminated earlier.
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 11 of 49
<PAGE> 16
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
c. Buyer shall pay the storage charge as set forth in this Article 10, as
applicable, in US dollars five [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] after the presentation of an invoice
by Embraer for such storage charges.
11. DELAYS IN DELIVERY
a. TIMELINESS REQUIRED
Except as provided in paragraph b. of this Article, Embraer warrants
that there shall be no delays in Actual Delivery of the Aircraft and:
(i) Agrees that in the event Embraer notifies Buyer of such a delay
(which notification occurs [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] or more prior to the
Scheduled Delivery Date) then, after [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION] Days unexcused
delay, Embraer shall pay Buyer as liquidated damages the amounts
listed in the following schedule:
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
(ii) Agrees that in the event Embraer notifies Buyer of a delay
(which notification occurs less than [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION] prior to the
Scheduled Delivery Date) then, [CONFIDENTIAL PORTION OMITTED AND
FILED SEPARATELY WITH THE COMMISSION] unexcused delay, it shall
pay Buyer, as liquidated damages, the amounts listed in the
following schedule:
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
In the event that Embraer fails to deliver an Aircraft which fully
conforms to the delivery specifications set forth herein, Buyer shall
not be required to accept such Aircraft until it complies with such
delivery specifications and (provided that Buyer has performed, after
Embraer having timely afforded Buyer an opportunity to do so, a
general inspection at least five (5) Business Days prior to the
Scheduled Delivery Date and performed an acceptance test flight at
least three (3) Business Days prior to the Scheduled Delivery Date in
accordance with Article 7 of this Agreement), Embraer shall, after the
five (5)
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 12 of 49
<PAGE> 17
Business Days period described above, be liable for damages as
provided in this Article.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
b. EXCUSED DELAY
Neither Party shall be responsible for delays in delivery of Aircraft
to the extent caused by (each referred to as an "Excused Delay") (i)
acts of God, riots, wars, natural disasters, fires, floods,
explosions, third-party criminal acts, earthquakes, serious accidents,
epidemics, quarantine restrictions, acts of government (except as
otherwise provided for in Article 13.f. and Section 10 of Letter
Agreement I hereof), or [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION] or provide any information as provided
by this Agreement.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
c. LOSS OF AIRCRAFT PRIOR TO DELIVERY
In the event that, prior to the Actual Delivery Date, any Aircraft is
lost, destroyed, or damaged beyond economic repair, and consequently
cannot be delivered as provided in this Agreement, Buyer shall have
the right to either:
1. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
2. Terminate this Agreement with respect to the lost, destroyed, or
damaged Aircraft and receive a complete refund (irrespective of
any other provisions of this Agreement regarding
non-refundability of such items) of all deposits and progress
payments associated with such Aircraft (with interest at the rate
of [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] per annum from the time of payment of such deposits
and payments through the date of termination) associated with
such Aircraft.
12. INSPECTION AND QUALITY CONTROL
a. Buyer is hereby allowed to have, at any and all times during normal
business hours, one or more authorized representatives at Embraer's
facilities in order to assure that the Aircraft, IP Spares and
Services are manufactured or performed in accordance with the
procedures specified in this Agreement and according to all applicable
quality control standards. Upon a request by
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 13 of 49
<PAGE> 18
Buyer, Embraer shall use reasonable commercial efforts to arrange for
such representative to visit the facilities of Embraer's suppliers.
Buyer shall communicate to Embraer the names of such authorized
representatives, by means of notice, at least thirty (30) days prior
to each Aircraft's Scheduled Delivery Date.
b. Buyer shall communicate the names of its authorized representatives to
sign the acceptance and transfer of title and risk documents and
accept delivery of the Aircraft and IP Spares pursuant to Article 7,
at least [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] prior to each Scheduled Delivery Date.
c. For the purposes hereof, Embraer shall provide at no cost to Buyer,
reasonable office space and communication facilities (telephone and
facsimile) for Buyer's authorized representatives, as well as the
necessary tools, measuring devices, test equipment and technical and
other assistance as may be necessary to perform acceptance tests.
d. Buyer's authorized representatives shall be provided with all
appropriate Embraer rules and regulations upon arrival and shall
observe Embraer's administrative rules and instructions while at
Embraer's facilities.
e. Buyer's authorized representatives shall be allowed exclusively in
those areas related to the subject matter hereof and Buyer agrees to
hold harmless Embraer from and against all and any kind of liabilities
in respect of and to the extent caused by such representatives, for
whom Buyer is solely and fully responsible under all circumstances and
in any instance except as provided in Article 33.
13. CHANGES
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
14. WARRANTY/GUARANTEE
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
15. TECHNICAL ASSISTANCE SERVICES
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
16. SPARE PARTS SUPPLY
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 14 of 49
<PAGE> 19
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
17. PUBLICATIONS
a. Aircraft Publications - Embraer shall supply, at no cost to Buyer,
copies of the operational and maintenance publications applicable to
the Aircraft, in the English language, that are listed in, and in the
quantities as specified in this Article. Such publications are issued
under the applicable specification and are available in hard copies
(and to the extent available shall be offered in digital or microfilm
format and software at a price to Buyer equal to Embraer's cost) and,
as provided below, in CD ROM. The revision service for these
publications shall be provided by Embraer, free of charge, excluding
mailing services [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION] Such publications shall be delivered as
reasonably agreed to by the Parties, to the maximum allowed for under
this Article.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
b. Vendor Item Publications - With respect to vendor items installed in
the Aircraft which have their own publications, Buyer shall receive
such publications in the quantity specified in Article 17.c., in their
original content and printed form, directly from the suppliers, which
are also responsible to keep them continuously updated through a
direct communication system with Buyer.
c. List of Publications - The technical publications covering operation
and maintenance shall be delivered to Buyer in accordance with the
following list:
OPERATIONAL
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
In the event Buyer elects not to take all or any one of the
publications above mentioned, or revisions thereof, no refund or
other financial adjustment of the Basic Price will be made.
18. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
19. AIRCRAFT PURCHASE OPTIONS
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 15 of 49
<PAGE> 20
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
24. ASSIGNMENT
Except as set forth in Article 14, neither Party may assign, convey,
subcontract, transfer or delegate this Agreement or any part hereof or
any of such Party's rights, duties or obligations hereunder, without the
prior written consent of the other Party; provided, however, that any
such consent to such assignment, conveyance, subcontracting, transfer or
delegation shall not relieve the assigning Party of any of its
obligations under this Agreement. Any attempted assignment,
subcontracting or delegation which does not comply with this Article
shall be null and void. Notwithstanding the foregoing provisions of this
Article 24, Buyer may assign this Agreement or any or all of its rights
hereunder to purchase any one or more of the Firm Aircraft or Option
Aircraft to (a) American Eagle Airlines, Inc. and (b) any one or more
other majority owned subsidiaries of Buyer or of AMR Corporation that is
incorporated under the laws of the United States or any state thereof or
any territory or possession of the United States; and provided that
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
guarantees the obligations of such assignee in the form attached as
Attachment L hereto. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION]
25. RESTRICTIONS AND PATENT INDEMNITY
a. The sale and purchase contemplated hereby does not include the
transfer of designs, copyrights, patents, and other similar
intellectual property rights to Buyer. Embraer shall indemnify,
defend, and hold Buyer harmless from and against any and all Claims
(as defined in Article 33 hereof) made against any Buyer Indemnitees
that the Aircraft, or any part thereof, infringes any design,
copyright, patent or similar right of others.
b. If any Claim is made or brought against any Buyer Indemnitees for
infringement or if Buyer receives a written claim alleging
infringement, Buyer shall promptly give notice thereof to Embraer.
26. MARKETING / PROMOTIONAL RIGHTS [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
27. TAXES
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 16 of 49
<PAGE> 21
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
28. INTENTIONALLY LEFT BLANK
29. APPLICABLE LAW
This Agreement, and the rights and obligations of the Parties hereunder,
shall in all respects be governed by, and construed and interpreted in
accordance with, the laws [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION], and including all matters of
construction, validity and performance. Buyer and Embraer agree that all
disputes arising under this Agreement shall be resolved in accordance
with the procedures set forth in Article 30. [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
31. COMPLIANCE WITH LAWS
Each Party shall comply with all applicable laws, rules, and regulations
promulgated by Competent Authorities, with respect to that Party's
obligations under this Agreement, and with respect to all of the
transactions contemplated hereby. [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
32. TERMINATION
a. Except as otherwise provided in this Agreement, should either Party
fail to comply partially or completely with its obligations hereunder,
the other Party shall be entitled to give notice of such failure and
to require that such failure be remedied within the period specified
in that notice, which period shall not be less than five (5) days from
the date that the failing party receives such notice. Should such
failure be material and not be remedied within the period so
specified, then the Party who gave notice of such failure shall be
entitled to terminate this Agreement with respect to all remaining
Aircraft for which Actual Delivery has not yet occurred, and shall be
entitled to such other remedies as may be provided in this Agreement
and as may be available by law or in equity (subject to the limits
provided in this Agreement) along with reimbursement of costs incurred
in enforcing its rights and remedies, including reasonable attorney's
fees.
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 17 of 49
<PAGE> 22
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
33. INDEMNITY
a. Embraer shall indemnify, defend, and hold harmless Buyer and Buyer's
officers, directors, agents, employees, subsidiaries, affiliates, and
permitted assignees, and each of them (collectively, and including
without limitation Buyer, the "Buyer Indemnitees") from any and all
claims, suits, actions, judgments, fines, penalties, damages, losses,
and liabilities, including, but not limited to, third party claims and
reasonable attorneys' fees, costs of litigation, and other expenses
relating thereto, including the cost of establishing the right to
indemnification under this Article (collectively, the "Claims") which
may be made, asserted, assessed, or accrued against any Buyer
Indemnitee by reason of: [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
b. Buyer shall indemnify, defend, and hold harmless Embraer and Embraer's
officers, directors, agents, employees, subsidiaries, affiliates and
permitted assignees, and each of them (collectively, and including
without limitation Embraer, the "Embraer Indemnitees") from and
against all Claims which may be made, asserted, assessed, or accrued
against any Embraer Indemnitee by reason of: [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
c. In the event that any Claim is made or commenced against the Party
seeking indemnification hereunder or any Buyer Indemnitees or Embraer
Indemnitees, as applicable, the Party seeking indemnification
hereunder shall give prompt written notice thereof to the indemnifying
Party [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
e. The rights and obligations under this Article 33 will survive the
termination or expiration of this Agreement for any reason.
34. NOTICES
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
If to Buyer: AMR Eagle Holding Corporation.
4333 Amon Carter Boulevard
MD 5494
Fort Worth, Texas 76155
USA
Attn: Senior Vice President of Planning
Phone: [CONFIDENTIAL PORTION OMITTED
Fax: AND FILED SEPARATELY WITH THE
COMMISSION]
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 18 of 49
<PAGE> 23
With a copy to: American Airlines, Inc.
4333 Amon Carter Boulevard
MD 5675
Fort Worth, Texas 76155
USA
Attn: Corporate Secretary
Phone: [CONFIDENTIAL PORTION OMITTED
Fax: AND FILED SEPARATELY WITH THE
COMMISSION]
If to Embraer: Empresa Brasileira de Aeronautica, S.A.
Av. Brig. Faria Lima 2170
Sao Jose dos Campos, S.P. 12225
Brazil
Attn: Senior Manager-Contracts
Phone: [CONFIDENTIAL PORTION OMITTED
Fax: AND FILED SEPARATELY WITH THE
COMMISSION]
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
35. CONFIDENTIALITY
Buyer and Embraer understand that certain commercial, operational and
financial information contained in, or obtained pursuant to this
Agreement is considered by the Parties as privileged and confidential.
Buyer and Embraer each agrees that it shall treat this Agreement, all
provisions hereof, and such information as privileged and confidential
and shall not, without the prior written consent of the other Party,
disclose such Agreement or information to any other person except to its
auditors and legal counsel and except as may be required (i) by
applicable law or governmental regulations, or (ii) for financing the
Aircraft. In connection with any disclosure of this Agreement, any
provisions hereof, or such information in accordance with the terms of
this Article, Buyer or Embraer, as applicable, shall use reasonable
efforts to minimize the extent of disclosure and shall request and use
its reasonable efforts to obtain confidential treatment of this
Agreement, the provisions hereof, and such information. The Parties agree
to cooperate with each other in making and supporting any such request
for confidential information.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 19 of 49
<PAGE> 24
36. INTEGRATED AGREEMENT
All Attachments referred to in this Agreement and attached hereto are, by
such reference and attachment, incorporated in this Agreement.
37. EFFECT OF TERMINATION
In the event this Agreement is terminated, whether in whole or in part,
the Parties' obligations (including without limitation the Warranty, the
Service Life Policy and all the other customer and product support
obligations under this Agreement) with regard to Aircraft that have been
previously delivered will continue in full force and effect in accordance
with the terms of this Agreement.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
38. COUNTERPARTS
This Agreement may be signed by the Parties in any number of separate
counterparts with the same effect as if the signatures thereto and hereto
were upon the same instrument and all of which when taken together shall
constitute one and the same instrument.
39. ENTIRE AGREEMENT
This Agreement and all related written agreements constitute the entire
agreement of the Parties with respect to the subject matter hereof and
supersede all previous negotiations, representations and agreements
between the Parties, [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY
WITH THE COMMISSION]. This Agreement may not be altered, amended or
supplemented except by a written instrument executed by the Parties.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
41. TERMS
Technical and trade terms not otherwise defined herein shall have the
meanings assigned to them as generally accepted in the international
aircraft manufacturing industry.
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 20 of 49
<PAGE> 25
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
43. REMEDIES
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
For the avoidance of doubt, the specific remedy provided in each such
Article or Attachment or Letter Agreement I shall be exclusive only with
respect to the specific breach or default referenced in such section;
with respect to any other breaches or defaults not specified within the
Articles and Attachments referred to above, all remedies at law or in
equity shall be available.
44. INTENTIONALLY LEFT BLANK
45. INDEPENDENT CONTRACTOR
Each of the Parties is an independent contractor. Nothing in this
Agreement is intended or shall be construed to create or establish any
agency, partnership, joint venture, or fiduciary relationship between the
Parties. Neither Party nor any of its affiliates has any authority to act
for or to incur any obligations on behalf of or in the name of the other
Party or any of its affiliates.
46. CAPTIONS, HEREOF, INCLUDING
The captions and headings appearing in this Agreement have been inserted
as a matter of convenience and in no way define, limit or enlarge the
scope of this Agreement or any of the provisions hereof. "Including" or
"include" shall be deemed to mean "including without limitation" or
"include without limitation," respectively, unless otherwise specified in
this Agreement. All references in this Agreement to "herein," "hereof,"
"hereto," "hereby," or "hereunder" shall be deemed references to this
Agreement as a whole and not to any particular section, subsection,
article, subarticle, paragraph, subparagraph, sentence or clause of this
Agreement.
47. INTENTIONALLY LEFT BLANK
48. REPRESENTATIONS AND WARRANTIES
a. Effective as of the date of this Agreement and as of the Actual
Delivery of each Aircraft, Embraer represents and warrants that:
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 21 of 49
<PAGE> 26
1. Embraer is a corporation duly organized, validly existing and in
good standing under the laws of Brazil and has all necessary
corporate power and authority to conduct the business in which it
is currently engaged and to enter into and perform its
obligations under this Agreement.
2. Embraer has taken, or caused to be taken, all necessary corporate
action to authorize the execution and delivery of this Agreement
and the performance of its obligations hereunder.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
5. This Agreement has been duly authorized, executed and delivered
by Embraer and, assuming the due authorization, execution and
delivery hereof by the other Party constitutes the legal, valid
and binding obligation of Embraer enforceable against Embraer in
accordance with the terms hereof, except as such enforceability
may be limited by bankruptcy, insolvency, reorganization,
receivership, moratorium and other similar laws affecting the
rights of creditors generally and general principles of equity,
whether considered in a proceeding at law or in equity.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
b. Effective as of the date of this Agreement and as of the Actual
Delivery of each Aircraft, Buyer represents and warrants that:
1. Buyer is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has all
necessary corporate power and authority to conduct the business
in which it is currently engaged and to enter into and perform
its obligations under this Agreement.
2. Buyer has taken, or caused to be taken, all necessary corporate
action to authorize the execution and delivery of this Agreement
and the performance of its obligations hereunder.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
5. This Agreement has been duly authorized, executed and delivered
by Buyer and, assuming the due authorization, execution and
delivery hereof by the other Party constitutes the legal, valid
and binding obligation of Buyer enforceable against Buyer in
accordance with the
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 22 of 49
<PAGE> 27
terms hereof, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, receivership, moratorium
and other similar laws affecting the rights of creditors
generally and general principles of equity, whether considered in
a proceeding at law or in equity.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
49. TIME
Time is of the essence with respect to the performance of the provisions
hereof.
50. FURTHER ASSISTANCE
Each Party shall do and perform, at such Party's expense, such further
acts and execute and deliver such further instruments and documents as
may be required by applicable law, rule or regulation or as may be
reasonably requested by the other Party to effectuate the purposes of
this Agreement.
51. SEVERABILITY
Except as otherwise set forth in this Agreement, if either Party receives
in writing any indication from a competent governmental, judicial or
administrative authority to the effect that any part of this Agreement
contravenes any applicable law, rule or regulation, and cannot qualify
for any clearance or exemption, or if any part of this Agreement is, or
shall become, or shall be declared illegal, invalid or unenforceable in
any jurisdiction for any reason (including both by reason of the
provisions of any legislation and also by reason of any decision of any
competent governmental, judicial or administrative authority, either
having jurisdiction over this Agreement or having jurisdiction over any
Party), such part shall be severed from this Agreement in the
jurisdiction in question and such contravention, illegality, invalidity
or unenforceability shall not in any way prejudice or affect the
remaining parts of this Agreement which shall continue in full force and
effect. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
52. NO WAIVER
No waiver of any breach or obligation under this Agreement by either
Party shall constitute a waiver of any subsequent similar breach or
obligation or of any other provision hereof. No waiver shall be effective
unless made in writing and signed by a duly authorized representative of
the waiving Party.
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 23 of 49
<PAGE> 28
53. COSTS
Each Party shall bear its own costs of attorneys, accountants and
financial advisors in connection with the preparation, negotiation and
execution of this Agreement.
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 24 of 49
<PAGE> 29
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed
and delivered by their proper and duly authorized officers and to be effective
as of the day and year first above written.
EMBRAER - EMPRESA BRASILEIRA AMR EAGLE HOLDING CORPORATION
DE AERONAUTICA S.A.
By: By:
-------------------------------- ---------------------------------
Name: Name:
------------------------------ -------------------------------
Title: Title:
----------------------------- ------------------------------
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Witness: Witness:
--------------------------- ----------------------------
Name: Name:
------------------------------ -------------------------------
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement Page 25 of 49
<PAGE> 30
ATTACHMENT A
EMB-135
AIRCRAFT SPECIFIC CONFIGURATION,
FINISHING AND REGISTRATION MARKS
1. BUYER'S SPECIFIC CONFIGURATION
1.1. [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION]
1.4. INTENTIONALLY LEFT BLANK
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
1.8. INTENTIONALLY LEFT BLANK
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
3. FINISHING
a. EXTERIOR FINISHING:
The Aircraft shall be painted according to Buyer's color and
paint scheme [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
b. INTERIOR FINISHING:
Buyer has informed Embraer of its choice of materials and
colors [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION] interior finishing [CONFIDENTIAL PORTION
OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
4. REGISTRATION MARKS
The Aircraft shall be delivered to Buyer with the registration marks
painted on them. Buyer shall supply Embraer with the applicable
registration marks for the applicable Aircraft no later than
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
before each relevant
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement- Attachment A Page 1 of 8
<PAGE> 31
Scheduled Delivery Date; [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION].
IF THERE IS ANY CONFLICT BETWEEN THE TERMS OF THIS ATTACHMENT A AND THE TERMS OF
THE TECHNICAL DOCUMENTS, THE TERMS OF THIS ATTACHMENT A SHALL PREVAIL.
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement- Attachment A Page 2 of 8
<PAGE> 32
ATTACHMENT B
EMB-135
FERRY EQUIPMENT [CONFIDENTIAL PORTION OMITTED AND FILED
SEPARATELY WITH THE COMMISSION]
1. FERRY EQUIPMENT
If it is necessary for any ferry equipment to be installed by Embraer
for the ferry flight of any Aircraft between Brazil and United States,
Embraer shall provide such necessary equipment to Buyer [CONFIDENTIAL
PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]. Buyer shall
immediately upon its arrival remove such ferry equipment from the
Aircraft and return it to Embraer in Brazil at Buyer's own expense.
The ferry equipment shall be returned complete and in the condition it
was in at the time placed on the Aircraft for the ferry flight. Buyer
shall fully indemnify Embraer for the value of such equipment
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION].
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement- Attachment B Page 1 of 1
<PAGE> 33
ATTACHMENT C
EMB-135
AIRCRAFT WARRANTY
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement- Attachment C Page 1 of 4
<PAGE> 34
ATTACHMENT D
EMB-135
ESCALATION FORMULA
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement- Attachment D Page 1 of 5
<PAGE> 35
ATTACHMENT E
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
<PAGE> 36
ATTACHMENT F
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement- Attachment F Page 1 of 10
<PAGE> 37
ATTACHMENT G
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement- Attachment G Page 1 of 1
<PAGE> 38
TABLE 1 TO
ATTACHMENT G
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
Page 1 of 28
<PAGE> 39
ATTACHMENT H
EMB-135 AND EMB-145
SPARE PARTS POLICY & PRODUCT SUPPORT
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
2. PRODUCT SUPPORT
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement- Attachment H Page 1 of 10
<PAGE> 40
ATTACHMENT I
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement- Attachment I Page 1 of 2
<PAGE> 41
ATTACHMENT J
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement- Attachment J Page 1 of 2
<PAGE> 42
ATTACHMENT K
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement-Attachment K Page 1 of 2
<PAGE> 43
ATTACHMENT L
FORM OF [CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH
THE COMMISSION] GUARANTY
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
Dated: ,
--------------- -----
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
By:
-------------------------
Name:
Title:
- --------------------------------------------------------------------------------
EMB-135 LR Purchase Agreement- Attachment l Page 1 of 5
<PAGE> 44
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE
COMMISSION] LETTER AGREEMENT I DCT-040/98
[CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE COMMISSION]
IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed
and delivered by their proper and duly authorized officers and to be effective
as of the day and year first above written.
AMR EAGLE HOLDING CORPORATION EMBRAER - EMPRESA
BRASILEIRA DE AERONAUTICA S.A.
By: By:
-------------------------------- ---------------------------------
Name: Name:
------------------------------ -------------------------------
Title: Title:
----------------------------- ------------------------------
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
Witness: Witness:
--------------------------- ----------------------------
Name: Name:
------------------------------ -------------------------------
- --------------------------------------------------------------------------------
[CONFIDENTIAL PORTION OMITTED AND FILED Page 1 of 20
SEPARATELY WITH THE COMMISSION]
Letter Agreement 1
<PAGE> 1
EXHIBIT 12
AMR CORPORATION
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Earnings:
Earnings from continuing operations
before income taxes and extraordinary loss $ 360 $ 326 $1,596 $1,624 $2,164
Add: Total fixed charges (per below) 1,469 1,522 1,313 1,189 1,141
Less: Interest capitalized 22 14 10 20 104
------ ------ ------ ------ ------
Total earnings $1,807 $1,834 $2,899 $2,793 $3,201
====== ====== ====== ====== ======
Fixed charges:
Interest $ 633 $ 682 $ 513 $ 419 $ 369
Portion on rental expense representative
of the interest factor 828 831 796 767 767
Amortization of debt expense 8 9 4 3 5
------ ------ ------ ------ ------
Total fixed charges $1,469 $1,522 $1,313 1,189 1,141
====== ====== ====== ====== ======
Ratio of earnings to fixed charges 1.23 1.20 2.21 2.35 2.81
====== ====== ====== ====== ======
</TABLE>
<PAGE> 1
EXHIBIT 21
AMR CORPORATION
SUBSIDIARIES OF THE REGISTRANT
AS OF DECEMBER 31, 1998
Subsidiary companies of the Registrant are listed below. With respect to the
companies named, all voting securities are owned directly or indirectly by the
Registrant, except where otherwise indicated.
<TABLE>
<CAPTION>
STATE OR
SOVEREIGN POWER
NAME OF SUBSIDIARY OF INCORPORATION
- ------------------ ----------------
<S> <C>
Subsidiaries included in the Registrant's consolidated financial statements
Airline Management Services Holding, Inc. Nevada
Airline Management Services, Inc. Delaware
Aurora Airline Investments, Inc. Delaware
American Airlines, Inc. Delaware
Admirals Club, Inc. (Massachusetts only) Massachusetts
AEROSAN (50%) Chile
American Airlines Australian Tours, Inc. Delaware
American Airlines de Mexico, S.A. Mexico
American Airlines de Venezuela, S.A. Venezuela
American Airlines Deutschland Holding GmbH Germany
American Airlines Fuel Corporation Delaware
American Airlines Holding Company, Inc. Delaware
American Holidays Limited (50/50 AA/AMR) United Kingdom
American Airlines Overseas Finance, N.V. Neth. Antilles
AMR Aircraft Sales & Leasing Company Delaware
AMR Ventures III, Inc. Delaware
Bonanza Acquisitions, Inc. Nevada
Texas Aero Engine Services, L.L.C, dba TAESL (50/50 AA/Rolls-Royce) Delaware
Americas Ground Services, Inc. Delaware
Aerodespachos Colombia, S.A. Colombia
Caribbean Dispatch Services, Ltd. St. Lucia
Dispatch Services 93, S.A. Venezuela
DSA Dominican Republic
International Ground Services, S.A. de C.V. Mexico
Panama Dispatch Panama
Peru Dispatch Company Peru
AMR/American Airlines Foundation Texas
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
STATE OR
SOVEREIGN POWER
NAME OF SUBSIDIARY OF INCORPORATION
- ------------------ ----------------
<S> <C>
AMR Eagle Holding Corporation Delaware
AMR Commuter Finance, Inc. Delaware
AMR Eagle, Inc. Delaware
American Eagle Airlines, Inc. Delaware
AMR Eagle Maintenance Services Group, Inc. Delaware
AMR Eagle Regional Aircraft Maintenance Center, Inc. Delaware
AMR Leasing Corporation. Delaware
Aero Perlas (20%) Panama
Eagle Aviation Leasing, Inc. Delaware
Eagle Aviation Services, Inc. Delaware
Executive Airlines, Inc. Delaware
Wings West Aviation Services, Inc. Delaware
AMR Financial Services, Inc. Delaware
AMR Foreign Sales Corporation, Ltd. Bermuda
AMR Holding Company, Inc. Delaware
AMR Investment Services, Inc. Delaware
AMR Services Holding Corporation Delaware
AMR Services Corporation Delaware
AMR Airline Services Fueling (Hong Kong) Limited (99%) Hong Kong
AMR Combs, Inc. Delaware
Aircraft Deicing Services, Inc. Delaware
Aircraft Deicing Services Funding, Inc. Delaware
AMR Combs-Birmingham, Inc. Alabama
Aviation Training Institute LLC (50%) Delaware
AMR Polskie Uslugi Lotniskowe Poland
AMR Services & Logistics of Mexico, S.A. de C.V. (99%) Mexico
AMR Services UK Ltd. United Kingdom
AMR Services (Deutschland) GmbH Germany
AMR Services Security Service Corporation Delaware
AMRS Finance Company Delaware
AMRS France Holding, S.A. France
Societe de Fret et de Services France
SHS Sociedad de Handling Servicios, S.A. Spain
Miami International Airport Cargo Facilities & Services, Inc. Florida
AMR Global Services Corporation Delaware
AMR Training Group, Inc. Delaware
TeleService Resources, Inc. Delaware
TSR Government Services, Inc. Delaware
Avion Assurance Ltd. Bermuda
Cargo Services, Inc. Delaware
SC Investment, Inc. Delaware
The C.R. Smith Aviation Museum Foundation Delaware
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
STATE OR
SOVEREIGN POWER
NAME OF SUBSIDIARY OF INCORPORATION
- ------------------ ----------------
<S> <C>
The Sabre Group Holdings, Inc. (82.4% economic interest) Delaware
The Sabre Group, Inc. Delaware
Axess International Network, Inc. (25%) Japan
ENCOMPASS Holding, Inc. Delaware
Prize Ltd. (50%) Latvia
Sabre Decision Technologies International, Inc. Delaware
Sabre Decision Technologies (Australia) Pty Ltd. Australia
Sabre Group International Limited, formerly
INHOCO 858 Limited United Kingdom
Sabre Decision Technologies Licensing, Inc. Delaware
Sabre Enterprises, Inc. Delaware
Sabre International, Inc. Delaware
Sabre CIS Holdings, Inc. Delaware
Sabre Belgium (99%) Belgium
Sabre Computer-Reservierungssystem GmbH Austria
Sabre Danmark ApS Denmark
Sabre Deutschland Marketing GmbH Germany
Sabre Deutschland Services GmbH Germany
Sabre Espana Marketing, S.A. (99%) Spain
Sabre Europe Management Services Ltd. (99%) United Kingdom
Sabre France Sarl France
Sabre Hellas SA Greece
Sabre Ireland Limited Ireland
Sabre Italia S.r.l. (99%) Italy
Sabre Marketing Nederland BV The Netherlands
Sabre Norge AS Norway
Sabre Portugal Servicos LDA (99%) Portugal
Sabre Servicios Colombia LTDA (99%) Colombia
Sabre Suomi Oy Finland
Sabre Sverige AB Sweden
Sabre UK Marketing Ltd. (99%) United Kingdom
STIN Luxembourg S.A. (99%) Luxembourg
Sabre International Holdings, Inc. Delaware
Sabre Limited New Zealand
Sabre Soluciones de Viaje S. de R.L. de C.V. (99%) Mexico
Sabre Information S.A. de C.V. (99%) Mexico
Sabre Technology Enterprises, Ltd. Cayman Islands
Sabre Technology Enterprises II, Ltd. Cayman Islands
The Sabre Group International (Bahrain) W.L.L. Bahrain
Sabre Technology Holland, B.V. The Netherlands
SST Finance, Inc. Delaware
SST Holding, Inc. Delaware
Sabre Sociedad Technologica S.A. de C.V. (51%) Mexico
Sabre Services Administration Mexico
The Sabre Group Sales (Barbados) Ltd. Barbados
Ticketnet Corporation Canada
148548 Canada, Inc. Canada
TSGL, Inc. Delaware
TSGL Holding, Inc. Delaware
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in Registration Statements
(Form S-8 No. 2-68366, Form S-8 No. 33-60725, Form S-8 No. 33-60727, Form S-8
No. 333-13751, Form S-8 No. 333-19325, Form S-8 No. 333-70239, Form S-3 No.
33-42027, Form S-3 No. 33-46325, and Form S-3 No. 33-52121, Form S-3 No.
333-68211) of AMR Corporation, and in the related Prospectuses, of our reports
dated January 18, 1999, except for the last paragraph of Note 2 and the last
paragraph of Note 3, for which the date is February 22, 1999, with respect to
the consolidated financial statements and schedule of AMR Corporation included
in this Annual Report (Form 10-K) for the year ended December 31,1998.
ERNST & YOUNG LLP
Dallas, Texas
March 17, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 95
<SECURITIES> 1,978
<RECEIVABLES> 1,574
<ALLOWANCES> 31
<INVENTORY> 596
<CURRENT-ASSETS> 4,875
<PP&E> 22,981
<DEPRECIATION> 8,595
<TOTAL-ASSETS> 22,303
<CURRENT-LIABILITIES> 5,639
<BONDS> 4,200
0
0
<COMMON> 1,969
<OTHER-SE> 4,729
<TOTAL-LIABILITY-AND-EQUITY> 22,303
<SALES> 0
<TOTAL-REVENUES> 19,205
<CGS> 0
<TOTAL-COSTS> 16,867
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 372
<INCOME-PRETAX> 2,164
<INCOME-TAX> 858
<INCOME-CONTINUING> 1,306
<DISCONTINUED> 8
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,314
<EPS-PRIMARY> 7.78
<EPS-DILUTED> 7.52
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 62
<SECURITIES> 2,370
<RECEIVABLES> 1,319
<ALLOWANCES> 18
<INVENTORY> 626
<CURRENT-ASSETS> 4,986
<PP&E> 20,975
<DEPRECIATION> 7,816
<TOTAL-ASSETS> 20,859
<CURRENT-LIABILITIES> 5,572
<BONDS> 3,877
0
0
<COMMON> 2,801
<OTHER-SE> 3,415
<TOTAL-LIABILITY-AND-EQUITY> 20,859
<SALES> 0
<TOTAL-REVENUES> 18,184
<CGS> 0
<TOTAL-COSTS> 16,277
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 420
<INCOME-PRETAX> 1,624
<INCOME-TAX> 651
<INCOME-CONTINUING> 973
<DISCONTINUED> 12
<EXTRAORDINARY> 985
<CHANGES> 0
<NET-INCOME> 985
<EPS-PRIMARY> 5.52
<EPS-DILUTED> 5.39
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 61
<SECURITIES> 1,743
<RECEIVABLES> 1,310
<ALLOWANCES> 11
<INVENTORY> 622
<CURRENT-ASSETS> 4,366
<PP&E> 20,146
<DEPRECIATION> 6,945
<TOTAL-ASSETS> 20,451
<CURRENT-LIABILITIES> 5,532
<BONDS> 4,527
0
0
<COMMON> 3,257
<OTHER-SE> 2,411
<TOTAL-LIABILITY-AND-EQUITY> 20,451
<SALES> 0
<TOTAL-REVENUES> 17,364
<CGS> 0
<TOTAL-COSTS> 15,557
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 514
<INCOME-PRETAX> 1,596
<INCOME-TAX> 513
<INCOME-CONTINUING> 1,083
<DISCONTINUED> 22
<EXTRAORDINARY> (89)
<CHANGES> 0
<NET-INCOME> 1,016
<EPS-PRIMARY> 5.90
<EPS-DILUTED> 5.59
</TABLE>
