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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15 (d) OF THE
SECURITY EXCHANGE ACT OF 1934
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
_________________________
USAir Group, Inc.
(Commission file number: 1-8444)
and
USAir, Inc.
(Commission file number: 1-8442)
(Exact names of registrants as specified in their charters)
Delaware USAir Group, Inc. 54-1194634
(State of incorporation USAir, Inc. 53-0218143
of both registrants) (I.R.S. Employer Identification Nos.)
USAir Group, Inc.
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 418-5306
(Registrant's telephone number)
USAir, Inc.
2345 Crystal Drive, Arlington, Virginia 22227
(Address of principal executive offices)
(703) 418-7000
(Registrant's telephone number)
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Registrant Title of each class on which registered
- ---------- ------------------- ----------------------
USAir Group, Inc. Common Stock, par New York Stock Exchange
value $1.00 per
share
Preferred Share New York Stock Exchange
Purchase Rights
expiring 1996
Depositary Shares, New York Stock Exchange
each representing
1/100 of a share
of $437.50 Series
B Cumulative Convert-
ible Preferred Stock
USAir, Inc. 12-7/8% Senior New York Stock Exchange
Debentures due
2000
Indicate by check mark whether the registrants (1) have 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 and
(2) have been subject to such filing requirements for the past 90
days.
Yes x No
------------- -------------
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained in this
Form 10-K, and will not be contained, to the best of the regis-
trants' 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 of USAir Group,
Inc. held by non-affiliates on February 28, 1995 was approximately
$603,239,000. On February 28, 1995, there were outstanding
approximately 61,856,000 shares of Common Stock of USAir Group,
Inc. and 1,000 shares of Common Stock of USAir, Inc.
The registrant USAir, Inc. meets the conditions set forth in
General Instructions J(1)(a) and (b) of Form 10-K and is therefore
participating in the filing of this form in the reduced disclosure
format permitted by such Instructions.
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USAir Group, Inc.
and
USAir, Inc.
Form 10-K
Year Ended December 31, 1994
TABLE OF CONTENTS
Part I Page
Item 1. Business 1
Agreement in Principle with Pilots' Union 2
Significant Impact of Low Cost, Low Fare Competition 3
Industry Restructuring 6
General Industry Conditions 8
British Airways Announcement Regarding Additional
Investment in the Company 10
Deferral of Dividends 10
Rating Agencies Downgrade of the Company's and
USAir's Securities 11
Major Airline Operations 11
Regional Airline Operations 20
USAM Corp. 22
Employees 22
Jet Fuel 27
Insurance 28
Regulation 28
British Airways Investment Agreement 34
Item 2. Properties 43
Flight Equipment 43
Ground Facilities 44
Item 3. Legal Proceedings 47
Item 4. Submission of Matters to a Vote
of Security Holders 50
Part II
Item 5A. Market for USAir Group's Common Equity
and Related Stockholder Matters 51
Item 5B. Market for USAir's Common Equity and
Related Stockholder Matters 52
Item 6. Selected Financial Data 53
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TABLE OF CONTENTS
(Continued)
Part II (Continued) Page
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 54
Item 8A. Financial Statements and Supplementary
Information - USAir Group, Inc. 76
Item 8B. Financial Statements and Supplementary
Information - USAir, Inc. 116
Item 9. Changes In and Disagreements with
Accountants on Accounting and
Financial Disclosure 144
Part III
Item 10. Directors and Executive Officers of
USAir Group, Inc. 144
Item 11. Executive Compensation 152
Item 12. Security Ownership of Certain Beneficial
Owners and Management 169
Item 13. Certain Relationships and Related
Transactions 173
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 174
Financial Statements - USAir Group, Inc. 174
Financial Statements - USAir, Inc. 174
Financial Statement Schedules 174
Reports on Form 8-K 175
Exhibits 175
Signatures
USAir Group, Inc. 180
USAir, Inc. 183
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Part I
Item 1. Business
USAir Group, Inc. ("USAir Group" or the "Company") is a
corporation organized under the laws of the State of Delaware. The
Company's executive offices are located at 2345 Crystal Drive,
Arlington, Virginia 22227 (telephone number (703) 418-5306). USAir
Group's primary business activity is ownership of all the common
stock of USAir, Inc. ("USAir"), Allegheny Airlines, Inc. (which was
formerly Pennsylvania Commuter Airlines, Inc.) ("Allegheny"),
Piedmont Airlines, Inc. ("Piedmont") (formerly Henson Aviation,
Inc.), Jetstream International Airlines, Inc. ("Jetstream"), USAir
Fuel Corporation ("USAir Fuel"), USAir Leasing and Services, Inc.
("USAir Leasing and Services") and Material Services Company, Inc.
In May 1987, the Company acquired Pacific Southwest Airlines, which
merged into USAir on April 9, 1988. In November 1987, the Company
completed its acquisition of Piedmont Aviation, Inc., which merged
into USAir on August 5, 1989. On July 15, 1992, the Company sold
three wholly-owned subsidiaries, Piedmont Aviation Services, Inc.,
Air Service, Inc. and Aviation Supply Corporation. The former
subsidiaries were engaged in fixed base operations and the sale and
repair of aircraft and aircraft components. During the third
quarter of 1992, the Company merged one wholly-owned subsidiary,
Allegheny Commuter Airlines, Inc., into another, Pennsylvania
Commuter Airlines, Inc. (now Allegheny Airlines, Inc.).
USAir, a certificated air carrier engaged primarily in the
business of transporting passengers, property and mail, is the
Company's principal operating subsidiary, accounting for approxi-
mately 93% of USAir Group's operating revenues in 1994. USAir is
one of nine passenger carriers classified as "major" airlines
(those with annual revenues greater than $1 billion) by the U.S.
Department of Transportation ("DOT"). USAir enplaned more than
59.8 million passengers in 1994, and is the sixth largest United
States air carrier ranked by revenue passenger miles ("RPMs")
flown.
At January 4, 1995, USAir provided regularly scheduled jet
service through 119 airports to more than 152 cities in the
continental United States, Canada, the Bahamas, Bermuda, the Cayman
Islands, Jamaica, Puerto Rico, Germany, France, Mexico and the
Virgin Islands. USAir ceased scheduled service to the United
Kingdom in January 1994. See "British Airways Investment Agree-
ment" below. USAir's executive offices are located at 2345 Crystal
Drive, Arlington, Virginia 22227 (telephone number (703) 418-7000),
and its primary connecting hubs are located at the Pittsburgh,
Charlotte/Douglas, Philadelphia and Baltimore/Washington Interna-
tional ("BWI") Airports. As discussed below in "Significant Impact
of Low Cost, Low Fare Competition," a substantial portion of
USAir's RPMs is flown within or to and from the eastern United
States.
USAir Group and USAir have incurred substantial operating and
net losses since 1989. As discussed in greater detail below, USAir
is actively seeking to reduce its annual operating costs by $1
billion through a combination of labor and other cost reductions.
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USAir began negotiating with the unions representing certain of its
employees in March 1994. As described below in "Agreement in
Principle with Pilots Union," USAir signed an agreement in
principle on March 29, 1995 with the negotiating committee of the
Air Line Pilots Association ("ALPA") Master Executive Council for
substantial concessions. ALPA represents USAir's pilots and the
Master Executive Council is ALPA's governing body. This agreement
in principle is subject to many significant conditions, as
described below. It is uncertain whether USAir will be successful
in reaching agreements with its other unions and whether or when
any transactions with any of the unions will be consummated. As
discussed below in "Major Airline Operations," in March 1995, USAir
announced that it would cut capacity throughout its system by five
percent by July 1995 as part of its efforts to forge a profitable
airline built on the strengths of its hubs and other major east
coast urban centers. In addition, the Company is evaluating and
considering the risks associated with various strategic options,
including further downsizing.
The Company ended the first quarter of 1995 with approximately
$400 million in cash and short-term investments, substantially
higher than previously expected primarily due to the timing of
certain working capital activity. However, market, economic and
other factors discussed below could adversely affect the Company's
future liquidity position. See Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources."
Agreement in Principle with Pilots' Union
On March 29, 1995, USAir and the negotiating committee of the
ALPA Master Executive Council signed an agreement in principle on
wage and other concessions in exchange for financial returns and
governance participation for USAir's organized labor groups and
other employees. The agreement in principle is subject to many
significant conditions, including, without limitation, approval by
the USAir pilot Master Executive Council, ratification by the
pilots, negotiation and ratification of acceptable agreements
between USAir and its three other organized labor groups, either
the restructuring of the terms of USAir Group's publicly held
$437.50 Series B Cumulative Convertible Preferred Stock, without
par value (the "Series B Preferred Stock"), or the continued
deferral of dividends on this stock, approval of the boards of
directors of the Company and USAir and of the shareholders of the
Company and the execution of definitive documentation.
The board of directors of USAir Group (the "Board") held a
special meeting on April 5, 1995 to review the agreement in
principle with ALPA. It did not take any action with respect to
the proposed agreement. The Company plans to hold one or more
additional special Board meetings to consider developments in
USAir's ongoing negotiations with its unions and to analyze and
consider further the agreement in principle or any other agreement
reached with ALPA and any other agreements that may be reached with
USAir's other labor unions. Various parties who would be affected
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by the agreement in principle have expressed their unwillingness to
accept, or reservations about, certain terms of the tentative
agreement currently under discussion. Negotiations with respect to
this agreement are continuing. In addition, USAir continues to
negotiate with representatives of its other unions, but it is
uncertain whether any agreements will be reached.
No assurance can be given whether or when any transactions
with any of the unions will be consummated or what the terms of any
such transactions might be. If a transaction with one or more
unions is consummated, it would affect materially the disclosure
contained herein. The terms of any proposed transaction would be
described in a proxy statement to the Company's stockholders.
Significant Impact of Low Cost, Low Fare Competition
Most of USAir's operations are in competitive markets. USAir
and its regional affiliates experience competition in varying
degrees with other air carriers and with all forms of surface
transportation. USAir competes with at least one major airline on
most of its routes between major cities. Vigorous price competi-
tion exists in the airline industry, and competitors have frequent-
ly offered sharply reduced discount fares in many of these markets.
Airlines use discount fares and other promotions to stimulate
traffic during normally slack travel periods, to generate cash flow
and to increase relative market share in selected markets.
Discount and promotional fares are often subject to various
restrictions such as minimum stay requirements, advance ticketing,
limited seating and refund penalties. USAir has often elected to
match those discount or promotional fares. To the extent that low
fares continue and their depressive effect on revenues is not
offset by stimulation of additional traffic or by reduced costs,
USAir's and the Company's earnings and liquidity will continue to
be materially and adversely affected.
The dramatic expansion of low fare competitive service in many
of USAir's markets in the eastern U.S. during 1994 and USAir's
competitive response of reducing its fares up to 70% in certain
affected primary and secondary markets in order to preserve its
market share contributed to greater losses in 1994 than in 1993.
The growth of the operations of low cost, low fare carriers in
USAir's markets in the eastern U.S. continues to represent an
intense competitive challenge for USAir, which has higher operating
costs than its competitors. USAir believes that it must reduce its
operating costs substantially if it is to survive in this low fare
competitive environment.
In September 1993, Southwest Airlines, Inc. ("Southwest"), a
low cost, low fare, "no frills" air carrier which had not previous-
ly provided service to or in the eastern U.S., inaugurated service
to Chicago and Cleveland from BWI at fares substantially below
those previously offered by USAir and other airlines in the same
markets. BWI is one of USAir's hub airports. USAir responded by
matching most of Southwest's fares and increasing the frequency of
service in related markets. In late spring and early summer 1994,
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Southwest expanded service between BWI and Chicago and initiated
its low fare service between BWI and St. Louis and between BWI and
Birmingham, Alabama and Louisville, Kentucky. In response, USAir
matched most of Southwest's reduced prices where significant
traffic diversion was expected.
USAir believes that Southwest and other low cost carriers with
a significant cost advantage over USAir likely will expand their
operations to additional markets. For example, in December 1993,
Southwest completed its acquisition of Morris Air, a regional air
carrier with operations concentrated in the western U.S. This
acquisition will enable Southwest to divert resources to expand its
operations in the eastern U.S. Furthermore, in June 1994,
Southwest entered into a long-term agreement for the use of four
additional gates at BWI, where it currently operates from two
gates. Southwest will likely commence its use of those gates in
the third quarter of 1995. In addition, Southwest has reportedly
ordered approximately 25 airplanes scheduled for delivery in 1995.
Southwest could deploy those aircraft in markets served by USAir.
Finally, as discussed below, Southwest recently reached an
agreement with its pilots that provides for no wage increases for
five years. USAir views Southwest, which has one of the lowest
cost structures in the industry, as a serious competitive threat.
Any escalation by Southwest of low fare competition in USAir's
markets could have a material and adverse effect on USAir's
revenues, cash flow and liquidity.
In October 1993, Continental Airlines ("Continental"), which
had reorganized under bankruptcy proceedings earlier in 1993,
inaugurated low fare service on certain routes in the eastern U.S.
USAir is a competitor in most of the markets served by these
routes. Continental's operating costs are substantially lower than
those of USAir. Under its new program, Continental linked certain
cities independently of its hubs while continuing to provide many
of the same services that are available on its hub flights,
including advance seat assignment, frequent traveler mileage
credits and interline connections. At that time, USAir made a
measured response by matching most of the low fares offered by
Continental where the carriers were directly competitive.
During 1994, Continental increased its competitive threat by
substantially expanding the low fare program in additional markets
also served by USAir. In February 1994, to avoid a loss of market
share in the eastern U.S., USAir began to substantially lower its
fares in primary and secondary markets affected by the expansion of
Continental's low cost, low fare service branded "Continental
Lite." In late June 1994, Continental again expanded its service
in the eastern U.S. after reducing its Denver, Colorado operation.
By July 1994, markets from which USAir had historically generated
approximately 40% of its passenger revenue had the reduced fares in
place, reflecting fare reductions in certain markets of up to 70%
from previous levels. In September 1994, Continental escalated
competition by further reducing service at its Denver hub and
establishing a flight crew base at Greensboro, North Carolina.
These measures enabled Continental to expand further its high
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frequency, low fare service described above in additional short-
haul markets served by USAir. By late 1994, USAir competed with
Continental in primary and secondary markets from which USAir then
generated approximately 46% of its passenger revenue. Continental
could continue to redeploy its assets and offer other low fare
service in additional markets served by USAir, although, as
discussed below, Continental has recently begun to reduce its
Continental Lite service. See "Industry Restructuring."
In addition, other low cost carriers may enter other USAir
markets. For example, America West Airlines ("America West")
commenced service in April 1994 between Columbus, Ohio, where it
operates a hub, and Philadelphia, where USAir has a hub operation.
Other carriers, including some of the larger carriers, have also
developed or indicated their intent to develop similar low fare
short-haul service, such as United Air Lines' ("United") low cost,
low fare operation in the western United States discussed below.
New low cost airlines, including but not limited to ValuJet
Airlines ("ValuJet"), Carnival Air Lines, Inc. ("Carnival"), Kiwi
International Air Lines, Inc. ("Kiwi"), Air South, Inc. ("Air
South"), Eastwind Airlines ("Eastwind") and Nations Air Express
("Nations Air") have initiated or announced plans to initiate
service in some of USAir's markets. Nations Air initiated service
between Philadelphia and both Boston and Pittsburgh in March 1995
at fares substantially below those previously offered by USAir in
those markets. USAir immediately matched the fares offered by
Nations Air. Eastwind has indicated its intention to fly initially
from Trenton, New Jersey to Boston and thereafter possibly to add
service to Washington, D.C., Pittsburgh, Chicago and Florida.
By the end of February 1995, fare levels within the primary
and secondary Continental Lite market network had increased from
their dramatically lower levels in 1994. However, USAir, which
suffered a 9.6% decline in yield (passenger revenue per RPM) in
1994 from 1993, does not expect yields to return to their mid-1993
levels. While USAir believes it has benefitted from some of
Continental's and other airlines' schedule reductions discussed
below in "Industry Restructuring," these carriers continue to
represent competitive threats to USAir. USAir does not believe
that there has been a change in the public demand for generally
lower air fares. Regardless of recent capacity and fare changes in
the east coast markets, improved financial performance at USAir
will depend largely on whether its efforts to cut costs, as
described below, are successful.
Factors beyond the Company's control, such as a downturn in
the economy, a dramatic increase in fuel prices or intensified
industry fare wars, could have a material adverse effect on the
Company's and USAir's prospects, liquidity and financial condition.
Because the Company and USAir are highly leveraged and currently do
not have access to bank credit and receivables facilities which had
supplied a substantial portion of their liquidity, or to public
debt and equity markets because of their financial condition and
current financial outlook, they are more vulnerable to these
factors than are financially stronger competitors. In addition,
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despite the fact that a recent independent audit concluded that
USAir is being operated safely and in compliance with regulations
of the Federal Aviation Administration (the "FAA"), due to the two
aircraft accidents involving USAir in 1994 and the negative
publicity associated with these accidents, USAir may be particu-
larly susceptible to adverse passenger reactions should any other
aircraft accident or incident involving USAir occur in the future.
See "Major Airline Operations" for a discussion of the safety audit
and the Company's other recent safety initiatives. USAir is
currently engaged in discussions to arrange a replacement receiv-
ables facility. There can be no assurance that USAir will be
successful in reaching a new agreement to sell its receivables.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."
Industry Restructuring
Major carriers that compete with USAir have implemented, or
are in the process of implementing, measures to reduce their
operating costs. For example, United has substantially reduced its
personnel costs as part of a recapitalization transaction completed
in July 1994. The resulting lower operating costs will give United
a competitive advantage over carriers with higher costs. United
initiated its low cost, low fare operation in the western U.S. in
October 1994. As described below under "Major Airline Operations,"
USAir reduced its service between San Francisco and Los Angeles in
November 1994 and plans to close its crew base in San Francisco in
the first half of 1995. United could initiate additional low cost,
low fare service in other markets served by USAir. Delta Air
Lines, Inc. ("Delta") is currently engaged in a restructuring
initiative announced in April 1994 that is intended to reduce
substantially its operating costs through measures which include
the elimination of up to 15,000 positions, or approximately 20% of
its work force. Delta is currently in discussions with certain of
its employees regarding concessions. American Airlines ("Ameri-
can") has announced a restructuring of its non-union workforce and
that it is seeking $750 million in concessions and productivity
gains from its unionized workers. Trans World Airlines, Inc.
("TWA") has negotiated productivity improvements with its unionized
employees and has proposed a restructuring transaction in which,
among other things, certain creditors would swap debt for equity.
As discussed below, Continental announced plans in January 1995 to
eliminate up to 4,000 jobs. In January 1995, Southwest announced
that its pilots had ratified a 10-year labor contract that provides
for no wage increases in the first five years, providing for grants
of stock options to the pilots instead. USAir expects that the
implementation of this labor contract will further enhance
Southwest's low cost advantage over USAir and other carriers. The
announcements by Delta, American, TWA, Continental and Southwest
illustrate the trend among the major U.S. airlines to restructure
in order to reduce their operating costs and enable them to compete
in a low fare environment. See "Major Airline Operations" below
for a discussion of USAir's cost reduction initiatives.
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In its negotiations with its unions, USAir has offered an
ownership stake in the Company. There are recent examples of
companies in the airline industry which have obtained employee
concessions in agreements also resulting in the recapitalization of
the companies, including employee ownership stakes and employee
participation in corporate governance. Most recently, in July
1994, UAL Corporation, parent of United, consummated a recapital-
ization which resulted in majority ownership and board membership
for certain employee groups in exchange for concessions. In other
cases, airlines have filed for bankruptcy protection under Chapter
11 of the Bankruptcy Code, and some airlines have ceased operation
altogether when their operating costs remained excessive in
relation to their revenues, and their liquidity became insufficient
to sustain their operations.
In early 1995, various carriers announced planned cutbacks in
service in the eastern U.S. The "intra-east coast" area represents
67% of USAir's departures and slightly greater than half of its
seat capacity. In March 1995, USAir announced that it will cut
capacity throughout its system by five percent by July 1995. See
"Major Airline Operations." In January 1995, Continental announced
plans to reduce capacity by at least 10% and to eliminate 4,000
jobs nationwide as part of an effort to eliminate unprofitable
routes. Continental began cutting many of its Continental Lite
flights and stated that it intends to reduce Continental Lite
capacity by 40% by late summer 1995. Continental also announced
plans to delay or reschedule deliveries of jets from The Boeing
Company ("Boeing"). American has reduced its operations at
Raleigh/Durham ("RDU"). In January 1995, American and Chicago-
based Midway Airlines ("Midway") announced that American agreed to
lease seven airport gates at RDU to Midway. Midway stated that it
plans to move its operations headquarters to RDU and to operate at
least 60 flights from there by the end of the year. Northwest
Airlines, Inc. ("Northwest") has significantly reduced its activi-
ties in Washington, D.C. and Boston. By May 1995, TWA's daily
departures in the intra-east coast area will have decreased by
almost 75% from their peak in March 1994. United, which drastical-
ly cut the number of its daily departures in the intra-east coast
area from January 1993 to May 1994, has announced plans for further
reductions of almost 40% by May 1995. The result of these cutbacks
is that the older, established carriers will have decreased service
in the area by approximately 14% from May 1994 to May 1995.
However, several smaller carriers, including but not limited to
ValuJet, Carnival, Kiwi, Air South, Eastwind and Nations Air, have
increased the number of departures in this region during the same
time period or have announced plans to introduce or increase
service in this region.
In April 1994, Delta and Virgin Atlantic Airways ("Virgin
Atlantic") announced that they had reached a code share marketing
agreement that would enable Delta to feed traffic to Virgin
Atlantic for travel between the U.S. and Heathrow Airport in
London. This arrangement was approved by the U.K. government in
1994 and by the DOT in February 1995. The Company believes that
the Delta/Virgin Atlantic arrangement will compete with the code
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share service discussed below in "British Airways Investment
Agreement - Code Sharing" offered by USAir and British Airways Plc
("BA") between certain U.S. cities and London. United and
Lufthansa German Airlines ("Lufthansa") have implemented a code
share arrangement which includes transatlantic service from certain
U.S. cities to Europe and beyond. United and Lufthansa implemented
the first phase of their service in June 1994. The resulting
impact of these code share arrangements on the Company's results of
operations and financial condition cannot be predicted at this
time, but is not expected to be material.
In February 1995, several major carriers, including Delta,
American, Northwest, United, TWA and USAir, imposed limits on the
commissions they pay travel agents for domestic air fares.
Formerly, most major airlines paid a fixed commission of approxi-
mately 10% on the price of a ticket for the distribution of all
domestic tickets. The new cap limits commission payments to $50
for a round-trip domestic ticket with a base fare above $500 and
$25 for a one-way domestic ticket with a base fare above $250. The
new limits on commissions are designed to reduce one of airlines'
largest expenses. USAir believes that it will experience cost
savings through its implementation of a limit on the commissions it
pays travel agents for domestic air fares. As a result of the new
limits on commissions, some travel agents have announced plans to
charge some customers a fee for writing tickets. Other travel
agents have filed lawsuits against the airlines that imposed
commission caps, including USAir, claiming that the airlines
violated antitrust laws. See Item 3. "Legal Proceedings."
Various U.S. carriers have begun to implement electronic
ticketing or "paperless travel" in an attempt to cut their
operating costs and to increase travelers' convenience. Elec-
tronic ticketing eliminates the need to issue a paper ticket to the
passenger. USAir is evaluating electronic ticketing alternatives
and hopes to offer this product later in 1995. Electronic
ticketing is expected to reduce airline distribution costs, but at
this early stage in the evolution of electronic ticketing, the
magnitude and extent of distribution cost savings cannot be
predicted. Some airlines, including USAir, are also exploring the
use of self-ticketing machines in airports, which could also
eventually reduce distribution costs.
General Industry Conditions
Demand for air transportation historically has tended to
mirror general economic conditions. During the most recent
economic recession in the United States, the change in industry
capacity failed to mirror the reduction in demand for domestic air
transportation due primarily to continued delivery of new aircraft
and, secondarily, to the operation of certain major U.S. carriers
under the protection of Chapter 11 of the Bankruptcy Code for
extended periods. While industry capacity has leveled off and the
general economy has improved, the Company expects that the airline
industry will remain extremely competitive for the foreseeable
future, primarily due to the dramatic change which has occurred in
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industry pricing and which has resulted in generally lower fares.
See "Significant Impact of Low Cost, Low Fare Competition" above.
In 1994, the U.S. airline industry had its best year since the
recession began in July 1990, with several airlines posting
profits, although the major carriers continue to be burdened with
large amounts of debt. However, unlike the results of some of its
competitors, the Company's results did not improve in 1994. The
Company believes that for the foreseeable future the demand for
higher yield "business fares" will remain essentially flat and
relatively inelastic while the lower yield "leisure" market will
continue to grow with the general economy. This trend will make it
more difficult for the domestic airlines, including USAir, to
sustain meaningful yield increases in the future. Therefore, the
Company believes it must reduce its cost structure substantially in
order to survive.
Historically, the Company's airline operations have been
subject to seasonal variations in demand. First quarter results
have often been adversely affected by winter weather and, with
certain exceptions, reduced travel demand. Typically, the
industry's performance has been the best in the third quarter,
while the Company's results have been the best in the second
quarter. The restructuring of USAir's route system in recent years
to emphasize its strengths in the northeastern U.S. and to
capitalize in the first, second and fourth quarters on passenger
traffic to Florida may result in changes in historic seasonality.
Of the eleven airlines classified as "major" carriers by the
DOT in January 1991, two have ceased operations and three filed for
bankruptcy protection, reorganized and emerged from bankruptcy in
1993 and 1994. Airlines operating under Chapter 11 often engage in
discount pricing to generate the cash flow necessary for their
survival. In addition, when these airlines emerge from bankruptcy
they may have substantially reduced their debt and lease obliga-
tions and other operating costs, as was the case when Continental,
TWA and America West emerged. These reduced costs may permit the
reorganized carriers to enter new markets and offer discount fares,
which may be intended to generate cash flow, preserve and enhance
market share and rehabilitate the carriers' image in the market-
place. Since its reorganization, Continental has entered many of
USAir's markets in the eastern U.S. and offered fares that were
substantially lower than those that were previously available,
although it has recently begun to reduce its Continental Lite
service. See "Significant Impact of Low Cost, Low Fare Competi-
tion" and "Industry Restructuring" above. The availability of the
assets of bankrupt carriers enabled certain financially stronger
participants in the market, including, to a lesser extent, USAir,
to purchase routes, aircraft, takeoff and landing slots and other
assets. While capacity has been removed in certain domestic
markets, these bankruptcies and failures and the substantial debt
burden of many carriers illustrate the difficulties that the
airline industry continues to face today.
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British Airways Announcement Regarding Additional Investment in the
Company
As described in greater detail in "British Airways Investment
Agreement" below, on January 21, 1993, the Company and BA entered
into an Investment Agreement (as subsequently amended, the
"Investment Agreement"). Pursuant to the Investment Agreement, BA
has to date invested approximately $400 million in certain
preferred stock of the Company. The Company has deferred quarterly
dividend payments on all outstanding series of preferred stock
beginning with payments due September 30, 1994. Further, as of
December 31, 1994, the Company was unable to pay dividends on any
outstanding shares of its common stock, par value $1.00 per share
("Common Stock") or preferred stock due to limitations under
Delaware law. See "Deferral of Dividends" below and Item 8A. Note
8(a) to the Company's consolidated financial statements. The
Company benefitted from the additional equity provided by BA and
also from the resulting enhancement of the Company's image in the
marketplace and in the investment community. However, on March 7,
1994, BA announced that because of the Company's continued
substantial losses it would make no additional investments in the
Company until the outcome of the Company's efforts to reduce its
costs is known. See "Significant Impact of Low Cost, Low Fare
Competition" above and Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations -
Liquidity and Capital Resources." At the same time, BA indicated
it would continue to cooperate with USAir on the code sharing
arrangements discussed below.
Deferral of Dividends
Because of the Company's poor financial results, on Septem-
ber 29, 1994, the Company announced that it was deferring the
quarterly dividend payment due September 30, 1994 on the 358,000
shares of the Company's 9 1/4% Series A Cumulative Convertible
Redeemable Preferred Stock ("Series A Preferred Stock"). The
Series A Preferred Stock is owned by affiliates of Berkshire
Hathaway Inc. On March 13, 1995, Berkshire Hathaway Inc. announced
that it had recorded a pre-tax charge of $268.5 million to
recognize a decline in the value of its investment in the Series A
Preferred Stock that had an original cost of $358 million.
The Company has also deferred quarterly dividend payments on
all its other outstanding series of preferred stock, including the
Series F Cumulative Convertible Senior Preferred Stock, without par
value (the "Series F Preferred Stock"), and Series T Cumulative
Convertible Exchangeable Senior Preferred Stock, without par value
(the "Series T Preferred Stock"), both of which are owned by BA,
as well as on the publicly held Series B Preferred Stock. For a
description of the effects of the deferral of dividends, see Item
8A. Note 8 to the Company's consolidated financial statements.
The Company, organized under the laws of the State of
Delaware, is subject to statutory restrictions on the payment of
dividends according to capital surplus requirements of Delaware
10
<PAGE>
law. At December 31, 1994, the Company's capital surplus was
exhausted and therefore, under Delaware law, the Company is legally
restricted from paying dividends on all outstanding common and
preferred stock issuances. See Item 5A. "Market for USAir Group's
Common Equity and Related Stockholder Matters." The Company has
not paid a dividend on its Common Stock since the second quarter of
1990. Even if the Company is successful in restructuring its
costs, there can be no assurance when or if preferred dividend
payments will resume.
Rating Agencies' Downgrade of the Company's and USAir's Securities
The Company's and USAir's debt and equity securities are
presently rated below investment grade by Standard and Poor's
Corporation ("S&P") and Moody's Investors Service, Inc.
("Moody's"). In February 1994, as a result of USAir's low fare
initiative in certain markets and its high cost structure, S&P and
Moody's placed the securities of the Company and USAir on watch
with negative implications. On March 24, 1994, S&P downgraded the
Company's and USAir's securities. On September 29, 1994, following
the Company's announcement that it had deferred payment of
preferred dividends, Moody's and S&P further downgraded their
ratings of the Company's and USAir's securities. S&P continues to
keep the securities of the Company and USAir on watch with negative
implications. The ratings of the Company's and USAir's debt and
equity securities make it more difficult for the Company and USAir
to effect additional financing. On January 19, 1995, Moody's
announced that it is revising its ratings practice on airline
equipment trust and pass through obligations and would consider
assigning higher ratings to certain of these securities. At the
same time Moody's placed under review all existing airline
equipment trust certificates and pass through obligations (includ-
ing those of USAir) for possible upgrade. At this time, USAir does
not believe that an upgrade by Moody's would have any material
positive or negative effect on its ability to effect additional
financings. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and
Capital Resources."
Major Airline Operations
As discussed above, USAir is the Company's principal operating
subsidiary, accounting for approximately 93% of USAir Group's
operating revenues in 1994. USAir Group and USAir have incurred
substantial losses since 1989.
Yields at USAir started to erode in the fourth quarter of 1993
and declined versus the comparable quarter of 1992 due to the
proliferation of discount and promotional fares which were designed
to stimulate passenger traffic. Yields were even weaker in 1994
due primarily to USAir's action to reduce fares to remain competi-
tive with low cost, low fare carriers in many of USAir's markets in
the eastern U.S. During 1993, systemwide traffic was relatively
weak. In 1994, USAir's traffic was stronger than in 1993, although
the Company estimates that USAir's two aircraft accidents during
11
<PAGE>
the third quarter of 1994 resulted in reduced passenger traffic
that produced a revenue shortfall of approximately $150 million for
the year. By early 1995, traffic at USAir had recovered from the
effects of the accidents and approached a level normally associated
with USAir's capacity in the marketplace.
USAir implemented several operational changes during 1991
through 1994 in efforts to return to profitability, as discussed in
detail below, and it has announced plans for additional changes in
1995.
In March 1995, USAir disclosed plans to cut capacity through-
out its system by five percent as part of its efforts to return to
profitability. It intends to emphasize the strengths of its hubs
in Pittsburgh, Charlotte, Philadelphia and Baltimore, as well as
other major east coast urban centers. USAir expects that this
downsizing will produce over $100 million in annual financial
benefits. As a result of USAir's new capacity plan, by July 1995,
point-to-point flights will comprise less than 10% of the USAir
system. Approximately 240 flights will be eliminated and about 70
flights will be added. The additional service will include flights
to Frankfurt from Philadelphia and Boston, as discussed below, and
more flights to the west coast from Charlotte. USAir plans to use
regional aircraft in markets where passenger loads have been
consistently too low to sustain continued jet service. See
"Regional Airline Operations." These changes will be phased in
during April, May and June.
USAir, whose operating costs are the highest among the major
U.S. airlines, is actively pursuing several initiatives in an
effort to enhance revenues and to reduce its costs significantly in
order to survive in the current low fare competitive environment.
The Company's goal is to achieve a pre-tax margin of 3.0% in the
next one to two years and a 7.5% pre-tax margin longer term. USAir
implemented certain revenue enhancement and cost reduction programs
in 1994 and expects to continue and expand these programs and
initiate others in 1995, as discussed below. The Company believes
that it must reduce USAir's annual operating expenses by approxi-
mately $1 billion in order to achieve its margin goals.
The Company is seeking to realize half, or approximately $500
million, of the $1 billion of annual savings through reductions in
personnel costs, which are the largest single component of USAir's
operating costs (approximately 39%). USAir is engaged in discus-
sions with the leadership of its unionized employees regarding the
$500 million annual savings in personnel costs it desires to
achieve through wage and benefit reductions, improved productivity
and other cost savings. In August 1994, USAir received a proposal
regarding cost savings from ALPA, which represents USAir's pilot
employees, and shortly thereafter the Company announced that the
terms of ALPA's proposal were largely unacceptable. Although
discussions between the Company and ALPA continued, ALPA ceased
negotiations in early October following USAir's announcement of its
plan, described below, to dispose of its Boeing 767 fleet and
certain other aircraft. On October 25, 1994, Gerald L. Baliles,
12
<PAGE>
former Governor of Virginia, was appointed by Secretary of
Transportation Federico Pena as facilitator in the negotiations.
Former Governor Baliles also served in 1993 as chairman of the
National Commission to Ensure a Strong Competitive Airline
Industry. Discussions with the facilitator began on October 28,
1994. On February 6, 1995, USAir received a proposal from ALPA,
the International Association of Machinists ("IAM") and the
Transport Workers Union (the "TWU"). On February 22, 1995, the
Company responded with a counterproposal to these unions. On
March 29, 1995, USAir reached an agreement in principle with ALPA.
The agreement in principle is subject to many significant condi-
tions. See "Agreement in Principle with Pilots' Union" above.
USAir is continuing to negotiate with the labor unions representing
certain of its other employees. The timing and outcome of USAir's
discussions with its other labor unions are uncertain. No
assurance can be given whether or when any transactions with any of
the unions will be consummated or what the terms of any such
transactions might be. Even if the savings described above are
achieved, it remains uncertain whether they will be adequate in
light of the Company's financial condition and competitive
position. As a result of these uncertainties, several key
management personnel have recently left USAir, and more may follow
unless the Company's financial outlook improves.
The Company plans to achieve the majority of the remaining
$500 million in annual cost savings through a combination of
organizational and structural changes, reengineering and other
initiatives including:
* centralization of its purchasing functions;
* customer service realignment, including the transfer of
commuter handling to USAir Express operators;
* improvements in operations performance to increase crew
productivity;
* cargo, catering and communications outsourcing;
* maintenance operations organizational changes;
* a reengineering of its maintenance operations, reservations,
information services and operations research area; and
* rationalization of its jet fleet which will include the
elimination of certain fleet types, as described below.
Certain of the above initiatives are part of the Company's
"Management Action Plan." The Company expects to achieve at least
$250 million to $300 million of these savings in 1995. There can
be no assurance that these savings will be fully realized.
13
<PAGE>
In addition to the above cost-cutting initiatives, the Company
is focusing on other significant Management Action Plan items
designed to enhance revenues or further reduce costs. These
include:
* "quick turn" service (discussed below);
* a new inventory management system that allows USAir to better
allocate seats within various fare levels to produce a traffic
mix that maximizes revenues;
* synergies through the BA alliance (code sharing, frequent
flyer programs and joint sales promotions, ground handling and
purchasing); and
* a premium "Business Select" service (discussed below).
In February 1994, USAir inaugurated its quick turn, point-to-
point service mentioned above in 18 city-pair markets using 22
aircraft in a move intended to increase the utilization of its
existing aircraft, facilities and personnel and thereby reduce its
unit costs on those flights. The trial program consisting of 22
aircraft was shown to produce the desired results and in July 1994,
USAir expanded the quick turn service to approximately 165 markets
using approximately 100 aircraft. Currently, USAir is using quick
turn as an operating standard system-wide to increase aircraft
utilization and to improve schedules wherever expedient. Although
the expanded quick turn program is producing the intended results
with regard to aircraft utilization, there can be no assurance that
the quick turn service will generate sufficient additional revenue
to offset the increased costs associated with this service.
In addition, USAir hopes to attract additional higher yield
business passenger revenue through its implementation of a
convertible passenger cabin which allows USAir to offer a premium
service branded "Business Select" to these passengers, as referred
to above. USAir initiated the Business Select service in certain
markets on January 4, 1995. As of March 1995, Business Select was
available on 30 aircraft. USAir expects to determine whether to
expand Business Select later in 1995. At least one other major
U.S. airline, American, has announced plans to implement similar
service.
The Company is also evaluating other strategic options,
including further downsizing, which may be available to address the
difficult financial and competitive factors facing USAir.
From 1991 through the present, USAir has taken various steps
to reduce its operating costs and to augment or enhance its service
and, in addition or related to the initiatives described above, it
plans to make other efforts to achieve these goals. These histori-
cal and future efforts are described below.
14
<PAGE>
On May 2, 1991, USAir ceased operating its fleet of British
Aerospace BAe 146-200 ("BAe-146") aircraft, ceased serving eight
airports in California, Oregon and Washington, and eliminated some
flights at BWI and Cleveland Hopkins International Airports.
Although other service was added to partially offset these
reductions, the net effect was a decrease of approximately three
percent in USAir's system available seat miles ("ASMs"), and a net
reduction in scheduled departures of ten percent from January 1991
service levels. In connection with this restructuring, USAir
closed four flight crew bases, two heavy maintenance facilities and
one reservations office (these measures are collectively referred
to as the "May 1991 Restructuring"). (In April 1993, USAir
reintroduced long-haul service at John Wayne Airport in Orange
County, California, one of the airports that USAir ceased serving
in the May 1991 Restructuring). USAir has not resumed operation of
its BAe-146 aircraft. USAir owns one and leases seventeen of these
aircraft. USAir has continued to pay rent, insure the BAe-146
aircraft and perform its other obligations under the BAe-146
leases, except that USAir has not performed mandatory airworthiness
directives on these aircraft or engines as required by the leases.
USAir is storing the aircraft and related spare engines in
accordance with FAA-approved procedures and manufacturer guide-
lines. Maintenance reserves for the cost of airworthiness
directives compliance and lease return requirements have been
accrued by the Company. In the fourth quarter of 1994 the Company
recorded a non-recurring charge of approximately $132.8 million for
such non-operating aircraft. USAir continues, however, to pursue
remarketing opportunities for the BAe-146 aircraft.
In 1992, USAir purchased 62 jet take-off and landing slots and
46 commuter slots at LaGuardia Airport ("LaGuardia") and six jet
slots at Washington National Airport from Continental for $61
million. USAir also assumed Continental's leasehold obligations
associated with the East End Terminal at LaGuardia, which commenced
operations in September 1992, and a flight kitchen at LaGuardia.
As a result of the acquisition, USAir expanded its operations at
LaGuardia, including the initiation of non-stop service to nine
additional cities, five of which are in Florida. USAir Express
carriers used the commuter slots to expand service primarily to
cities in the northeastern United States. USAir sold substantially
all the assets associated with the flight kitchen operation in
October 1992.
USAir Group reached an agreement during 1992 with the
creditors of the Trump Shuttle to manage and operate the Shuttle
under the name "USAir Shuttle" for a period of up to ten years.
Under the agreement, USAir Group has an option to purchase the
shuttle operation on or after October 10, 1996. The USAir Shuttle
commenced operations in April 1992 between New York City, Boston
and Washington D.C.
15
<PAGE>
During 1993 and 1994 USAir and BA implemented code sharing
arrangements pursuant to the Investment Agreement. As of Decem-
ber 31, 1994, USAir and BA had implemented code sharing to 52 of
the 65 airports currently authorized by the DOT. See "British
Airways Investment Agreement" below.
In early 1994, USAir implemented certain measures previously
announced in 1993 to reduce its operating costs. These measures
included a workforce reduction of approximately 2,500 full time
positions and revision of USAir's vacation, holiday and sick leave
policy for non-union employees. The workforce reduction, which was
completed by the end of the first quarter of 1994, was comprised
primarily of the elimination of approximately 1,800 customer
service, 200 flight attendant and 200 maintenance positions. USAir
recorded a non-recurring charge of approximately $68.8 million
primarily in the third quarter of 1993 for severance, early
retirement and other personnel-related expenses in connection with
the workforce reduction.
In March 1994, USAir (i) purchased from United certain takeoff
and landing slots at Washington National Airport and LaGuardia;
(ii) purchased from United certain gates and related space at
Orlando International Airport and (iii) granted to United options
to purchase certain gates and related space, and a right of first
refusal to purchase certain takeoff and landing slots, at Chicago
O'Hare International Airport. In December 1993, USAir had reached
an agreement with United to negotiate a code sharing agreement with
United regarding USAir's flights to and from Miami and United's
flights between Miami and Latin America. Consummation of this
agreement was subject to a number of conditions. For a variety of
reasons, including rapidly changing market conditions and other
priorities within both companies, neither USAir nor United actively
pursued the negotiation of a code sharing agreement. At this time,
it appears unlikely the parties will consummate a code sharing
agreement.
In May 1994, USAir announced plans to subcontract air freight
and mail operations at 35 cities, which has affected approximately
600 of the fleet service employees. The United Steel Workers of
America ("USWA") and several individual employees subsequently
sought an injunction in a U.S. district court against the implemen-
tation of those plans. On July 14, 1994, the court denied the
plaintiffs' request for a preliminary injunction based on its
finding that the plaintiffs did not have legal standing to
represent USAir employees and had failed to demonstrate that they
would suffer irreparable harm as a result of the subcontracting.
In early 1995, USAir announced plans to subcontract air freight and
mail operations at four additional cities.
In November 1994, USAir reduced substantially the frequency of
its service between Los Angeles and San Francisco. It plans to
close its crew base in San Francisco in the first half of 1995.
See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" for information regarding a $25.9
million charge recorded as a result of this action.
16
<PAGE>
In February 1995, USAir reduced the number of departures at
Newark International Airport from 51 to 35 and further decreased
the number to 18 effective March 5. These moves are part of
USAir's strategy to use assets where they can be the most produc-
tive. The changes will result in lower staffing levels in customer
service and maintenance.
In response to the entry of certain low cost, low fare
competitors at BWI and as part of USAir's measures to reduce the
cost and increase the efficiency of its short haul service, USAir
substantially expanded its operations at BWI in 1994. Also in
1994, USAir added several new destinations to its flight schedule,
including Mexico City; St. Maarten; Jamaica; and Portland, Oregon.
In February 1995, USAir announced plans to realign its Frankfurt
service. It intends to increase the number of weekly flights from
14 to 21 in June 1995 for the summer season and will introduce non-
stop service from Philadelphia and Boston. It will continue to
offer non-stop service from Pittsburgh, and its Charlotte-Frankfurt
service will include a stop in Boston. The realignments are
designed to allow USAir to maximize its transatlantic performance
and to take advantage of the large population bases in Philadelphia
and Boston.
In order to reduce aircraft ownership costs and to reduce its
fleet size, USAir has been pursuing the sale or lease of jet
aircraft and has not been renewing certain aircraft leases upon
their expiration. USAir currently plans to reduce its operating
fleet by 21 jet aircraft in 1995 from December 31, 1994 levels
through sales, leases, lease returns and groundings. USAir plans
to retire or dispose of, at various times, 15 Boeing 737-300, five
Boeing 767-200ER, two Boeing 737-200 and six Boeing 727-200
aircraft. These plans are subject to change if a labor deal is
consummated, but the Company cannot predict at this time the
potential impact of a labor deal on its fleet reduction plans.
USAir had previously announced that its entire fleet of 12 767-
200ER aircraft was on the market. As part of its fleet reduction
plan, on February 22, 1995, USAir entered into an agreement with
General Electric Capital Corporation ("GE Capital") to sell 11 B-
737-300 aircraft during 1995, two of which were sold during the
first quarter. USAir has also entered into an agreement in
principle with a leasing company to sell two additional Boeing 737-
300 aircraft during 1995. USAir will record a slight financial
statement loss from the sales of these 737-300 aircraft to GE
Capital and the leasing company but cannot estimate the financial
statement impact of other potential transactions at this time.
Moreover, in furtherance of its fleet reduction, USAir will explore
opportunities to sell, lease or terminate leases for additional
aircraft, with the exception of Boeing 757-200 aircraft. USAir has
taken delivery of four Boeing 757-200 aircraft in the first quarter
of 1995 and intends to purchase the remaining three scheduled to be
delivered in 1995, for which financing commitments have been
obtained. If any of USAir's five Boeing 767-200ER aircraft
currently on the market were sold, they would be phased out of the
fleet in the following order: U.S. domestic service first and the
17
<PAGE>
BA wet lease service (described below in "British Airways Invest-
ment Agreement - U.S.-U.K. Routes") second. The timing of the
disposal of the Boeing 767-200ER aircraft is dependent on economi-
cally feasible sale or lease opportunities. Excluding any Boeing
767-200ER dispositions, USAir's capacity, as measured by ASMs, is
expected to decrease approximately 2.5% in 1995 compared with 1994.
Pursuant to resolutions of the Company's Board and the board of
directors of USAir, USAir is required to use the net proceeds of
any sales of assets, after payment of any associated lease and
mortgage obligations, to repurchase, defease or redeem outstanding
debt.
Previously, on May 12, 1994, USAir reached an agreement with
Boeing to reschedule the delivery of 40 737-series aircraft from
the 1997-2000 time period to the years 2003-2005. As part of the
same agreement, USAir relinquished all of its options to purchase
737-series, 757-series and 767-series aircraft during the 1996-2000
time period. In early 1995, USAir reached agreements in principle
with Boeing and Rolls-Royce plc to reschedule the delivery dates
for eight 757-200 aircraft from 1996 to 1998. As a result of these
recent agreements, the Company's capital commitments have been
substantially reduced for the 1995 to 2000 time period. See Note
4(d) to the Company's consolidated financial statements for the
future aircraft commitments schedule reflecting these agreements
with Boeing and Rolls-Royce plc. USAir is using the Boeing 757-200
aircraft, which seats 182 passengers, on long haul routes, in high
demand markets where potential passenger traffic may not currently
be accommodated on smaller aircraft at peak travel times and in
replacement of certain 737-300 long range aircraft that are to be
sold to GE Capital. USAir considers the 757-200 aircraft to be
more suitable for these missions than the Boeing 767-200ER and
Boeing 737 aircraft types.
USAir has recently implemented several additional safety
initiatives. In November 1994, USAir elected a former general in
the United States Air Force, General Robert C. Oaks, to the new
position of Vice President-Corporate Safety and Regulatory
Compliance, reporting directly to the Chairman and Chief Executive
Officer. The Company and USAir have each established a new
committee of their boards of directors, the Safety Committees,
which have oversight of all corporate safety matters. In addition,
USAir retained an aviation consulting firm, PRC Aviation, to
conduct a full audit of USAir's safety operations. The audit was
completed in early 1995. In the opinion of the safety auditors,
USAir is being operated safely in compliance with FAA regulations.
PRC Aviation identified and recommended opportunities for safety
enhancements. USAir has established an Audit Response Council that
is addressing the recommendations made in the audit report.
In summary, since 1989, USAir Group and USAir have incurred
substantial losses. Their results of operations have been
adversely affected by the growth of low cost, low fare competition,
particularly in 1994. Therefore, in order for USAir to remain
competitive, it has attempted to reduce costs, enhance service and
become more efficient by engaging in historical and current
18
<PAGE>
initiatives and by formulating plans for the future discussed above
in this description of "Major Airline Operations."
USAir's operating statistics during the years 1990 through
1994 are set forth in the following table (1):
<TABLE>
<CAPTION>
Years Ended December 31, 1994 1993 1992 1991 1990
- -----------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue Passengers
(Thousands)* 59,495 53,678 54,655 55,600 60,059
Average Passenger
Journey (Miles)* 637.7 656.2 642.2 613.7 591.9
Revenue Passenger
Miles ("RPMs")
(Millions)* 37,941 35,221 35,097 34,120 35,551
Total Available
Seat Miles** 61,540 59,841 60,052 58,574 59,716
Available Seat Miles
(Millions)* 61,027 59,485 59,667 58,261 59,484
Passenger Load
Factor (2)* 62.2% 59.2% 58.8% 58.6% 59.8%
Breakeven Load
Factor (3)(4)(5) 67.3% 61.7% 63.2% 62.7% 64.5%
Passenger Revenue
per ASM* 9.70c 10.22c 9.70c 9.76c 9.67c
Total Revenue per
ASM (4) (5) 10.59c 11.04c 10.38c 10.33c 10.19c
Cost per ASM (4)(5) 11.02c 11.12c 10.85c 10.80c 10.86c
(6)
Yield (Revenue per
RPM)* 15.61c 17.27c 16.49c 16.67c 16.18c
</TABLE>
* Scheduled service only (excludes charter flights).
** All service.
c = cents
(1) Statistics include free frequent travelers and the related
miles flown.
(2) Passenger load factor is the percentage of aircraft seating
capacity that is actually utilized (RPMs/ASMs).
(3) Breakeven load factor represents the percentage of aircraft
seating capacity that must be utilized, based on fares in
effect during the period, for USAir to break even at the pre-
tax income level, adjusted to exclude non-recurring and
unusual items.
(4) Adjusted to exclude non-recurring and unusual items.
(5) Financial statistics for 1994 and 1993 exclude revenue and
expense generated under the BA wet lease arrangement.
(6) Certain statistics have been recalculated to reflect expense
reclassifications.
For a discussion of USAir's frequent traveler program, see
Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Frequent Traveler Program."
19
<PAGE>
Regional Airline Operations
Most regional airlines in the United States are affiliated
with a major or smaller jet carrier. USAir provides reservations
and, at certain stations, ground support services, in return for
service fees, to ten regional carriers (including Allegheny,
Piedmont and Jetstream) which operate under the name "USAir
Express." These airlines share USAir's two-letter designator code
and feed connecting traffic into USAir's route system at several
points, including its major hub operations at Pittsburgh, Char-
lotte, Philadelphia and BWI. At January 4, 1995, USAir Express
carriers served 185 airports in the United States, Canada and the
Bahamas, including 90 also served by USAir. During 1994, USAir
Express' combined operations enplaned approximately 9.2 million
passengers.
Piedmont's collective bargaining agreement with ALPA, which
represents its pilot employees, became amendable on December 1,
1992. On February 22, 1994, the National Mediation Board (the
"NMB"), which had assigned a mediator to the negotiations between
Piedmont and ALPA on a new agreement, declared these negotiations
at an impasse and commenced a thirty-day "cooling-off" period. On
March 27, 1994, two days following the expiration of this period at
midnight on March 25, 1994, Piedmont reached agreement on a new
collective bargaining agreement that becomes amendable on March 31,
1998. The new agreement was ratified by Piedmont's pilot employees
on May 2, 1994 and provides for increases in salary and benefits
for the term of the agreement in exchange for productivity
improvements.
In July 1992, Allegheny Commuter Airlines, Inc. merged into
Pennsylvania Commuter Airlines, Inc. (now Allegheny Airlines,
Inc.). The pilots of each of these companies were represented by
ALPA and were covered by collective bargaining agreements. Interim
agreements were reached with both pilot groups on July 1, 1992.
Negotiations on a unified collective bargaining agreement covering
all pilots of the merged company began in September 1992 and
continued through September 1, 1994. Allegheny reached agreement
with the pilots on September 1, 1994. The contract expires on
August 31, 1998. The flight attendants of each of these companies,
represented by the Association of Flight Attendants (the "AFA"),
were also covered by collective bargaining agreements. Negotia-
tions on a unified collective bargaining agreement covering all
flight attendants of the merged company began in April 1992. Two
tentative agreements were reached but were not ratified by the
combined membership. On December 19, 1994, a third tentative
agreement was reached which was ratified by the membership on
January 30, 1995. The new Allegheny flight attendant agreement
became effective February 1, 1995 and becomes amendable on
January 31, 2000. Both the pilot and flight attendant agreements
with Allegheny provide for increases in salary and benefits for the
term of the agreements in exchange for productivity improvements.
20
<PAGE>
USAir's reduction in jet aircraft and its continuing efforts
to reduce costs and enhance revenue by eliminating less profitable
routes has resulted in the cessation of or reduction in jet flying
between certain city pairs. In some cases, subject to possible
changes should a labor deal be consummated, existing or former jet
routes may be turned over to USAir Express with the goal of
maintaining portions of the revenue base (particularly the hub
connecting traffic) with lower cost operations. The change from
jet routes to regional airline service and the operating expenses
of operating smaller turboprop aircraft have resulted in the
Company pursuing the 30-seat and larger market for its owned
regional operations. Over time, the Company intends to upgrade
routes operated by smaller turboprops to aircraft of 30 seats or
larger or to have those routes flown by non-owned USAir Express
carriers. In August 1994, USAir, Allegheny and USAir Leasing and
Services sold to Mesa Air Group, Inc. (formerly Mesa Airlines,
Inc.) ("Mesa") the Beechcraft 1900 and Shorts 360 regional
operations previously operated by Allegheny, certain spare parts,
station and ground equipment and a maintenance facility in Reading,
Pennsylvania. The transaction resulted in the divestiture of 22
aircraft by Allegheny in 1994 and the consolidation of Allegheny's
operations to one fleet type, the de Havilland Dash 8-100.
Connecting traffic has not been materially affected because
connecting feed formerly provided by Allegheny is now provided by
Mesa or other USAir Express carriers.
Piedmont and Allegheny intend to enlarge their Dash 8 fleets
in 1995 by pursuing operating leases for those aircraft when such
aircraft are available upon economically feasible terms. In 1994,
Piedmont added four new Dash 8s and Allegheny added six new Dash 8s
by entering into operating leases with an affiliate of the aircraft
manufacturer. In 1995, Allegheny has added three Dash 8s through
operating leases and has an agreement in principle to lease five
additional used aircraft from an affiliate of the aircraft
manufacturer. One of Piedmont's lessors has advised, however, that
it will not renew leases for four used Dash 8s that expire in 1995.
In addition, as discussed below in Item 2. "Properties," Jetstream
and Dornier Luftfahrt GmbH (Daimler-Benz Aerospace) have entered
into an agreement pursuant to which Jetstream will acquire by the
end of 1995 20 new Dornier 328-100-series aircraft pursuant to
operating leases. Jetstream will also phase out the Embraer EMB-
120 aircraft. It will return seven of those aircraft to their
lessors in 1995 and has an agreement in principle to lease two to
a U.S. airline. Jetstream will also begin to phase out the 19-seat
BAe-3100 by terminating leases for five of the aircraft leased from
an affiliate. Jetstream intends to return the remaining BAe-3100s
to their lessors as the leases expire in 1996-2000 and, in light of
recently announced proposed regulations that would require material
modifications to aircraft of fewer than 30 seats, Jetstream may
pursue alternatives to terminate some of such leases prior to
expiry. See "Regulation" below for a description of the proposed
regulations.
21
<PAGE>
USAM Corp.
At December 31, 1992, USAM Corp. ("USAM"), a subsidiary of
USAir, owned 11% of the Covia Partnership ("Covia") which owned and
operated a computerized reservation system ("CRS"). In September
1993, Covia purchased the assets of the corporation that owned and
operated the Galileo CRS which provided CRS services to travel
agent subscribers in Europe. Covia was then separated into three
entities. As a result, at December 31, 1994, USAM owned 11% of the
Galileo International Partnership, approximately 11% of the Galileo
Japan Partnership and approximately 21% of the Apollo Travel
Services Partnership.
The Galileo International Partnership owns and operates the
Galileo CRS ("Galileo"). Galileo Japan Partnership markets CRS
services in Japan. Apollo Travel Services markets CRS services in
the U.S. and Mexico. Galileo is the second largest of the four CRS
systems in the U.S. based on revenues generated by travel agency
subscribers. A subsidiary of United controls 38% of the partner-
ship, and the other partners exclusive of USAir's interest are
subsidiaries of BA, Swissair, KLM Royal Dutch Airlines, Alitalia,
Air Canada, Olympic Airways, Austrian Airlines, Aer Lingus and TAP
Air Portugal.
CRSs play a significant role in the marketing and distribution
of airline tickets. Travel agents issue tickets which generate the
majority of USAir's passenger revenues. Most travel agencies use
one or more CRSs to obtain information about airline schedules and
fares and to book their clients' travel. See "Industry Restructur-
ing" for a discussion of the introduction of electronic ticketing
by certain airlines and the reduction in travel agent commission
rates.
Employees
At December 31, 1994, USAir Group's various subsidiaries
employed approximately 45,500 full-time equivalent employees.
USAir employed approximately 5,200 pilots, 9,500 maintenance and
related personnel, 10,600 station personnel, 4,300 reservations
personnel, 8,300 flight attendants and 4,500 personnel in other
administrative and miscellaneous job categories, while the regional
and other subsidiaries employed approximately 900 pilots, 700
maintenance personnel, 850 station personnel, 350 flight attendants
and 300 personnel in other administrative and miscellaneous job
categories. Approximately 31,500, or 69%, of the employees of
USAir Group's subsidiaries are covered by collective bargaining
agreements with various labor unions, or will be covered by a
collective bargaining agreement for which initial negotiations are
in progress. If a labor deal is achieved, it is anticipated that
certain changes to the current union contracts will result.
Historically, USAir implemented a workforce reduction program
in September 1990 in response to the economic recession and
financial losses that caused USAir to decrease its planned capacity
growth for 1991. More than 3,600 positions were eliminated through
22
<PAGE>
layoffs, furloughs and voluntary separations in connection with
that program. A further reduction of more than 3,500 positions
resulted from the May 1991 Restructuring. In 1994, USAir imple-
mented measures announced in September 1993 to reduce projected
operating costs. These measures included a workforce reduction of
approximately 2,500 full time positions and certain other cost
reductions discussed under "Major Airline Operations." However,
USAir's ability to implement additional workforce reductions is
currently limited by its existing labor contracts. Due to the
inclusion of "no furlough" provisions in its current labor
agreements with ALPA, the IAM and the AFA, USAir may not furlough
employees covered by those agreements for specified periods of
time. See below for a more detailed discussion.
In 1992 and 1993, USAir reached agreement on new contracts
with ALPA, which represents USAir's pilot employees, the IAM, which
represents USAir's mechanics and related employees, the AFA, which
represents its flight attendant employees, and the TWU, which
represents 170 flight dispatch employees and approximately 60 USAir
flight simulator engineers. Each contract (except the contract
covering the flight dispatch employees) provided for wage reduc-
tions and suspension of longevity/step increases for a twelve-month
period beginning shortly after the effective date of the contract.
The wages of each such group of employees reverted to pre-reduction
levels at the expiration of the relevant twelve-month period and
were increased in accordance with the relevant contract. Pursuant
to their contracts, the pilots, the IAM-represented employees, the
AFA-represented employees and the flight simulator engineers also
agreed to participate in contributory managed care medical and
dental programs. The flight dispatch employees also participated
in wage reductions, suspensions of longevity/step increases and
contributory managed care medical and dental programs because of
their non-contract status when those measures were implemented for
non-contract employees, as described in the following paragraph.
Each of the above groups of employees is scheduled to receive
further wage increases under the terms of its contract. Each
contract provides for productivity improvements. The defined
benefit pension plans for the flight dispatch employees and the
flight simulator engineers have been frozen.
In accordance with its previously announced policy, when ALPA
agreed to the cost reduction program, USAir implemented wage
reductions and suspension of longevity/step increases on its non-
contract employees for the twelve-month period commencing in June
1992. Earlier in 1992, USAir had implemented the contributory
managed care medical and dental programs for non-contract employ-
ees. Prior to January 1, 1992, USAir exclusively paid contribu-
tions to the basic defined benefit pension plan for its non-
contract employees. USAir froze this pension plan at the end of
1991, which resulted in a one-time book gain of approximately $107
million for 1991. USAir implemented a defined contribution pension
plan for these employees on January 1, 1993, which is composed of
three components: contributions by USAir based on a percentage of
salary, a partial match by USAir of employee contributions to a
savings plan and a profit sharing plan.
23
<PAGE>
Taken together, the above measures provided for temporary wage
reductions and suspension of longevity/step increases in wages that
USAir estimates saved approximately $120 million during the period
June 1992 through March 1994. These concessions provide for
productivity improvements which saved USAir approximately $55
million during the same period. If fully implemented, these
productivity enhancements may save an additional $171 million
annually. All employees affected by these changes have also agreed
to participate in contributory managed care medical and dental
programs which are expected to save approximately $51 million
annually. In exchange for the concessions agreed upon by its
unionized employees, USAir included "no furlough" provisions in
each of the new labor agreements with ALPA, the IAM and the AFA,
which prohibit USAir from furloughing employees hired on or before
the effective date of the agreements through September 30, 1995 in
the case of the agreement with the IAM for mechanics and related
employees, through December 31, 1996 in the case of the agreement
with the AFA, and through June 30, 1997 in the case of the
agreement with ALPA.
USAir recorded a non-recurring charge of approximately $36.8
million in the fourth quarter of 1993 based on a projection of the
repayment of the amount of the temporary wage and salary reductions
discussed above in the event that the employees who sustained the
pay cuts leave the employ of USAir. USAir has adjusted and will
adjust this accounting charge in subsequent periods to reflect the
change in the present value of the liability and changes in
actuarial assumptions including, among other things, actual
experience with the rate of attrition for these employees and
whether such employees have received payments under the profit
sharing program discussed in the next paragraph.
In exchange for the pay reductions and pension freeze,
affected employees will participate in a profit sharing program and
have been granted options to purchase USAir Group Common Stock.
The profit sharing program is designed to recompense those
employees whose pay has been reduced in an amount equal to (i) two
times salary foregone plus; (ii) one times salary foregone (subject
to a minimum of $1,000) for the freeze of the pension plans
described above. Estimated savings of approximately $23 million
attributable to the suspension of longevity/step increases will not
be subject to repayment through the profit sharing program. For
each year the profit sharing program is in effect, pre-tax profits,
as defined in the program, of USAir Group would be distributed to
participating employees as follows:
25 percent of the first $100 million in pre-tax profits
35 percent of the next $100 million in pre-tax profits
40 percent of the pre-tax profits exceeding $200 million
This profit sharing program will be in effect until USAir employees
are recompensed for salary and pension benefits foregone and is
independent of the profit sharing plan which is an element of the
new defined contribution pension plan for non-contract employees
discussed above.
24
<PAGE>
Under the stock option program, employees whose pay has been
reduced have received options to purchase 50 shares of USAir Group
Common Stock at $15 per share for each $1,000 of salary reduction.
The options became exercisable following the twelve-month period of
the salary reduction program for each group of employees.
Generally, participating employees have five years from the grant
date to exercise such options. As of December 31, 1994, USAir
Group had granted options to purchase approximately five million
shares of Common Stock to USAir employees under the program. At
December 31, 1994, the market value of a share of USAir Group
Common Stock was $4.25.
USAir's current agreement with ALPA provides that in the event
of a "change of control" of the Company or USAir, ALPA will have
the right to extend the duration of the agreement for one, two or
three years at its option beyond the amendable date of the
agreement with across-the-board wage increases of 4.5% on April 30,
1996 and on each anniversary thereof for the following three years.
A "change of control" is defined as a single transaction or multi-
step related transactions through which (i) securities which
constitute and/or are then currently exchangeable into, exercise-
able for or convertible into 50% or more of the outstanding Common
Stock (and Common Stock then currently issuable upon the exchange,
exercise or conversion of securities) and/or (ii) 50% or more of
the value of the assets of the Company or USAir, are acquired or
held by a single purchaser or a group of purchasers acting in
concert.
During 1994, certain unions engaged in efforts to unionize
USAir's fleet service employees. The Railway Labor Act governs,
and the NMB has jurisdiction over, campaigns to unionize workers.
On May 17, 1994, the NMB tabulated the results of an election among
the class or craft of approximately 7,700 USAir fleet service
employees. In the election, none of the three unions that sought
to represent this class or craft received a majority of the vote;
however, a majority of the eligible employees cast ballots in favor
of union representation. Accordingly, the NMB ordered and
conducted a runoff election to determine which of the IAM or the
USWA, the two unions that received the most votes, would represent
this class or craft. The IAM won the runoff election and on
July 22, 1994 the NMB certified the IAM to represent the fleet
service class or craft. The IAM already represents approximately
8,300 USAir mechanics and related employees. Under the Railway
Labor Act, which governs labor relations in the airline industry,
USAir is obligated to negotiate a collective bargaining agreement
with the IAM governing the terms and conditions of employment for
the fleet service employees. This obligation does not require
USAir to agree to any particular term or condition sought by the
IAM. USAir is seeking a declaratory judgment from the U.S.
District Court for the District of Columbia that it is entitled to
modify the existing terms and conditions of employment of the fleet
service employees during the period in which USAir is negotiating
an initial collective bargaining agreement with the IAM for these
employees. The case is presently stayed.
25
<PAGE>
On June 3, 1994, after determining that the USWA had submitted
a sufficient number of authorization cards, the NMB ordered an
election among USAir's passenger service employees, a class or
craft of approximately 10,000 workers consisting primarily of
USAir's ticket counter/gate agents and reservations agents, to
determine whether the USWA or other union would represent these
employees. The NMB mailed ballots to eligible passenger service
employees on July 19, 1994 and tabulated the ballots on August 18,
1994. Less than a majority of the eligible passenger service
employees voted in favor of representation and, as a result, the
USWA or other union will not represent the passenger service
employees at this time.
USAir cannot predict whether any union might submit authoriza-
tion cards to the NMB sufficient to obtain an election among any
unrepresented class or craft of employees.
Except as noted, the following table presents the status of
USAir's labor agreements as of December 31, 1994:
<TABLE>
<CAPTION>
Expiration
Approximate Date Date of
Number of Contract "No-Furlough
Union Class or Craft Employees Amendable Clause"
- ----- -------------- ----------- --------- ------------
<S> <C> <C> <C>
AFA - flight attendants 8,300 1/97 12/31/96
ALPA - pilots 5,200 5/96 6/30/97
IAM - mechanics and
related employees 8,300 10/95 9/30/95
IAM - fleet service
employees 7,700 (1) (2) --
TWU - flight crew training
instructors, flight
simulator engineers
and dispatch
employees 280 1/93-8/97(3) --
</TABLE>
(1) Estimated number of employees who will be covered under this
new contract.
(2) Initial contract in negotiation.
(3) Separate contracts cover the flight crew training instructors,
the flight simulator engineers and the dispatch employees.
As indicated under "Major Airline Operations," USAir has been
involved in discussions since March 1994 with the leadership of its
unionized employees seeking $500 million in annual savings in
personnel costs through wage and benefit reductions, improved
productivity and other cost savings. As discussed above in
"Agreement in Principle With Pilots' Union," in late March 1995,
USAir signed an agreement in principle with ALPA that is subject to
many conditions. USAir continues to negotiate with its other labor
26
<PAGE>
unions. If agreements with its unions are reached and successfully
implemented, the terms of the above labor agreements will be
renegotiated. No assurance can be given whether or when any
transactions with any of the unions will be consummated or what the
terms of any such transactions might be.
See "Regional Airline Operations" for information regarding
the agreements between Piedmont and ALPA and between Allegheny and
both ALPA and the AFA.
Jet Fuel
USAir and USAir Fuel have contracts with 23 different fuel
suppliers to meet a large percentage of USAir's current jet fuel
requirements. The contracts for these jet fuel purchases are
generally for one-year terms and expire at various dates. The
pricing provisions of these agreements may be based upon many
factors including crude oil, heating oil or jet fuel market
conditions. In some cases, USAir has the right to terminate the
agreements if contract prices become unacceptable. As market
conditions permit, USAir also may purchase a portion of its fuel on
the spot market at day-to-day prices depending upon availability,
price and purchasing strategy.
The most important single factor affecting petroleum product
prices, including the price of jet fuel, continues to be the
actions of the OPEC countries in setting targets for the production
and pricing of crude oil. In addition, jet fuel prices are
affected by the markets for heating oil, diesel fuel, automotive
gasoline and natural gas. Seasonally, second and third quarter jet
fuel prices are typically lower than during the first and fourth
quarters as the demand for heating oil, which competes with jet
fuel for refinery production, subsides and refiners switch to
gasoline production which also increases the output of jet fuel.
USAir benefitted during 1993 from a general downward trend in
jet fuel prices. The trend continued in 1994. For 1994, USAir's
jet fuel cost averaged approximately 53.3 cents per gallon (versus
an average of 58.4 cents in 1993) with quarterly averages of 54.5,
51.1, 53.3 and 54.2 cents.
USAir continues to adjust its jet fuel purchasing strategy to
take advantage of the best available prices while attempting to
ensure that supplies are secure. Jet fuel prices are predicted to
rise during 1995 as world oil demand is forecast to exceed
production. With OPEC holding its production flat, the market is
expected to tighten and drive prices steadily higher in 1995. As
of January 1995, world refinery utilization rates were at all-time
highs and excess capacity was limited. The western nations are
becoming more dependent on jet fuel imports as supply from
traditional sources shrinks. All petroleum product prices continue
to be subject to unpredictable economic, political and market
factors. Also, the balance among supply, demand and price has
become more reactive to world market conditions. Accordingly, the
price and availability of jet fuel, as well as other petroleum
27
<PAGE>
products, continues to be unpredictable. In addition, USAir has
entered into agreements to hedge the price of a portion of its jet
fuel needs, which may have the net effect of increasing or
decreasing USAir's fuel expense. See Note 2 to the consolidated
financial statements of USAir. In August 1993, federal legislation
was enacted that included a 4.3 cent per gallon tax on transporta-
tion fuels beginning October 1, 1993. The airline industry is
exempt from the tax until October 1, 1995. Imposition of the fuel
tax will increase USAir's operating expenses. If the fuel tax had
been in effect for all of 1994, USAir's fuel expense would have
increased by approximately $52 million for the year. The airline
industry is actively seeking to have its existing exemption
extended or made permanent. In early 1995, legislation was
introduced to repeal the tax on fuel used in commercial aviation.
There can be no assurance if or when this legislation will be
passed.
The following table sets forth statistics about USAir's jet
fuel consumption and cost for each of the last three years:
<TABLE>
<CAPTION>
Gallons Average Percentage
Calendar Consumed Total Cost Cost Per of Operating
Year (Millions) (Millions)(1) Gallon(1) Expenses (2)
- -------- ---------- ---------- -------- ------------
<S> <C> <C> <C> <C>
1994 1,205 $642.3 $0.53 9.4%
1993 1,161 $677.9 $0.58 10.2%
1992 1,183 $720.6 $0.61 11.1%
</TABLE>
(1) Cost includes the base cost of fuel and transportation
charges.
(2) Operating expenses have been adjusted to exclude non-recurring
and special items.
Insurance
The Company and its subsidiaries maintain insurance of the
types and in amounts deemed adequate to protect them and their
property. Principal coverage includes liability for bodily injury
to or death of members of the public, including passengers; damage
to property of the Company, its subsidiaries and others; loss of or
damage to flight equipment, whether on the ground or in flight;
fire and extended coverage; and workers' compensation and em-
ployer's liability. Coverage for environmental liabilities is
expressly excluded from the Company's insurance policies. Due to
the two aircraft accidents in 1994 involving USAir, it is probable
that the Company's insurance costs will increase upon renewals of
various policies in 1995.
Regulation
All domestic airlines, including USAir and its regional
affiliates, are subject to regulation by the FAA under Subtitle VII
of 49 U.S.C. 40101 et seq. (formerly the Federal Aviation Act of
1958, as amended). The FAA has regulatory jurisdiction over flight
operations generally, including equipment, ground facilities,
28
<PAGE>
security systems, maintenance and other safety matters. To assure
compliance with its operational standards, the FAA requires air
carriers to obtain operations, airworthiness and other certifi-
cates, which may be suspended or revoked for cause. The FAA also
conducts safety audits and has the power to impose fines and other
sanctions for violations of aviation safety and security regula-
tions.
In February 1995, the DOT and the FAA announced agreement with
labor and airline industry representatives, including representa-
tives of USAir, on 173 safety initiatives to increase air safety
and achieve the goal of "zero accidents." These initiatives were
a result of an Aviation Safety Conference held in January 1995,
sponsored by the DOT and attended by federal regulators, airline
executives, representatives of airline labor unions and other
industry officials. The initiatives include the free sharing of
flight data recorder ("FDR") and other information for safety
purposes and not for enforcement or disciplinary action, advanced
training for flight crews and maintenance workers and expanded use
and faster implementation of satellite navigation systems.
Participants at the Aviation Safety Conference have targeted 104 of
the 173 safety initiatives for completion by September 30, 1995.
Some of these items have already been accomplished at USAir, such
as the hiring of an independent senior safety officer. See "Major
Airline Operations." Other items were already scheduled for
implementation at USAir, but may be modified or accelerated as a
result of the government's action. The initiatives are all
supported by USAir as part of USAir's safety program.
In February 1995, the National Transportation Safety Board
(the "NTSB") proposed new minimum parameter requirements for U.S.
commercial aircraft FDRs, which provide various technical measure-
ments about flights. A parameter is a channel of information about
a specific factor on a flight, such as altitude or airspeed. The
proposed minimum requirements would have to be met by January 1,
1998 for most aircraft and would affect two-thirds of the U.S.
fleet. The proposal would require that upgrades on 737-series
aircraft be completed by the end of 1995. The NTSB stated that it
believes that information from the new minimum parameters on FDRs
will assist the NTSB in investigating and preventing accidents.
The FAA, which has the authority to implement the proposal, has
scheduled a public meeting for April 20, 1995 to seek public
comment on the changes proposed by the NTSB. USAir intends to
comply with any FAA orders relating to the FDRs. Compliance with
the proposed new requirements would be expensive and costs for a
particular plane would depend on the its age and how extensive an
upgrade is required for that plane. USAir believes that the NTSB
has underestimated the costs associated with bringing aircraft into
compliance with the proposal. If the proposal is implemented,
USAir expects that it would be required to spend up to $25 millon
to retrofit 250 aircraft.
Within the guidelines of the manufacturers and FAA regula-
tions, USAir has developed maintenance programs which consist of a
series of checks for each aircraft type. These checks are
29
<PAGE>
performed at specified intervals measured either by hours flown,
calendar time or the number of takeoffs and landings ("cycles")
performed. They range from daily "walkaround" inspections, to more
involved overnight maintenance checks, to exhaustive and time-
consuming overhauls. The "Q Check," for example, requires more
than 7,000 personnel-hours of work and includes stripping the
airframe, extensively inspecting the airframe structure and a large
number of parts and components, then reassembling the overhauled
airframe with new or rebuilt components. Aircraft engines are
subject to continuous monitoring and maintenance programs designed
to detect and remedy potential problems before they occur. The
service lives of certain parts and components of both airframes and
engines are time or cycle controlled. Parts and other components
are replaced or overhauled prior to the expiration of their time or
cycle limits. The FAA reviews, approves or accepts all airline
maintenance programs, including changes to the programs. In
addition, USAir uses only FAA-licensed mechanics and inspectors
(who inspect, audit and monitor the work) in the line maintenance
activities.
The FAA frequently issues airworthiness directives, often in
response to specific incidents or reports by operators or manufac-
turers, requiring operators of specified equipment to perform
prescribed inspections, repairs or modifications within stated time
periods or number of cycles.
In March 1995, the FAA proposed regulations that would require
regional carriers to meet higher safety standards. These proposed
regulations would cover aircraft with 10 to 30 seats and are
designed to bring the standards for these airplanes closer to those
required of larger aircraft. The proposal would require, for
example, the appointment of a safety officer by each regional
carrier, the retrofit of onboard equipment, the reduction of the
maximum allowable pilot flying time and the use of dispatchers to
assist pilots in making fuel, weather-related and other decisions,
among other things. The DOT estimates that the rule will cost
regional airlines $275 million over ten years. Comments on the
proposal are due June 27, 1995. The FAA hopes to adopt a final
rule by December 1995. The proposed regulations would affect only
a small number of the airplanes operated by the Company's subsid-
iaries. All of USAir Group's regional affiliates are already in
compliance or have agreed to comply with the proposed heightened
safety specifications. In addition, as part of its safety program,
the Company is planning to conduct safety audits and summits of all
of its regional operators, including its wholly-owned and affiliat-
ed carriers.
A continuing regulatory issue currently facing the airline
industry involves air traffic delays and landing rights. While the
volume of aircraft operations in domestic airspace has increased
during recent years, the capacity of the national air traffic
control system (the "ATC") has not kept pace. This situation
causes frequent and significant air traffic delays, especially at
the nation's busiest airports. These delays have led the FAA to
require monthly reporting by air carriers of on-time performance
30
<PAGE>
and have prompted various proposals for reform of the FAA, which
oversees and regulates the ATC.
In April 1995, legislation was introduced at the request of
the Clinton Administration to privatize the ATC. The proposal
contemplates that the ATC's functions would be assumed and
performed by an independent federal corporation. Currently, the
ATC is funded by taxes on passengers' airline tickets. The
proposed legislation would fund the operations of the corporation
through user charges from which general aviation would be exempted.
If enacted, this legislation could result in increased costs for
airlines operating in the United States, including USAir and the
Company's other airline subsidiaries.
In January 1994, the Clinton Administration issued a report
which described its program to implement certain of the recommenda-
tions of The National Commission to Ensure a Strong Competitive
Airline Industry (the "Airline Commission"). The Airline Commis-
sion, which issued its report in August 1993, was a presidentially-
appointed committee with the task of analyzing the condition of the
U.S. airline industry and reporting to the Clinton Administration
its findings and recommendations. Among other things, the
Administration stated that it supported a recommendation that the
ATC be modernized and the FAA's air traffic control functions be
performed by an independent federal corporation (as discussed in
the preceding paragraph), and that it supported increasing to 49%
the foreign ownership restrictions provided there are reciprocal
opportunities for U.S. airlines and investors abroad. At this
time, it is impossible to predict whether any of the Airline
Commission's recommendations will be enacted and, if enacted, what
their effect on USAir would be. It is also difficult to anticipate
whether the Congress will act in the near term on any of the
proposals requiring legislation.
The FAA, through its High Density Traffic Airport Rule, limits
the number of flight operations at Washington National Airport,
Chicago's O'Hare International Airport and New York City's John F.
Kennedy International and LaGuardia Airports during specified time
periods. Takeoff and landing rights ("slots") are assigned to
airlines serving these high density airports. The FAA has
promulgated regulations governing the allocation and use of slots
that permit them to be traded, leased, purchased and sold. In
1993, the DOT began an examination of the High Density Rule. As
part of its study, the DOT will determine whether the operating
limitations imposed by the rule can be eliminated or modified to
better utilize available capacity at these airports. The DOT has
not yet released the results of its study. USAir holds a substan-
tial number of slots at LaGuardia and Washington National Airports,
including slots purchased from Continental in 1992 and those
assigned a value when the Company acquired Piedmont Aviation, Inc.
in 1987. Any DOT action which would eliminate those slots or
compel USAir to transfer those slots could have a material adverse
effect on USAir's operations and financial position. Revision of
the High Density Rule at Washington National Airport, however,
would require legislation by Congress.
31
<PAGE>
The FAA also has authority to set noise standards for civil
aircraft. Three noise level categories exist under FAA regula-
tions. Stage 1 aircraft, which were designed before the first FAA
noise regulations were promulgated in 1969, are no longer permitted
to operate in the United States unless retrofitted to meet Stage 2
requirements. Stage 2 aircraft comply with regulations limiting
noise emissions to specified levels. Aircraft designed after 1977
must meet the even more stringent noise limitations of Stage 3. At
December 31, 1994, 274 aircraft, or 68% of USAir's operating fleet
(excluding 19 Fokker F28-4000 aircraft exempt from the Stage 3
requirements because their gross takeoff weights do not exceed
75,000 pounds), were Stage 3 aircraft. The Airport Noise and
Capacity Act of 1990, with minor qualifications, prohibits
operation of Stage 2 aircraft after 1999. Regulations promulgated
by the FAA in 1991 require operators to modify or reduce or have
modified or reduced the number of Stage 2 aircraft they operated
during 1990 by 25% by the end of 1994, by 50% by the end of 1996,
and by 75% by the end of 1998. Alternatively, an operator may
elect or have elected to operate a fleet that is or was at least
55% Stage 3 by the end of 1994, 65% Stage 3 by the end of 1996 and
75% Stage 3 by the end of 1998. USAir has entered into agreements
to procure hushkits for DC-9-30 and 737-200 advanced aircraft. See
Note 4(d) to the Company's consolidated financial statements.
Subject to USAir's fleet reduction program and/or economically
feasible renewals for leased aircraft, USAir intends to convert up
to 64 of its Boeing 737-200 advanced aircraft and at least 24 of
its McDonnell-Douglas DC-9-30 aircraft from Stage 2 to Stage 3 by
installing FAA-approved hushkits. In 1994, USAir began installing
hushkits on its DC-9-30 fleet. The installation of these hushkits
will bring the relevant aircraft into compliance with federally
mandated Stage 3 noise level requirements. Installation of the
remaining hushkits will be accomplished during 1995-1999.
Certain airport operators have adopted local regulations
which, among other things, impose curfews, restrict the number of
aircraft operations and require aircraft to meet prescribed decibel
limits. Local noise regulations affect USAir's scheduling
flexibility by requiring that only certain aircraft be scheduled at
certain airports and at specified times of the day.
In compliance with FAA regulations, USAir has implemented
alcohol and drug testing programs that involve not only education
and training, but also periodic alcohol and drug testing of
personnel performing safety and security-related work, including
pilots, flight attendants, mechanics, instructors, dispatchers and
security screeners. In addition, all USAir Express operators have
alcohol and drug testing programs in place that comply with the
FAA's drug testing regulations. The FAA's alcohol and drug testing
regulations are comprehensive and complex. They require, among
other things, five categories of drug and alcohol tests: pre-
employment, probable cause, random, post-accident and return to
duty.
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<PAGE>
Several aspects of airlines' operations are subject to
regulation or oversight by federal agencies other than the FAA.
The DOT has jurisdiction over certain aviation matters such as
international routes and fares, consumer protection and unfair
competitive practices. The antitrust laws are enforced by the
Department of Justice ("DOJ"). Labor relations in the air
transportation industry are generally regulated under the Railway
Labor Act, which vests in the NMB certain regulatory powers with
respect to disputes between airlines and labor unions that arise
under collective bargaining agreements. USAir and other airlines
certificated prior to October 24, 1978 are also subject to
regulations issued by the Department of Labor which implement the
statutory preferential hiring rights granted by the Airline
Deregulation Act of 1978 to certain airline employees who have been
furloughed or terminated (other than for cause).
The Company must also comply with federal and state environ-
mental laws and regulations and has developed formal policies and
procedures designed to ensure its ongoing compliance. The Company
expects that its operating expenses will increase in the future as
a result of governmental rulemaking and more stringent enforcement
of applicable existing environmental laws. The Company cannot
predict the magnitude of those increased costs or when they may be
incurred, but in order to conduct their operations, airlines,
including USAir and the USAir Express carriers, release and
discharge pollutants into the environment. For example, USAir and
the other airlines operating at Pittsburgh are subject to a
Pennsylvania consent decree to reduce the runoff of deicing fluid
which has resulted in the construction of new deicing pads, the
cost of which will be passed on to the airlines. In addition, the
Clean Air Act, as amended, as it may be implemented by the various
states, may require operational upgrades and tighter emissions
controls not only on aircraft but also on ground equipment operated
by airlines. The airlines' operations in certain states, for
example, California, where air pollution is a serious problem, may
be affected more significantly than in other states. Moreover,
many airports were constructed before the enactment of various
environmental laws. The cost of correcting environmental problems
at these airports may be passed onto the airlines operating at
these airports through increased rents and fees. See also the
disclosure above regarding the FAA's regulations regarding noise
standards for civil aircraft and noise regulation by other
governmental authorities and Note 4(d) to the Company's con-
solidated financial statements for disclosure regarding capital
commitments related to compliance with these FAA regulations.
In February 1995, the United States and Canada reached a
formal agreement which deregulates airline services between Canada
and the United States and provides that Canadian airlines would
have immediate "open skies" access to the United States and that
U.S. airlines will have limited new route rights to Vancouver and
Montreal for two years and to Toronto for three years and open
skies thereafter. This agreement is expected to result in
significant increased traffic between the United States and Canada.
The agreement provides for two new Toronto designations in the
33
<PAGE>
first year. On February 27, 1995, the DOT granted to USAir the new
route authority to begin non-stop service between Pittsburgh and
Toronto. In addition, the agreement allows a U.S. air carrier
meeting certain criteria to start Washington National-Toronto non-
stop service once a Canadian airline commences non-stop service in
that market. USAir has applied for this authority.
British Airways Investment Agreement
The following summary of certain terms of the Investment
Agreement is subject to, and is qualified in its entirety by, the
Investment Agreement and the exhibits thereto, which are exhibits
to this report. The outline that follows describes certain
provisions of the Investment Agreement as currently in effect. It
is anticipated that in connection with the consummation of any
labor deal, it would be necessary for the Company and BA to
renegotiate certain provisions of the Investment Agreement, but it
is uncertain at this time what amendments might be made. On
March 7, 1994, BA announced it would make no additional investments
in the Company until the outcome of measures by the Company to
reduce costs and improve its financial results is known. As of
February 28, 1995, BA owned preferred stock in the Company
constituting approximately 21.5% of the total voting interest in
the Company. See Item 12. "Security Ownership of Certain Benefi-
cial Owners and Management."
Terms of the Series F Preferred Stock On January 21, 1993,
the Company sold, pursuant to the Investment Agreement, 30,000
shares of the Company's Series F Preferred Stock to BA for an
aggregate purchase price of $300 million. The Series F Preferred
Stock is convertible into shares of Common Stock at a conversion
price of $19.41 and has a liquidation preference of $10,000 per
share plus an amount equal to accrued dividends. See "Miscel-
laneous" for a discussion of an antidilution adjustment to the
conversion price of the Series F Preferred Stock. The Series F
Preferred Stock may be converted at the option of USAir Group at
any time after January 21, 1998 if the average composite closing
market price of Common Stock during any 30-day calendar period is
at least 133% of the conversion price. The Series F Preferred
Stock is entitled to cumulative quarterly dividends of seven
percent per annum when and if declared and to share in certain
other distributions. The Company has deferred quarterly dividend
payments on all its preferred stock beginning with payments due
September 30, 1994. See "Deferral of Dividends" above and Item 8A.
Note 8 to the Company's consolidated financial statements. The
Series F Preferred Stock must be redeemed by USAir Group on
January 15, 2008. Each share of the Series F Preferred Stock is
entitled to a number of votes equal to the number of shares of
Common Stock into which it is convertible and votes with the Common
Stock and USAir Group's Series A Preferred Stock and any other
capital stock with general voting rights for the election of
directors, as a single class. Subject to adjustment, 515.2950
shares of Common Stock are issuable on conversion per share of
Series F Preferred Stock (determined by dividing the $10,000
liquidation preference per share of Series F Preferred Stock by the
34
<PAGE>
$19.41 conversion price), and 15,458,851 shares of Common Stock
would be issuable on conversion of all Series F Preferred Stock.
However, under the terms of any USAir Group preferred stock that is
or will be held by BA ("BA Preferred Stock"), conversion rights
(and as a result voting rights) may not be exercised to the extent
that doing so would result in a loss of USAir Group's or any of its
subsidiaries' operating certificates and authorities under Foreign
Ownership Restrictions, as defined under "Board Representation"
below, and it is assumed for this purpose that Series F Preferred
Stock will be fully converted before any other BA Preferred Stock.
Under Foreign Ownership Restrictions, no more than 25 percent of
the Company's voting interest may be held by persons other than
U.S. citizens, including BA. With respect to dividend rights and
rights on liquidation, dissolution and winding up, the Series F
Preferred Stock ranks senior to USAir Group's Series B Preferred
Stock, Junior Participating Preferred Stock, Series D, no par
value, and Common Stock, and pari passu with BA Preferred Stock and
Series A Preferred Stock.
Moreover, the Certificate of Designation for the Series F
Preferred Stock provides that if on any one occasion on or prior to
January 21, 1996, any court or regulatory authority issues a final
order that any material part of the Investment Agreement is
unenforceable (except pursuant to bankruptcy or like event), then
the conversion price of Series F Preferred Stock shall be reduced
by 10.2564 percent. In that event, if the conversion price of the
Series F Preferred Stock were $19.41 at that time, it would be
reduced to $17.42.
On March 15, 1993, the DOT issued an order (the "DOT Order")
finding, among other things, that "BA's initial investment of $300
million does not impair USAir's citizenship" under Foreign
Ownership Restrictions as defined under "Board Representation"
below. However, the DOT instituted a proceeding to consider
whether USAir will remain a U.S. citizen if the transactions and
acts contemplated by the Investment Agreement, including the
transactions discussed under "Possible Additional BA Investments"
and "Certain Governance Matters" below, are consummated. The DOT
has suspended indefinitely the period for comments from interested
parties to the proceeding pending its resolution of requests by
other airlines for production of additional documents from USAir.
The DOT Order states that the DOT expects and advises USAir Group
and BA not to proceed with the Second Purchase and Final Purchase,
as such terms are defined under "Possible Additional BA Invest-
ments," until the DOT has completed its review of USAir's citizen-
ship. In any event, on March 7, 1994, BA announced that it would
make no additional investments in the Company until the outcome of
measures by the Company to reduce its costs and improve its
financial results is known. See "British Airways Announcement
Regarding Additional Investments in the Company" above. The
Company cannot predict the outcome of the DOT proceeding or if the
transactions contemplated under the Investment Agreement, particu-
larly those discussed under "Possible Additional BA Investments"
and "Certain Governance Matters," will be consummated. See
"Miscellaneous" for information regarding BA's purchase of two
35
<PAGE>
additional series of preferred stock from USAir Group pursuant to
its exercise of optional and preemptive purchase rights under the
Investment Agreement and its decision not to exercise its optional
purchase rights with respect to three additional series of
preferred stock.
Board Representation USAir Group increased the size of its
Board by three on January 21, 1993 and the Board filled the newly
created directorships with designees of BA. Under the terms of the
Investment Agreement, USAir Group must use its best efforts to
cause BA to be proportionally represented on the Board (on the
basis of its voting interest), up to a maximum representation of 25
percent of the total number of authorized directors ("Entire
Board"), assuming that such proportional representation is
permitted by then applicable U.S. statutory and DOT regulatory or
interpretative foreign ownership restrictions ("Foreign Ownership
Restrictions"), until the later of the closing of the Second
Purchase, as defined under "Possible Additional BA Investments"
below, and the date on which BA may exercise under Foreign
Ownership Restrictions the rights described under "Certain
Governance Matters" below.
U.S.-U.K. Routes Under the Investment Agreement, USAir Group
agreed that as promptly as commercially practicable it would divest
or, if divestiture were not possible, relinquish, all licenses,
certificates and authorities for each of USAir's routes between the
U.S. and the U.K. (the "U.K. Routes") at such time as BA and USAir
implemented the code sharing arrangement contemplated by the
Investment Agreement discussed below. USAir Group and BA have
agreed that they should attempt to mitigate any negative impact on
Company employees or communities served by the U.K. Routes and to
share any losses suffered as a result of such divestiture or
relinquishment with due regard to their respective interests.
Accordingly, BA is operating and marketing certain routes formerly
operated by USAir under a "wet lease." Under a "wet lease," an
airline, in this case USAir, leases its aircraft and cockpit and
cabin crews to another airline, in this case BA, for the purpose of
operating certain routes or flights. The wet leases had an initial
term of one year and may be extended by USAir Group and BA for a
cumulative lease term not to exceed two years and eleven months.
Rentals under the wet lease are based on USAir's costs. The
Investment Agreement provides that BA is to retain the cumulative
profits received by it in respect of these routes on the basis of
its fully diluted stock ownership in USAir Group and to pay the
balance of the profits to USAir Group annually. The routes have
not been profitable to date. See "Code Sharing" below. If the
contemplated profit sharing cannot be performed, BA will reimburse
USAir Group for a portion of any losses suffered by USAir Group in
the divesture or relinquishment of the U.K. Routes based on a
formula set forth in the Investment Agreement. The route authori-
ties which USAir was required to sell or relinquish were the
Philadelphia-London and BWI-London route authorities purchased by
USAir from TWA in April 1992 for $50 million, and its route
authority between Charlotte and London. Assets related to the U.K.
Routes were carried on USAir's books at approximately $47 million
36
<PAGE>
at December 31, 1994 and USAir expects to recover that amount in
full pursuant to the provisions of the Investment Agreement
described above.
During March and April 1993, USAir reached agreement with two
air carriers and an airport authority to sell the Philadelphia-
London, BWI-London and Charlotte-London route authorities. In June
and December 1993, the DOT denied applications for approval of
those sale agreements. In July 1993, the DOT awarded the Philadel-
phia-London route authority to American. USAir ceased operating
the BWI-London route authority on October 1, 1993 as a result of
the implementation of the wet leasing and code sharing arrangements
with BA. See "Code Sharing" below. In December 1993, the DOT
awarded the BWI-London and Charlotte-London route authorities to
American, which transferred these route authorities to Nashville
and Raleigh/Durham. USAir ceased serving the Charlotte-London
route on January 19, 1994 and implemented the code sharing and wet
leasing arrangement with BA in that market on that date.
Code Sharing BA and USAir Group entered into a code share
agreement on January 21, 1993 (the "Code Share Agreement") pursuant
to which certain USAir flights carry the airline designator code of
both BA and USAir. Code sharing is a common practice in the
airline industry whereby one carrier places its designator code and
sells tickets on the flights of another carrier (its code sharing
partner). These flights are intended by USAir Group and BA
eventually to include all routes provided for under the bilateral
air services agreement between the U.S. and the U.K. to the extent
possible, consistent with commercial viability and technical
feasibility.
The DOT initially granted approval of the code sharing
agreement between USAir and BA on March 17, 1993 for a period of
one year. The authorizations to USAir and BA were expanded by a
supplemental DOT order on November 12, 1993 to permit code sharing
on flights serving an additional number of U.S. points through
additional U.S. gateways for BA's transatlantic flights. As of
December 31, 1994, USAir and BA had implemented code sharing to 52
of the 65 airports currently authorized by the DOT. On March 17,
1994, the DOT issued an order renewing for one year the code share
authorizations but did not act on pending applications filed in
January 1994 by USAir and BA to further expand their code sharing
to additional U.S. and foreign points via the same and several
additional U.S. gateways. The DOT has not yet acted on these
applications. On January 13, 1995, USAir and BA filed applications
to renew for another one-year term the existing authorizations
granted on March 17, 1994. Both USAir and BA in their applications
invoked provisions of the Administrative Procedure Act, 5 U.S.C.
Section 558(c), which provides for continuation of existing
authorizations pending final DOT action on the renewal applica-
tions. The DOT has taken no action with respect to the renewal
applications and therefore the existing authorizations have been
extended automatically until final action is taken.
37
<PAGE>
The Company believes that (i) the code share cities in the
U.S. receive greater access to international markets; (ii) it has
greater access to international traffic; and (iii) BA's and its
customers benefit from better on-line connections as well as
coordinated check-in and baggage checking procedures. The Company
believes that the code sharing arrangements will generate increased
revenues. The DOT may continue to link further renewals of the
code share authorization to the U.K.'s liberalization of U.S. air
carrier access to the U.K.; however, the code sharing arrangements
contemplated by the Code Share Agreement are expressly permitted
under the bilateral air services agreement between the U.S. and
U.K. Accordingly, USAir expects that the existing code share
authorization will continue to be renewed; however, there can be no
assurance that this will occur. USAir does not believe that the
DOT's failure to renew further the authorization would result in a
material adverse change in its financial condition; however, if the
authorization is not renewed, consummation of the Second Purchase
and the Final Purchase, as defined under "Possible Additional BA
Investments" below, may be less likely. As discussed under
"Possible Additional BA Investments" below, USAir cannot predict
whether or when the Second Purchase or the Final Purchase will be
consummated in any event.
Possible Additional BA Investments On March 7, 1994, BA
announced that it would not make any additional investments in the
Company until the outcome of measures by the Company to reduce
costs and improve its financial results is known. Under the terms
of the Investment Agreement, assuming the Series F Preferred Stock
or any shares issued upon conversion thereof are outstanding and BA
has not sold any shares of preferred stock issued to it by USAir
Group or any Common Stock or other securities received upon
conversion or exchange of the preferred stock, BA is entitled at
its option to elect to purchase from USAir Group, on or prior to
January 21, 1996, 50,000 shares of Series C Cumulative Convertible
Senior Preferred Stock, without par value ("Series C Preferred
Stock"), at a purchase price of $10,000 per share, to be paid by
BA's surrender of the Series F Preferred Stock and a payment of
$200 million (the "Second Purchase"), and, on or prior to Janu-
ary 21, 1998, assuming that BA has purchased or is purchasing
simultaneously Series C Preferred Stock, 25,000 (or more in certain
circumstances) shares of Series E Cumulative Convertible Exchange-
able Senior Preferred Stock, without par value ("Series E Preferred
Stock"), at a purchase price of $10,000 per share (the "Final
Purchase"). Series E Preferred Stock is exchangeable under certain
circumstances at the option of USAir Group into certain USAir Group
debt securities ("BA Notes"). If the DOT approves all the
transactions and as contemplated by the Investment Agreement, at
the election of either BA or USAir Group on or prior to January 21,
1998, BA's purchase of the Series C Preferred Stock (unless
previously consummated) and BA's purchase of the Series E Preferred
Stock would be consummated under certain circumstances. If BA has
not elected to purchase the Series C Preferred Stock by January 21,
1996, then USAir Group may at its option redeem, in whole or in
part, Series F Preferred Stock at the higher of market value or the
price of $10,000 per share, plus accrued dividends. USAir cannot
38
<PAGE>
predict whether or when the Second Purchase and Final Purchase will
be consummated.
Terms of the Series C Preferred Stock and Series E Preferred
Stock The Series C Preferred Stock and Series E Preferred Stock
are substantially similar to Series F Preferred Stock, except as
follows. Series C Preferred Stock will be convertible into shares
of Class B Common Stock or Non-Voting Class C Stock (as such terms
are defined under "Terms of BA Common Stock" below) at an initial
conversion price of approximately $19.79, subject to Foreign
Ownership Restrictions. Each share of Series C Preferred Stock
will be entitled to a number of votes equal to the number of shares
of Class B Common Stock into which it is convertible, subject to
Foreign Ownership Restrictions. If shares of Series C Preferred
Stock are transferred to a third party, they convert automatically
at the seller's option into either shares of Common Stock or a like
number of shares of Series G Cumulative Convertible Senior
Preferred Stock. Series E Preferred Stock will be convertible into
shares of Common Stock or Non-Voting Class ET Stock (as defined
under "Terms of BA Common Stock" below) at an initial conversion
price of approximately $21.74, subject to increase if the Series E
Preferred Stock is originally issued on or after January 21, 1997,
subject to Foreign Ownership Restrictions. Each share of Series E
Preferred Stock will be entitled to a number of votes equal to the
number of shares of Common Stock into which it is convertible,
subject to Foreign Ownership Restrictions.
Terms of BA Common Stock To the extent permitted by Foreign
Ownership Restrictions, an amendment to USAir Group's charter,
which is to be filed with the Delaware Secretary of State immedi-
ately prior to the Second Purchase, which BA has announced it will
not complete under current circumstances, will create three new
classes of common stock - Class B Common Stock, par value $1.00 per
share ("Class B Common Stock"), Non-Voting Class C Common Stock,
par value $1.00 per share ("Non-Voting Class C Stock"), and Non-
Voting Class ET Common Stock, par value $1.00 per share ("Non-
Voting Class ET Common Stock," collectively with Class B Common
Stock and Non-Voting Class C Common Stock, "BA Common Stock") all
of which may be held only by BA or one of its wholly-owned
subsidiaries. Except with respect to voting and conversion rights,
the BA Common Stock will be substantially identical to the Common
Stock. Shares of BA Common Stock will convert automatically to
shares of Common Stock upon their transfer to a third party.
Subject to Foreign Ownership Restrictions, Class B Common Stock
will be entitled to one vote per share. After the effectiveness of
the above charter amendment, to the extent permitted by Foreign
Ownership Restrictions, Class B Common Stock will vote as a single
class with Series C Preferred Stock on the election of one-fourth
of the directors and the approval of the holders of Class B Common
Stock and Series C Preferred Stock voting as a single class will be
required for certain matters.
39
<PAGE>
Certain Governance Matters Following the Second Purchase,
which BA has announced it will not complete under current circum-
stances, and assuming these changes are permitted under Foreign
Ownership Restrictions, the above charter amendment will fix the
size of USAir Group's Board at 16, one-fourth of whom would be
elected by BA. The changes to the charter described herein will be
required by the Investment Agreement as currently in effect. As
noted above, in connection with the consummation of any labor deal,
it is likely that the Company and BA would renegotiate certain
provisions of the Investment Agreement, although it is uncertain at
this time what amendments might be made. In addition, the vote of
80 percent of the Entire Board of USAir Group will be required for
approval of the following (with certain limited exceptions): (i)
any agreement with the DOT regarding citizenship and fitness
matters; (ii) any annual operating or capital budgets or financing
plans; (iii) incurring capital expenditures not provided for in a
budget approved by the vote of 80 percent of the Entire Board in
excess of $10 million in the aggregate during any fiscal year; (iv)
declaring and paying dividends on any capital stock of USAir Group
or any of its subsidiaries (other than dividends paid only to USAir
Group or any wholly-owned subsidiary of USAir Group and any
dividends on preferred stock); (v) making investments in other
entities not provided for in approved budgets in excess of $10
million in the aggregate during any fiscal year; (vi) incurring
additional debt (other than certain debt specified in the Invest-
ment Agreement) not in an approved financing plan in excess of $450
million in the aggregate during any fiscal year; (vii) incurring
off-balance sheet liabilities (e.g., operating leases) not in an
approved financing plan in excess of $50 million in the aggregate
during any fiscal year; (viii) appointment, compensation and
dismissal of certain senior executives; (ix) acquisition, sale,
transfer or relinquishment of route authorities or operating
rights; (x) entering into material commercial or marketing
agreements or joint ventures; (xi) issuance of capital stock (or
debt or other securities convertible into or exchangeable for
capital stock), other than (A) the stock options granted to
employees in return for pay reductions under the USAir Group 1992
Stock Option Plan, as described under "Employees" above, (B) to
USAir Group or any direct or indirect wholly owned subsidiary of
USAir Group, (C) pursuant to the terms of USAir Group securities
outstanding when a certain amendment to USAir Group's charter
required in connection with consummation of the Second Purchase
becomes effective, or (D) pursuant to the terms of securities the
issuance of which was previously approved by the vote of 80 percent
of the Entire Board; (xii) acquisition of its own equity securities
other than from USAir Group or its subsidiaries, or pursuant to
sinking funds or an approved financing plan; and (xiii) establish-
ment of a Board committee with power to approve any of the
foregoing. This supermajority vote requirement would allow any
four directors, including those elected by BA, to withhold approval
of the actions described above if they believe them to be contrary
to the best interests of USAir. The supermajority vote would not
be required with regard to the foregoing actions to the extent they
involve the enforcement by USAir Group of its rights under the
Investment Agreement.
40
<PAGE>
Following the Second Purchase, which BA has indicated it will
not complete under current circumstances, to the extent permitted
under Foreign Ownership Restrictions, USAir Group and BA will
integrate certain of their respective business operations pursuant
to certain "Integration Principles" included in the Investment
Agreement. In addition, to the extent permitted by Foreign
Ownership Restrictions or pursuant to specific DOT approval, an
"Integration Committee," headed by the chief executive officers of
USAir Group and BA and by an Executive Vice President-Integration
of USAir Group, would oversee the integration subject to the
ultimate discretion of USAir Group's Board. As of the Final
Purchase, which BA has indicated it will not complete under current
circumstances, to the extent permitted by Foreign Ownership
Restrictions, the Investment Agreement provides for the establish-
ment of a committee ("Appointments Committee") of the Board of
USAir Group, composed of USAir Group's chief executive officer,
BA's chief executive officer and another director serving on both
USAir Group's Board and BA's board of directors, to handle all
employment matters relating to managers at the level of vice
president and above, except for certain senior executives.
BA's governance rights after the Second Purchase and the Final
Purchase, which BA has indicated it will not complete under current
circumstances, are subject to reduction if BA reduces its holding
in USAir Group under the following circumstances. If BA sells or
transfers, in one or more transactions, BA Preferred Stock, Common
Stock or BA Common Stock (collectively, Common Stock and BA Common
Stock are hereinafter referred to as "Non-Preferred Stock") issued
directly or indirectly upon the conversion thereof such that the
aggregate purchase price of the BA Preferred Stock, BA Notes, Non-
Preferred Stock or other equity securities of USAir Group held by
BA and its directly or indirectly wholly owned subsidiaries
following such sale or transfer (the "BA Holding") is less than
both two-thirds of the aggregate purchase price of all BA Preferred
Stock, BA Notes, Non-Preferred Stock or other equity securities of
USAir Group acquired by BA and its subsidiaries following Janu-
ary 21, 1993 and $750 million (or $500 million if the Final
Purchase has not occurred), then (i) the number of directors
elected by the Class B Common Stock and the Series C Preferred
Stock, voting together as a single class, will be limited to two;
(ii) the directors elected by the Common Stock, Series A Preferred
Stock, Series E Preferred Stock, Series T Preferred Stock, as
defined under "Miscellaneous" below, and other capital stock with
voting rights will no longer be required to include two directors
selected from among the outside directors on the board of directors
of BA; (iii) special class voting rights applicable to the Class B
Common Stock and Series C Preferred Stock will no longer apply; and
(iv) BA will no longer participate in the Appointments Committee.
In addition, if the BA Holding becomes less than both one-third of
the aggregate purchase price of all BA Preferred Stock, BA Notes,
Non-Preferred Stock or other equity securities of USAir Group
acquired by BA and its subsidiaries following January 21, 1993 and
$375 million (or $250 million if the Final Purchase has not
occurred), then the number of directors elected by the Class B
Common Stock and the Series C Preferred Stock, voting together as
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<PAGE>
a single class, will be reduced to one. If the BA Holding becomes
less than $100 million, then the Class B Common Stock and the
Series C Preferred Stock will no longer vote together as a single
class with respect to the election of any directors of USAir Group,
but will vote together with the Common Stock, the Series A
Preferred Stock and any other class or series of capital stock with
voting rights with respect to the election of directors of USAir
Group.
Miscellaneous Under the terms of the Investment Agreement,
BA has the right to maintain its proportionate ownership (based on
the assumed consummation of the Second Purchase and the Final
Purchase) of USAir Group's securities under certain circumstances
by purchasing shares of certain series of Series T Preferred Stock,
Common Stock or BA Common Stock. Pursuant to these provisions, on
June 10, 1993, BA purchased (i) 152.1 shares of Series T-1
Preferred Stock for approximately $1.5 million as a result of
certain issuances during the period January 21 through March 31,
1993 of Common Stock in connection with the exercise of certain
employee stock options and to certain defined contribution
retirement plans; and (ii) 9,919.8 shares of Series T-2 Preferred
Stock for approximately $99.2 million as a result of USAir Group's
issuance on May 4, 1993 of 11,500,000 shares of Common Stock for
net proceeds of approximately $231 million pursuant to a public
underwritten offering. Because BA partially exercised its
preemptive right in connection with the Common Stock offering and
the offering price was below a certain level, the conversion price
of the Series F Preferred Stock was antidilutively adjusted on June
10, 1993 from $19.50 to $19.41 per share. As a result, the Series
F Preferred stock is convertible into 15,458,851 shares of Common
Stock or Non-Voting Class ET Common Stock. BA advised the Company
that it would not exercise its optional purchase rights under the
Investment Agreement to buy additional series of Series T Preferred
Stock triggered by issuances of Common Stock of the Company
pursuant to certain Company benefit plans during 1994.
The Investment Agreement also imposes certain restrictions on
BA's right to acquire additional voting securities, participate in
solicitations with respect to USAir Group securities or otherwise
propose or discuss extraordinary transactions concerning USAir
Group. In addition, the Investment Agreement restricts BA's right
to transfer certain securities and requires that prior to transfer-
ring such securities, BA must, in most cases, first offer to sell
the securities to USAir Group. BA has certain rights to require
USAir Group to register for sale USAir Group securities sold to it
pursuant to the Investment Agreement.
(this space intentionally left blank)
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Item 2. Properties
Flight Equipment
At December 31, 1994, USAir operated the following jet
aircraft:
<TABLE>
<CAPTION>
Passenger Avg. Age Owned Leased
Type Capacity (Years) (1) (2) Total
---- --------- -------- ----- ------ -----
<S> <C> <C> <C> <C> <C>
Boeing 767-200ER(3) 212 6.1 4 5 9
Boeing 757-200 182 5.4 16 11 27
Boeing 727-200 151 16.1 - 6 6
Boeing 737-400 146 5.1 19 35 54
McDonnell Douglas
MD-80 141 12.9 15 16 31
Boeing 737-300(4) 128 8.0 24 76 100
Boeing 737-200 110 13.0 46 20 66
Douglas DC-9-30 102 21.9 58 14 72
Fokker 100 98 4.1 36 4 40
Fokker F28-4000 68 10.6 4 15 19
---- --- --- ---
10.8 222 202 424
==== === === ===
</TABLE>
(1) Of the owned aircraft, 115 were pledged as collateral for
various secured financing obligations aggregating $2.2 billion
at December 31, 1994.
(2) The terms of the leases expire between 1995 and 2015.
Includes two 737-300 aircraft that were returned to the lessor
in April 1995.
(3) The above table excludes one owned and two leased Boeing 767-
200ER which USAir leased to BA under a wet lease arrangement
at December 31, 1994. See "British Airways Investment
Agreement - U.S.-U.K. Routes."
(4) Includes aircraft that USAir has agreed to sell. See Item 1.
"Business - Major Airline Operations." The average age of
these aircraft is 8.9 years.
At December 31, 1994, USAir Group's three regional airline
subsidiaries operated the following propeller-driven aircraft:
<TABLE>
<CAPTION>
Passenger Avg. Age Owned Leased
Type Capacity (Years) (1) (2) Total
---- --------- -------- ----- ------ -----
<S> <C> <C> <C> <C> <C>
de Havilland Dash 7 50 13.7 2 3 5
de Havilland Dash 8 37 5.4 33 40 73
Embraer Model
120 Brasilia 28 7.5 - 7 7
120 Brasilia 30 4.8 - 2 2
British Aerospace
Jetstream 31 19 7.5 5 19 24
---- --- --- ---
6.3 40 71 111
==== === === ===
</TABLE>
43
<PAGE>
(1) Of the owned aircraft, 13 were pledged as collateral for
various secured financing obligations aggregating $50.3
million at December 31, 1994, five were owned by USAir Leasing
and Services, and four were owned by USAir.
(2) The terms of the leases expire between 1995 and 2010.
USAir is a party to purchase agreements that provide for the
future acquisition of new jet aircraft. Jetstream is party to an
agreement with Dornier LuftFahrt Gmbh which provides for the firm
acquisition by operating lease of 20 Dornier 328-100 series
aircraft by December 1995 and 20 options to acquire such aircraft.
Allegheny and Piedmont have agreements to acquire additional Dash 8
aircraft. USAir Leasing and Services has a commitment to sell its
five owned J-31s in 1995. Jetstream intends to return the 28-seat
Embraer Brasilia to a lessor in 1995 and to sublease the 30-seat
Brasilia to another air carrier. See Note 4(d) to the Company's
consolidated financial statements for outstanding commitments and
options for the purchase of flight equipment. The Company's
subsidiary airlines maintain inventories of spare engines, spare
parts, accessories and other maintenance supplies sufficient to
meet their operating requirements.
USAir owns one and leases 17 BAe 146-200 aircraft, leases two
Boeing 727-200, owns six Boeing 737-200, and owns seven Fokker F28-
1000 aircraft that were parked in storage facilities and not in its
operational fleet at December 31, 1994. USAir recorded substantial
charges during 1994 to recognize costs associated with repair
parts, inventory and future lease payments for certain parked
aircraft. See Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations." In addition,
certain of the Company's subsidiaries lease ten owned Fokker F28-
1000 aircraft and nine owned Boeing 737-200 aircraft to outside
parties.
USAir is a participant in the Civil Reserve Air Fleet
("CRAF"), a voluntary program administered by the Air Mobility
Command (the "AMC"). The General Services Administration of the
United States government also requires that airlines participate in
CRAF in order to receive United States government business. The
United States government is the largest customer of USAir. USAir's
commitment under CRAF is to provide three Boeing 767 aircraft in
support of military operations, probably for aeromedical missions,
as specified by the AMC. To date, the AMC has not requested USAir
to activate any of its aircraft under CRAF.
Ground Facilities
USAir leases the majority of its ground facilities, including
executive and administrative offices in Arlington, Virginia
adjacent to Washington National Airport; its principal operating,
overhaul and maintenance bases at the Pittsburgh and Charlotte/
Douglas International Airports; major training facilities in
Pittsburgh and Charlotte; central reservations offices in several
cities; and line maintenance bases and local ticket, cargo and
administrative offices throughout its system. USAir owns property
44
<PAGE>
in Fairfax, Virginia, a training facility in Winston-Salem, North
Carolina, a reservations and training facility in San Diego,
California, and a reservations facility in Orlando, Florida.
USAir's property in Fairfax, Virginia is leased to the U.S.
government and is currently for sale. Allegheny owns its principal
ground facilities in Middletown, Pennsylvania. Jetstream leases
its principal ground facilities in Dayton, Ohio. Piedmont leases
its principal ground facilities in Salisbury, Maryland, Norfolk,
Virginia and Jacksonville, Florida.
The Company's airline subsidiaries utilize public airports for
their flight operations under lease arrangements with the govern-
ment entities that own or control these airports. Airport
authorities frequently require airlines to execute long-term leases
to assist in obtaining financing for terminal and facility
construction. Any future requirements for new or improved airport
facilities and passenger terminals will require additional
expenditures and long-term commitments. Several significant
projects which affect large airports on USAir's route system are
discussed below.
The new terminal at Pittsburgh International Airport commenced
operation in October 1992. The construction cost of the new
terminal, approximately $800 million, was financed largely through
the issuance of airport revenue bonds. As the principal tenant of
the new facility, USAir pays a portion of the cost of the new
terminal through rents and other charges pursuant to a use
agreement which expires in 2018. USAir's terminal rental expense
at Pittsburgh was approximately $46 million annually in 1994. The
new facility has provided additional gate capacity for USAir and
has enhanced the efficiency and quality of its hub services at
Pittsburgh. In addition to the annual terminal rental expense,
USAir is recognizing approximately $13 million annual rental
expense for property and equipment typically owned by USAir at
other airports. The annual terminal rental expense is subject to
adjustment, depending on the actual airport operating costs, among
other factors. These rents are reflected in Note 4(b), "Lease
Commitments", to the Company's and USAir's respective consolidated
financial statements.
The East End Terminal at LaGuardia, which cost approximately
$177 million to construct, opened in the third quarter of 1992.
USAir, USAir Express and the USAir Shuttle operations at LaGuardia
are conducted from this new terminal and the adjoining USAir
Shuttle terminal. The East End Terminal has 12 jet gates. USAir
recognizes approximately $32 million in annual rental expense for
the new terminal and is responsible for all maintenance and
operating costs.
In 1993, USAir and the City of Philadelphia reached an
agreement to proceed with certain capital improvements at Philadel-
phia International Airport, where USAir has its third largest hub.
The improvements include approximately $85 million in various
terminal renovations and a new $220 million commuter airline runway
expansion project, exclusive of financing costs. Depending on the
45
<PAGE>
timing of certain federal environmental reviews, USAir expects
construction on the terminal project will begin in 1995 and will be
completed in 1996 or 1997. The runway expansion project may begin
in 1995 and is not expected to be completed until 1999 or 2000.
The Company expects that its annual costs of operations at
Philadelphia International Airport will increase by approximately
$14 million once construction is complete, representing more than
a 40% increase.
The Washington National Airport Authority, which operates
Washington National Airport, is currently undertaking a $1 billion
capital development project at Washington National Airport, which
includes construction of a new terminal currently expected to
commence operation in the first quarter of 1997. Based on current
projections, the Company estimates that its annual operating
expenses at Washington National Airport will more than double,
increasing by approximately $10 million to $15 million.
In January 1995, USAir announced plans to dispose of its
hangar at Indianapolis. The closing of this facility is expected
to save approximately $2.4 million per year in rental payments.
Initial costs associated with the closing are estimated to be $4.5
million for employee relocation.
USAir intends to divest six of nine gates it holds at Newark
International Airport. It is currently negotiating with another
carrier with respect to the disposition of those gates. USAir
anticipates that the divestiture will result in an annual rent
reduction of approximately $4 million.
During 1990, Congress enacted legislation to permit airport
authorities, with prior approval from the DOT, to impose passenger
facility charges ("PFCs") as a means of funding local airport
projects. These charges, which are collected by the airlines from
their passengers, are limited to $3.00 per enplanement, and to no
more than $12.00 per round trip. The legislation provides that the
airlines will be reimbursed for the cost of collecting these
charges and remitting the funds to the airport authorities. To
date, more than 230 airports, including airports in Boston,
Baltimore, Washington, Newark, New York City, Philadelphia, Orlando
and Tampa (which are major markets served by USAir), have imposed
PFCs. These airports receive more than $1 billion annually in
PFCs. As a result of downward competitive pressure on fares, USAir
and other airlines have been unable in many instances to pass on
the cost of the PFCs to passengers.
With respect to the magnitude of airport rent and landing and
other user fees generally, federal law prohibits States and their
subdivisions from collecting these fees, other than reasonable
rental charges, landing fees and other service charges, from
aircraft operators for the use of airport facilities. Controver-
sies have arisen in recent years concerning the allocation of
airport costs among the airlines, general aviation and concession-
aires operating at the airport. In addition, during 1993 and 1994,
the controversy surrounding the diversion by airport and other
46
<PAGE>
governmental authorities of airport revenues continued to grow.
Airport revenues typically consist primarily of rents and landing
and other user fees paid by the airlines operating at the airport.
Under federal law, federal transportation funds could be denied to
certain airports that engage in diversion of these revenues. In
August 1994, Congress enacted legislation which strengthens
prohibitions on revenue diversion. The DOT recently established
procedures for the resolution of disputed charges imposed by
airports. It is too early to tell how the DOT will resolve
disputes between airport operators and the carriers under these new
procedures.
Item 3. Legal Proceedings
USAir has been named as party to, or may be affected by, legal
proceedings brought by owners and residents of property located in
the vicinity of certain commercial airports. The plaintiffs
generally seek to enjoin certain aircraft operations at those
airports or to obtain awards of damages on the defendant airport
operators and air carriers as a result of alleged aircraft noise or
air pollution. The relative rights and liabilities among property
owners, airport operators, air carriers and Federal, state and
local governments are the subject of ongoing interpretation by the
courts. Any liability imposed on airport operators or air
carriers, or the granting of any injunctive relief against them,
could result in higher costs to air carriers, including the
Company's airline subsidiaries.
The Equal Employment Opportunity Commission and various state
and local fair employment practices agencies are investigating
charges by certain job applicants, employees and former employees
of the Company's subsidiaries involving allegations of employment
discrimination in violation of Federal and state laws. The
plaintiffs in these cases generally seek declaratory and injunctive
relief and monetary damages, including back pay. In some instances
they also seek classification adjustment, compensatory damages and
punitive damages.
The above proceedings are in various stages of litigation and
investigation, and the outcome of these proceedings is difficult to
predict. In the Company's opinion, however, the disposition of
these matters is not likely to have a material adverse effect on
its financial condition or results of operations.
USAir is involved in legal proceedings arising out of its two
aircraft accidents that occurred in July and September 1994 near
Charlotte, North Carolina and Pittsburgh, Pennsylvania, respective-
ly. The NTSB held hearings beginning in September 1994 relating to
the July accident and January 1995 relating to the September
accident. In April 1995, the NTSB issued its finding of probable
causes with respect to the accident near Charlotte. It assigned as
probable causes flight crew errors and the failure of air traffic
control to convey weather and windshear hazard information. The
NTSB has not yet issued its final accident investigation report for
the accident near Pittsburgh. USAir expects that it will be at
47
<PAGE>
least two to three years before the accident litigation and related
settlements will be concluded. USAir believes that it is fully
insured with respect to this litigation and has recovered its
claims related to the loss of the two aircraft. Therefore, the
Company believes that the litigation will not have a material
adverse effect on the Company's financial condition or results of
operations. However, due to these two aircraft accidents, it is
probable that the Company's insurance costs will increase upon
renewals of various policies in 1995. See Item 1. "Business -
Insurance."
In 1989 and 1990, a number of U.S. air carriers, including
USAir, received two Civil Investigative Demands ("CIDs") from the
DOJ (a CID is a request for information in the course of an
antitrust investigation and does not constitute the institution of
a civil or criminal action) related to investigations of price
fixing in the domestic airline industry.
The investigations by the DOJ culminated in the filing of a
lawsuit against Airline Tariff Publishing Company ("ATPCo") and
eight major air carriers, including USAir, alleging that the
defendants had agreed to fix prices in violation of Section 1 of
the Sherman Act through the methods used to disseminate fare data
to ATPCo, an airline-owned fare publishing service. To avoid the
costs associated with protracted litigation and an uncertain
outcome, USAir and another carrier decided to settle the lawsuit by
entering into a consent decree to modify their fare-filing
practices in certain respects and to implement compliance programs
that would include education of employees regarding the carrier's
responsibilities under the consent decree. Accordingly, the
consent decree and the U.S. Government's complaint were filed
contemporaneously in the U.S. District Court for the District of
Columbia in December 1992. On November 1, 1993, after it had
reviewed comments filed regarding the consent decree, the Court
entered the decree. In March 1994, the remaining six air carrier
defendants agreed to the entry of a separate consent decree to
settle the lawsuit. USAir petitioned the Court to have its consent
decree amended to conform with the other settlement and the Court
entered an amended consent decree on September 21, 1994.
On March 19, 1993, the U.S. District Court in Atlanta, Georgia
entered a settlement involving USAir and five other U.S. air
carrier defendants in the Domestic Air Transportation Antitrust
Litigation class action lawsuit. The class action suit, which was
filed in July 1990, alleged that the airlines used ATPCo to signal
and communicate carrier pricing intentions and otherwise limit
price competition for travel to and from numerous hub airports.
Under the terms of the settlement, the six air carriers paid $45
million in cash and issued $396.5 million in certificates valid for
purchase of domestic air travel on any of the six airlines.
USAir's share of the cash portion of the settlement, $5 million,
was recorded in results of operations for the second quarter of
1992. The certificates, mailed to approximately 4.1 million
claimants between December 15 and 31, 1994, provide a dollar-for-
dollar discount against the cost of a ticket generally of up to a
48
<PAGE>
maximum of 10 percent per ticket, depending on the cost of the
ticket. It is possible that this settlement could have a dilutive
effect on USAir's passenger transportation revenue and associated
cash flow. However, due to the interchangeability of the certifi-
cates among the six carriers involved in the settlement, the
possibility that carriers not party to the settlement will honor
the certificates, and the potential stimulative effect on travel
created by the certificates, USAir cannot reasonably estimate the
impact of this settlement on further passenger revenue and cash
flows. USAir has employed the incremental cost method to estimate
a range of costs attributable to the exercise of the certificates,
based on the assumption that the estimated maximum number of
certificates to be redeemed for travel on USAir will be related to
USAir's market share relative to the total market share of the six
carriers involved in the settlement. USAir's estimated percentage
of such market share is less than nine percent. Incremental costs
include unit costs for passenger food, beverages and supplies,
fuel, reservations, communications, liability insurance, and denied
boarding compensation expenses expected to be incurred on a per
passenger basis. USAir has estimated that its incremental cost
will not be material based on the equivalent free trips associated
with the settlement.
On October 11, 1994, USAir and seven other carriers entered
into a settlement agreement with a group of State Attorneys General
resolving similar issues with the states. The settlement entitles
passengers traveling within the United States on state government
business to a 10% discount off the published fares of each of the
settling carriers and will be available for 18 months or until the
combined discount amount reaches $40 million. Following a notice
and public comment period, the reviewing judge will conduct a
hearing to determine whether this settlement is a fair one. The
hearing is scheduled for May 10, 1995. The Company does not expect
that this settlement will have a material adverse effect on its
financial condition or results of operations. As was the case with
the settlement of the private antitrust litigation, it is difficult
to predict the amount of discounted state travel that will occur on
USAir. Thus, a dollar impact of the settlement cannot be estimat-
ed.
In February and March 1995, several class action lawsuits were
filed in various federal district courts by travel agencies and a
travel agency trade association alleging that most of the major
U.S. airlines, including USAir, violated the antitrust laws when
they individually capped travel agent commissions at $50 for round-
trip domestic tickets with base fares above $500 and at $25 for
one-way domestic tickets with base fares above $250. USAir intends
to vigorously defend itself against the allegations made in these
lawsuits. The plaintiffs are seeking unspecified treble damages
for restraint of trade and an injunction to prevent the airlines
from implementing or maintaining the cap on commissions. Because
the lawsuits are in the first stages of litigation, USAir is unable
to predict at this time their ultimate resolution or potential
impact on the Company's financial condition and results of
operations.
49
<PAGE>
In March 1995, a number of U.S. carriers, including USAir,
received a CID from the DOJ related to an investigation of
incentives paid to travel agents over and above the base commission
payments, which are the subject matter of the suits recently
brought by travel agencies, as discussed above. USAir responded to
an earlier CID on this topic during 1994. USAir is required to
produce documents and respond to interrogatories in connection with
this CID. USAir intends to comply with the requirements of the
CID. Because this matter is in the investigatory stage, USAir is
unable to predict at this time its ultimate resolution or potential
impact on the Company's financial condition and results of
operations.
In February 1995, two members of USAir's frequent traveler
program filed a class action lawsuit in Pennsylvania state court
against USAir after it raised the required minimum level of miles
necessary to earn a free ticket. The plaintiffs allege breach of
contract and seek unspecified damages and specific performance of
the contract allegedly breached. USAir denies the allegations.
The ultimate resolution of this lawsuit and its potential impact on
the Company's financial condition and results of operations cannot
be predicted at this time.
USAir and certain of the Company's other subsidiaries have
received notices from the U.S. Environmental Protection Agency and
various state agencies that it is a potentially responsible party
with respect to the remediation of existing sites of environmental
concern. Only two of these sites have been included on the
Superfund National Priorities List. USAir and the other subsidiar-
ies continue to negotiate with various governmental agencies
concerning known and possible cleanup sites. These companies have
made financial contributions for the performance of remedial
investigations and feasibility studies at sites in Moira, New York;
Escondido, California; Newberry Township, Pennsylvania; Elkton,
Maryland; and Salisbury, Maryland.
Because of changing environmental laws and regulations, the
large number of other potentially responsible parties and certain
pending legal proceedings, it is not possible to reasonably
estimate the amount or timing of future expenditures related to
environmental matters. The Company provides for costs related to
environmental contingencies when a loss is probable and the amount
is reasonably estimable. Although management believes adequate
reserves have been provided for all known contingencies, it is
possible that additional reserves could be required in the future
which could have a material effect on results of operations.
However, the Company believes that the ultimate resolution of known
environmental contingencies should not have a material adverse
effect on the Company's financial position or results of operations
based on the Company's experience with similar environmental sites.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during
the fourth quarter of 1994.
50
<PAGE>
Part II
Item 5A. Market for USAir Group's Common Equity and Related
Stockholder Matters
Stock Exchange Listings
The Common Stock of the Company is traded on the New York
Stock Exchange (Symbol U). On February 28, 1995, there were
approximately 61,856,000 shares of Common Stock of the Company
outstanding. The stock was held by 36,857 stockholders of record.
The holders reside throughout the United States and abroad.
Market Prices of Common Stock
Presented below are the high and low sale prices of the Common
Stock of the Company as reported on the New York Stock Exchange
Composite Tape during 1994 and 1993:
<TABLE>
<CAPTION>
Period High Low
------ ---- ---
<S> <C> <C>
1994
First Quarter 15 1/8 8
Second Quarter 8 1/8 6 1/4
Third Quarter 7 1/2 4
Fourth Quarter 5 3/8 4
1993
First Quarter 20 1/4 12 7/8
Second Quarter 24 3/4 15 3/8
Third Quarter 17 1/2 11 1/8
Fourth Quarter 15 12 3/8
</TABLE>
Holders of the Common Stock are entitled to receive such
dividends as may be lawfully declared by the Board of Directors of
the Company. A Common Stock dividend of $.03 per share was paid in
every quarter from the second quarter of 1980 through the second
quarter of 1990. In September 1990, however, the Company suspended
the payment of dividends on Common Stock for an indefinite period.
The Company is subject to statutory restrictions on the payment of
dividends according to capital surplus requirements of Delaware
law. At December 31, 1994, the Company's capital surplus was
exhausted and therefore, under Delaware law, the Company is legally
restricted from paying dividends until its capital surplus becomes
positive. Surplus is the remainder of (i) net assets (total assets
less total liabilities), less (ii) total capital (that amount of
preferred and common equity designated as capital by a company's
board of directors). At December 31, 1994, the Company's capital
deficit was approximately $199.3 million. The Company's net assets
were in a deficit balance of approximately $138.2 million, and its
total capital was approximately $61.1 million (the $61.1 million is
all attributable to the Company's Common Stock; capital for all of
the Company's preferred stock issuances is a nominal amount of one
cent per share). In order for the Company to return to a capital
51
<PAGE>
surplus position, it must realize substantial profits or increase
its equity through other measures, such as the sale of additional
common or preferred stock. See Item 7. "Management's Discussion
and Analysis of Financial Condition and Results of Operations" and
Item 8A. Notes 8 and 9 to the Company's consolidated financial
statements.
Foreign Ownership Restrictions
In connection with BA's 1993 investment in the Company, the
Company's stockholders approved an amendment to its restated
certificate of incorporation ("Charter") at the 1993 annual meeting
that is designed to prevent the loss of USAir's operating certifi-
cates due to foreign ownership or control of the Company's voting
securities exceeding the level permitted by relevant Federal law.
Under current law, foreign citizens cannot own or control more than
25% of the Company's voting securities.
The Charter provides that: (i) transfers of the Company's
voting securities to non-U.S. citizens ("Aliens") on or after
May 27, 1993 are prohibited; (ii) Aliens that acquire beneficial
ownership of the Company's voting securities on or after May 27,
1993 have no voting rights; (iii) the Company can compel these
Aliens to sell their securities to U.S. citizens; (iv) the Company
can redeem or exchange the voting securities beneficially owned by
these Aliens; and (v) the independent directors of the Company, who
are those directors other than those employed by or affiliated with
BA or the Company, have broad powers to construe and apply these
provisions of the Charter, including the determination as to
whether Aliens have become the beneficial owners of the Company's
voting securities.
Item 5B. Market for USAir's Common Equity and Related Stockholder
Matters
There is no established public trading market for USAir's
Common Stock, which is all owned by USAir Group. No dividends were
paid in 1994 or 1993. USAir is subject to statutory restrictions
on the payment of dividends according to capital surplus require-
ments of Delaware law. At December 31, 1994, USAir's capital
surplus was exhausted and therefore, under Delaware law, USAir is
legally restricted from paying dividends until its capital surplus
becomes positive. Surplus is the remainder of (i) net assets
(total assets less total liabilities), less (ii) total capital
(that amount of preferred and common equity designated as capital
by a company's board of directors). At December 31, 1994, USAir's
capital deficit was approximately $273.2 million. USAir's net
assets were in a deficit balance of approximately $273.2 million,
and its total capital was a nominal amount. In order for USAir to
return to a capital surplus position, it must realize substantial
profits or increase its equity through other measures, such as the
sale of additional common or preferred stock. See Item 7. "Manage-
ment's Discussion and Analysis of Financial Condition and Results
of Operations" and Item 8B. Note 7 to USAir's consolidated
financial statements.
52
<PAGE>
Covenants related to USAir's 10% and 9 5/8% senior unsecured
notes currently do not permit the payment of dividends by USAir to
USAir Group. However, these covenants do not restrict USAir from
loaning or advancing funds to USAir Group.
Item 6. Selected Financial Data
Selected financial data for USAir Group is presented below:
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
(in millions except per share amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statement of Operations
Operating Revenues $ 6,997 $ 7,083 $ 6,686 $ 6,514 $ 6,559
Operating Expenses $ 7,489 $ 7,179 $ 7,033 $ 6,698 $ 7,068
Operating Income (Loss) $ (491) $ (96) $ (347) $ (184) $ (509)
Income (Loss) Before Accounting Change $ (685) $ (349) $ (601) $ (305) $ (454)
Accounting Change (1) - (44) (628) - -
------ ------ ------ ------ ------
Net Income (Loss) $ (685) $ (393) $(1,229) $ (305) $ (454)
Net Income (Loss) Applicable to Common
Stockholders $ (763) $ (467) $(1,281) $ (350) $ (488)
Income (Loss) Per Share:
Before Accounting Change $(12.73) $ (7.68) $(13.88) $ (7.62) $(10.89)
Effect of Accounting Change - (0.80) (13.35) - -
------ ------ ------ ------ ------
Income (Loss) Per Share $(12.73) $ (8.48) $(27.23) $ (7.62) $(10.89)
Dividends Per Common Share $ - $ - $ - $ - $ 0.06
Consolidated Balance Sheet
Total Assets $ 6,808 $ 6,878 $ 6,595 $ 6,450 $ 6,574
Long-Term Obligations and Redeemable
Preferred Stock (2) (3) $ 4,699 $ 4,198 $ 3,714 $ 2,577 $ 2,743
Series B Preferred Stock (3) 213 213 213 213 -
Common Stockholders' Equity (Deficit) (3) (1,110) (426) (169) 1,105 1,434
------ ------ ------ ------ ------
Total Stockholders' Equity (Deficit) (3) $ (897) $ (213) $ 44 $ 1,318 $ 1,434
Shares of Common Stock Outstanding 61.1 59.2 47.2 46.6 45.5
Book Value Per Share (4) $(18.71) $ (7.19) $ (3.58) $ 23.69 $ 31.50
(1) Cumulative effect of change in method of accounting for postemployment benefits in 1993 and postretirement
benefits other than pensions (net of income tax benefit of $117.6) in 1992. See Note 11 of the USAir Group
consolidated financial statements for more information.
(2) Long-term obligations include long-term debt, capital leases and postretirement benefits other than pensions, non-
current.
(3) 1994 does not include deferred dividends on preferred stock. See Note 8 to USAir Group's consolidated financial
statements.
(4) Based on Common Stockholders' Equity (Deficit), which is adjusted to reflect deferred dividends on preferred stock
as though they had been declared. See Note 8 to USAir Group's consolidated financial statements.
Note: Numbers may not add or calculate due to rounding.
</TABLE>
53
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condi-
tion and Results of Operations
The following discussion relates to the financial results and
condition of USAir Group, Inc. (the "Company"). USAir, Inc.
("USAir") is the Company's principal subsidiary and accounts for
approximately 93% of its operating revenue. Therefore, the
following discussion is based primarily upon USAir's results of
operations and prospects.
The primary factor that currently influences the Company's
financial results and its future prospects is USAir's high cost
structure amid the low cost, low fare environment which character-
izes the U.S. airline industry. The Company has recorded net
losses in excess of $3 billion on revenues of approximately $40
billion since 1988, which was its most recent profitable year.
The U.S. airline industry has undergone dramatic and permanent
changes in recent years, generally resulting in lower operating
costs and fares. As discussed in more detail below, the current
competitive environment is the result of several factors including
the emergence and expansion of low cost, low fare carriers, the
protection and cost restructuring opportunities afforded to certain
carriers while operating under Chapter 11 of the Bankruptcy Code,
and other cost restructuring initiatives among major airlines,
including employee concessions in exchange for equity ownership.
USAir believes that it must reduce its operating costs substantial-
ly if it is to survive in this low cost, low fare competitive
environment.
USAir began negotiating with the unions representing certain
of its employees in 1994 and, as described in Item 1. "Business -
Agreement in Principle with Pilots' Union," signed an agreement in
principle on March 29, 1995 with the negotiating committee of the
Air Line Pilots Association ("ALPA") Master Executive Council.
ALPA represents USAir's pilots and the Master Executive Council is
ALPA's governing body. The agreement in principle is subject to
many significant conditions. It is uncertain whether USAir will be
successful in reaching agreements with its other unions and whether
or when any transactions with one or more of the unions will be
consummated. As discussed below, the Company has taken various
steps to reduce its non-labor costs including a five percent
reduction in capacity to be phased in during April to June 1995.
In addition, the Company is evaluating and considering the risks
associated with various strategic options, including further
downsizing.
Low Cost, Low Fare Environment
The growth and expansion of low cost, low fare carriers into
USAir's markets in the eastern U.S. and the improved competitive
position of other major airlines which have substantially reduced
their operating costs together represent an urgent competitive
54
<PAGE>
challenge for USAir, which has higher operating costs than its
competitors. Unless USAir is able to reduce its operating costs,
competition from lower cost airlines in USAir's markets will
continue to have a material adverse impact on USAir's cash position
and therefore, its ability to sustain operations. See "Liquidity
and Capital Resources" below.
In October 1993, Continental Airlines ("Continental) inaugu-
rated its low cost, low fare "Continental Lite" service on certain
routes in the eastern U.S. also served by USAir. During 1994,
Continental substantially expanded the Continental Lite service
into additional markets also served by USAir. Continental has
operating costs that are substantially lower than those of USAir.
In February 1994, to avoid a loss of market share in the eastern
U.S., USAir began to substantially lower its fares in primary and
secondary markets affected by the expansion of Continental's low
cost, low fare service. By late 1994, USAir competed with
Continental in primary and secondary markets from which USAir then
generated approximately 46% of its passenger revenue and offered
fares in these markets up to 70% lower than the beginning of 1994.
In January 1995, Continental announced its intention to reduce its
capacity, to eliminate 4,000 jobs, and to reduce its Continental
Lite service by 40% during 1995. This action has affected markets
in which USAir and Continental compete. However, any impact on the
Company's results of operations or financial position cannot be
estimated at this time. See Item 1. "Business - Significant Impact
of Low Cost, Low Fare Competition" and "Industry Restructuring."
In September 1993, Southwest Airlines, Inc. ("Southwest"), a
low cost, low fare air carrier which had not previously provided
service to or in the eastern U.S., inaugurated service from
Baltimore/Washington International Airport ("BWI") at fares
substantially below those previously offered by USAir and other
airlines in the same markets. BWI is one of USAir's hub airports.
USAir responded by matching most of Southwest's fares and increas-
ing the frequency of service in related markets. Southwest further
expanded its service from BWI during 1994 and USAir reduced its
fares to avoid the loss of traffic. USAir believes that Southwest
and other low cost carriers likely will expand their operations to
additional markets also served by USAir. See Item 1. "Business -
Significant Impact of Low Cost, Low Fare Competition."
In 1993, Northwest Airlines, Inc. ("Northwest") and Trans
World Airlines, Inc. ("TWA") sought and obtained from unionized
employees substantial concessions and productivity improvements.
In exchange, these employees have received ownership interests in
those companies. In 1994, United Airlines, Inc. ("United")
completed a transaction which traded employee concessions for a
substantial ownership stake. The stated intent and purpose of
these labor concessions are to enable these carriers to lower their
operating costs. United initiated a low cost, low fare operation
in the western U.S. in October 1994. USAir substantially reduced
the frequency of its service between San Francisco and Los Angeles
in November 1994 and will close its crew base in San Francisco in
the first half of 1995. See the discussion in "Results of
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<PAGE>
Operations" below for information regarding a $25.9 million charge
recorded as a result of this action. United could initiate
additional low cost, low fare service in other markets served by
USAir.
Delta Air Lines ("Delta") is currently engaged in a restruc-
turing initiative, announced in April 1994, that is intended to
reduce its operating costs through measures which include the
elimination of up to 15,000 positions, or approximately 20% of its
work force. Delta is currently in discussion with certain of its
employees regarding concessions. American Airlines ("American")
has announced a restructuring of its non-union workforce and that
it is seeking $750 million in concessions and productivity gains
from its unionized workers. TWA has negotiated further productivi-
ty improvements with its unionized employees and has proposed
another restructuring transaction in which, among other things,
certain creditors would swap debt for equity. As discussed above,
Continental plans to reduce its workforce by 4,000 and reduce
service levels. Southwest has agreed with its pilots on a new ten
year contract that provides for no wage increases in the first five
years, providing for grants of stock options to the pilots instead.
The announcements by Delta, American, TWA, Continental and
Southwest further illustrate the trend among the major U.S.
airlines to restructure in order to reduce operating and other
costs and enable them to compete in a low fare environment. See
Item 1. "Business - Industry Restructuring."
The Company is actively pursuing several initiatives in an
effort to enhance its revenues and to reduce USAir's costs. The
Company's goal is to achieve a pre-tax margin of 3.0% in the next
one to two years and a 7.5% pre-tax margin longer term. The
Company believes that it must reduce USAir's annual operating
expenses by approximately $1 billion in order to achieve its margin
goals.
The Company is seeking to realize half, or approximately $500
million, of the $1 billion of annual savings through reductions in
personnel costs, which are the largest single component of USAir's
operating costs. USAir is engaged in discussions with the
leadership of its unionized employees regarding the $500 million
annual savings in personnel costs it desires to achieve through
wage and benefit reductions, improved productivity, and other cost
savings and has reached an agreement in principle with ALPA. The
agreement in principle is subject to many significant conditions.
See Item 1. "Business - Agreement in Principle with Pilots' Union."
The timing and outcome of USAir's discussions with its other labor
unions are uncertain. No assurance can be given whether or when
any transactions with any of the unions will be consummated or what
the terms of any such transactions might be. Even if the savings
described above are achieved, it remains uncertain whether they
will be adequate in light of the Company's financial condition and
competitive position. See Item 1. "Business - Major Airline
Operations."
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<PAGE>
The Company plans to achieve the remaining $500 million in
annual cost savings through a combination of initiatives including:
organizational and process re-engineering; rationalization of
USAir's jet fleet; centralization of USAir's purchasing function;
operations research initiatives intended to improve operational
efficiency and maximize passenger revenue generation; and the
outsourcing of certain cargo, catering, and communications
positions. The Company currently expects to realize at least $250
million to $300 million savings from these initiatives during 1995
and will continue to pursue additional savings. However, there can
be no assurance that these savings will be fully realized. See
Item 1. "Business - Major Airline Operations" for additional
discussion about the various initiatives.
USAir has implemented several programs intended to enhance its
results of operations. These include USAir's quick turn program
which results in increased utilization of aircraft, facilities, and
personnel. In January 1995, USAir introduced a convertible
passenger cabin in certain markets which will allow USAir to offer
a premium service, branded "Business Select," to higher yield
business passengers. USAir expects to determine whether to expand
the Business Select service later in 1995. This modification
involves substantial one-time implementation costs and there can be
no assurance that other airlines will not implement similar
service. At least one other major U.S. airline has announced plans
to initiate service which USAir believes is similar to Business
Select. See Item 1. "Business - Major Airline Operations" for
additional information about these programs.
In March 1995, USAir announced plans to cut capacity through-
out its system by five percent as part of its efforts to return to
profitability. It intends to emphasize the strengths of its hubs
in Pittsburgh, Charlotte, Philadelphia and Baltimore, as well as
other major east coast urban centers. USAir expects that this
downsizing will produce over $100 million in annual financial
benefits. See Item 1. "Business - Major Airline Operations." In
addition, the Company is evaluating and considering other strategic
options, including further downsizing, which may be available to
address the difficult financial and competitive factors facing
USAir.
In order to reduce aircraft ownership costs and to reduce its
fleet size, USAir has been pursuing the sale and lease of jet
aircraft and has not renewed certain aircraft leases upon their
expiration. USAir currently plans to reduce its operating fleet by
21 jet aircraft in 1995 from December 31, 1994 levels. USAir has
taken delivery of four Boeing 757-200 aircraft in the first quarter
of 1995 and intends to purchase the remaining three Boeing 757-200
aircraft scheduled to be delivered in the remainder of 1995, for
which financing commitments have been obtained. It plans to retire
or dispose of, at various times, 15 Boeing 737-300, five Boeing
767-200ER, two Boeing 737-200 and six Boeing 727-200 aircraft.
These plans are subject to change if a labor deal is consummated,
but the Company cannot predict at this time the potential impact of
a labor deal on its fleet reduction plans. USAir has entered into
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<PAGE>
an agreement with General Electric Capital Corporation ("GE
Capital") to sell 11 Boeing 737-300 aircraft during 1995, two of
which were sold in the first quarter of 1995. USAir has also
reached an agreement in principle to sell two Boeing 737-300
aircraft to a leasing company during 1995. USAir believes that it
will recognize a slight financial statement loss as a result of the
sales of the Boeing 737-300 aircraft and cannot estimate the
financial statement impact of other potential transactions at this
time. Pursuant to resolutions of the boards of directors of the
Company and USAir, USAir is required to use the net proceeds from
contemplated aircraft sales to repay debt. Excluding any Boeing
767-200ER dispositions, USAir's capacity, as measured by available
seat miles ("ASMs"), is expected to decrease approximately 2.5% in
1995 compared with 1994. See Item 1. "Business - Major Airline
Operations."
In its negotiations with its unions, USAir has offered an
ownership stake in the Company. There are recent examples of
companies in the airline industry which have obtained employee
concessions in agreements also resulting in the recapitalization of
the companies, including employee ownership stakes and employee
participation in corporate governance. In other cases, airlines
have filed for bankruptcy protection under Chapter 11 of the
Bankruptcy Code, and some airlines have ceased operation altogether
when their operating costs remained excessive in relation to their
revenues, and their liquidity became insufficient to sustain their
operations. In addition, other factors beyond the Company's
control, such as a downturn in the economy, a dramatic increase in
fuel prices or intensified industry fare wars, could have a
material adverse effect on the Company's and USAir's prospects,
liquidity and financial condition. Because the Company and USAir
are highly leveraged and currently do not have access to bank
credit and receivables facilities which had supplied a substantial
portion of their liquidity, or to public debt and equity markets
because of their financial condition and current financial outlook,
they are more vulnerable to these factors than their financially
stronger competitors. See Item 1. "Business - Significant Impact
of Low Cost, Low Fare Competition" and "Liquidity and Capital
Resources."
Because of the Company's poor financial results, it began to
defer quarterly dividend payments on all series of its preferred
stock in September 1994. Furthermore, the Company is subject to
statutory restrictions on the payment of dividends according to
capital surplus requirements of Delaware law. Capital surplus is
the amount of net assets which remain after deducting the capital
portion of preferred and common equity. At December 31, 1994, the
Company's capital surplus was exhausted and therefore, under
Delaware law, the Company is legally restricted from paying
dividends on all outstanding common and preferred stock issuances
until its capital surplus becomes positive. Even if the Company is
successful in restructuring its costs, there can be no assurance
when or if preferred dividend payments will resume. See Notes 8
and 9 to the Company's consolidated financial statements.
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<PAGE>
Frequent Traveler Program
Each major airline has developed a frequent traveler program
that offers its passengers incentives to maximize travel on that
particular carrier. Participants in such programs typically earn
"mileage credits" for every trip they fly that can be redeemed for
airline travel or, in some cases, for other benefits. Under
USAir's Frequent Traveler Program ("FTP"), participants generally
receive mileage credits equal to the greater of actual miles flown
or 750 miles (500 miles effective May 1, 1995) for each paid flight
on USAir or USAir Express, or actual miles flown on one of USAir's
FTP airline partners. Participants generally receive a minimum of
1,000 mileage credits for each paid flight on USAir Shuttle (500
miles effective May 1, 1995). Participants flying on first or
business class tickets receive additional credits. Participants
may also earn mileage credits by utilizing certain credit cards,
staying at participating hotels or by renting cars from participat-
ing car rental companies.
Mileage credits can be redeemed for certificates for various
travel awards, including fare discounts, first class upgrades and
tickets on USAir or other airlines participating in USAir's FTP.
Certain awards also include hotel and car rental awards. Award
certificates may not be brokered, bartered or sold, and have no
cash value. USAir and its airline partners limit the number of
seats allocated per flight for award recipients. The number of
seats varies depending upon flight, day, season and destination.
Award travel for all but USAir's most frequent travelers generally
is not permitted on blackout dates, which correspond to certain
holiday periods in the United States or peak travel dates to
foreign destinations. Hotel and car awards are valid at partici-
pating locations, subject to availability, and are not available
for use on specified blackout dates. USAir reserves the right to
terminate the FTP or portions of the program at any time, and the
FTP's official rules, partners, special offers, blackout dates,
awards and mileage levels are subject to change with or without
prior notice.
USAir accounts for its FTP under the incremental cost method,
whereby travel awards are valued at the incremental cost of
carrying one additional passenger. Such costs are accrued when FTP
participants accumulate sufficient miles to be entitled to claim
award certificates. Incremental costs include unit costs for
passenger food, beverages and supplies, fuel, reservations,
communications, liability insurance and denied boarding compensa-
tion expenses expected to be incurred on a per passenger basis. No
profit or overhead margin is included in the accrual for incremen-
tal costs. No liability is recorded for airline, hotel or car
rental award certificates that are to be honored by other parties
because there is no cost to USAir for these awards.
Effective January 1, 1995, USAir increased the minimum mileage
level required for a free domestic flight from 20,000 to 25,000.
FTP participants had accumulated mileage credits for approximately
3,697,000 awards (using the new 25,000 mile level) at December 31,
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<PAGE>
1994. The accumulated awards at the previous 20,000 mile level
would have been 4,596,000 at December 31, 1994, compared with
3,896,000 awards at December 31, 1993 (also at the 20,000 mile
level). Because USAir expects that some award certificates will
never be redeemed, the calculations of the accrued liability for
incremental costs at December 31, 1994 and 1993 were based on
approximately 86% and 88%, respectively, of the accumulated
credits. Mileage for FTP participants who have accumulated less
than the minimum number of mileage credits necessary to claim an
award is excluded from the calculation of the accrual. Most
participants belong to more than one frequent traveler program and
it is not possible to project when or if participants will accrue
additional mileage credits required to earn an award. Incremental
changes in the liability resulting from additional mileage credits
are recorded as part of the regular review process.
USAir's customers redeemed approximately 927,000, 841,000 and
626,000 awards for free travel on USAir in 1994, 1993 and 1992,
respectively, representing approximately 7.0%, 8.0% and 4.9% of
USAir's revenue passenger miles ("RPMs") in those years, respec-
tively. The number of award redemptions in 1994 may have been
stimulated by the impending increase in the minimum mileage level
required for a free domestic flight and could also be related to
customers' fear about USAir's poor financial performance and future
prospects. During 1993, two "free ticket for segments flown"
promotions were completed which increased the number of awards used
for free travel on USAir. These promotions were offered in
response to similar promotions offered by USAir's competitors.
USAir does not believe that usage of FTP awards results in any
significant displacement of revenue passengers. USAir has the
ability, through its inventory management system, to identify
markets and flights expected to have high load factors and, through
capacity controls, to maximize use of FTP awards on flights with
lower demand and available seats. Also, blackout dates forestall
the usage of awards on peak travel days. Furthermore, USAir's
exposure to the displacement of revenue passengers is not signifi-
cant, as the number of USAir flights that depart 100% full is
minimal. In the third quarter of 1994, when the highest number of
free frequent traveler miles were flown, for example, fewer than
4.0% of USAir's flights departed 100% full. During this same
quarterly period, approximately 3.1% of USAir's flights departed
100% full and also had one or more passengers on board who were
traveling on FTP award tickets.
Airlines often use other competitive promotions, such as
offering extra credits or reduced award thresholds under certain
conditions, as incentives to stimulate travel. To the extent these
promotions are determined to be an integral part of the FTP, they
are accounted for in the same manner as free travel earned through
mileage credits.
A recent decision by the U.S. Supreme Court involving American
held that members of frequent traveler programs may file contract
claims against airlines in state courts. In February 1995, members
of USAir's frequent traveler program filed a class action lawsuit
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<PAGE>
against USAir after it raised the required minimum level of miles
necessary to earn a free ticket. See Item 3. "Legal Proceedings."
It is possible that additional lawsuits, including class action
suits, could be brought against carriers, including USAir, by
members of frequent traveler programs. In addition, the DOT has
expressed concern about potential consumer fraud relating to
frequent traveler programs and their restrictions on the use of
awards. It is uncertain whether USAir will be named party in any
further litigation or if the DOT will take any action with respect
to frequent traveler programs. The Company cannot determine the
potential effect, if any, of the existing or potential class action
lawsuits or possible DOT actions on its results of operations and
financial condition.
Industry Globalization and Regulation
The trend toward globalization of the airline industry has
accelerated in recent years as certain U.S. and foreign carriers
have formed marketing alliances. Certain foreign carriers have
made substantial investments in U.S. carriers which have frequently
been tied to marketing alliances or, less frequently, reciprocal
investments by the U.S. carrier in its foreign partner. Foreign
investment in U.S. air carriers is restricted by statute and may be
subject to review by the U.S. Department of Transportation ("DOT")
and, on antitrust grounds, by the U.S. Department of Justice
("DOJ").
On January 21, 1993, USAir Group and BA entered into an
Investment Agreement ("Investment Agreement") under which a wholly-
owned subsidiary of BA has to date purchased certain preferred
stock of the Company for $400.7 million. On March 7, 1994, BA
announced that it would not make any additional investments in the
Company until results of its efforts to reduce its costs are known.
Under the Investment Agreement, USAir and BA have entered into a
code sharing arrangement under which certain domestic USAir
flights, connecting to certain BA transatlantic flights, may be
listed on computerized reservation systems either under USAir's or
BA's two letter designation code, subject to authorization by the
DOT. As of March 1, 1995, USAir and BA offered code share service
to and from 52 of the 65 airports authorized by the DOT. On
January 13, 1995, USAir and BA filed applications to renew for
another one year term the existing authorizations which were
granted on March 17, 1994. The DOT has taken no action with
respect to the renewal applications. Therefore, the existing
authorizations have been extended automatically until final action
is taken by the DOT. In January 1994, USAir and BA filed applica-
tions with the DOT to code share to 65 additional domestic and
seven additional foreign destinations. The DOT has not yet acted
on these applications. See Item 1. "Business - British Airways
Investment Agreement".
USAir believes that the code sharing arrangement provides
greater access to international traffic and that its and BA's
customers benefit from better on-line connections as well as
coordinated check-in and baggage checking procedures. The DOT may
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<PAGE>
continue to link further renewals of the code share authorization
to the United Kingdom's ("U.K.") liberalization of U.S. air carrier
access to the U.K. markets. However, the code sharing arrangement
is expressly permitted under the bilateral air services agreement
between the U.S. and U.K. USAir expects that the authorization
will be renewed in the future; however, there can be no assurance
that this will occur. USAir does not believe that the DOT's
failure to renew the code share authorization or grant the pending
application would result in a material adverse change in its
financial condition. However, further investment in the Company by
BA, as contemplated in the Investment Agreement, may be less
likely. See Item 1. "Business - British Airways Announcement
Regarding Additional Investments in the Company" and "- British
Airways Investment Agreement."
As part of its initiative in the transportation industry, the
Clinton Administration had indicated that the DOT would conduct a
comprehensive examination of the "high density rule" which limits
airline operations at Chicago O'Hare, New York's LaGuardia
("LaGuardia") and John F. Kennedy International, and Washington
National ("National") Airports by restricting the number of takeoff
and landing slots. As part of its study, the DOT will determine
whether the operating limitations imposed by the rule can be elimi-
nated or modified to better utilize available capacity at these
airports. The DOT has not yet released the results of its study.
USAir holds a substantial number of slots at LaGuardia and
National, including slots purchased from Continental in 1992 and
those assigned a value when the Company acquired Piedmont Aviation,
Inc. in 1987. Any DOT action which would eliminate those slots or
compel USAir to transfer those slots could have a material adverse
effect on USAir's operations and financial position. Revision of
the high density rule at National, however, would require legisla-
tion by Congress.
Results of Operations
1994 Compared with 1993
Adverse weather during the first quarter, the two aircraft
accidents which occurred during the third quarter, the intense
competitive environment characterized by the growth of low cost,
low fare airlines in USAir's markets, widespread industry fare
discounting, and USAir's cost structure are factors that had a
negative effect on the Company's results of operations during 1994.
To the extent that certain of these factors continue to be present,
particularly USAir's higher cost structure relative to its
competitors, the Company's results of operations and financial
condition will continue to be materially and adversely affected.
The Company recorded a net loss of $684.9 million on revenue
of $7.0 billion for 1994, compared with a net loss of $393.1
million on revenue of $7.1 billion for 1993. The Company estimates
that severe winter weather in the first quarter of 1994 negatively
affected its results of operations by approximately $50 million and
that the effect of the two aircraft accidents during the third and
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fourth quarters of 1994 produced a revenue shortfall of approxi-
mately $150 million from forecast amounts.
The financial results for 1994 include: (i) a $172.9 million
charge related to USAir's grounded BAe-146 fleet and to USAir's
decision to cease operations of its remaining Boeing 727 aircraft
in 1995; (ii) a $54.0 million charge for obsolete inventory and
rotables to reflect market values; (iii) a $25.9 million charge
related to USAir's decision to reduce substantially service between
Los Angeles and San Francisco in November 1994; (iv) a $28.3
million gain resulting from the sale of certain aircraft and assets
to Mesa Air Group, Inc. (formerly Mesa Airlines, Inc.) ("Mesa") and
the accounting treatment of the hull insurance recovery on the
aircraft destroyed in the September accident; and (v) a $1.7
million charge related to the sale of assets to Mesa. The
following table indicates where these items appear in the Company's
consolidated statement of operations which is found in Part II,
Item 8A. of this report ($ millions, brackets denote expense):
<TABLE>
<CAPTION> California Other Asset
Line Item Aircraft Inventory Reduction Dispositions Total
--------- -------- --------- --------- ------------ -----
<S> <C> <C> <C> <C> <C>
Personnel Costs $ - $ - $ (0.3) $ - $ (0.3)
Aircraft Rent (115.5) - - - (115.5)
Aircraft Maintenance 3.4 - - - 3.4
Depreciation and Amortization (21.7) (18.0) (18.2) - (57.9)
Other Operating Expenses (39.1) (36.0) (7.4) (1.7) (84.2)
------ ----- ----- ----- ------
Total Operating $(172.9) $(54.0) $(25.9) $ (1.7) $(254.5)
====== ===== ===== ===== ======
Other Non-Operating $ - $ - $ - $ 28.3 $ 28.3
====== ===== ===== ===== ======
</TABLE>
In addition to the above charges, USAir recorded a $50 million
addition to passenger transportation revenue in the fourth quarter
of 1994 to adjust estimates made during the first three quarters of
1994.
The financial results for 1993 included: (i) a $43.7 million
charge for the cumulative effect of an accounting change, as
required by Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits;" (ii) a $68.8
million charge for severance, early retirement, and other person-
nel-related expenses for a workforce reduction of approximately
2,500 full-time positions; (iii) a $36.8 million charge based on
a projection of the repayment of certain employee pay reductions;
(iv) a $13.5 million charge for certain airport facilities at
locations where USAir has, among other things, discontinued or
reduced its service; (v) $8.8 million for a loss on USAir's
investment in the Galileo International Partnership, which operates
a computerized reservations system; and (vi) an $18.4 million
credit related to non-operating aircraft. The following table
indicates where these items (excluding the accounting change)
appear in the Company's statement of operations which is found in
Part II, Item 8A. of this report ($ millions, brackets denote
expense):
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<PAGE>
<TABLE>
<CAPTION>
Workforce Employee Aircraft/
Line Item Reduction Payback Facilities Galileo Total
--------- --------- -------- ---------- ------- -----
<S> <C> <C> <C> <C> <C>
Personnel Costs $(65.6) $(36.8) $ - $ - $(102.4)
Aircraft Maintenance - - 18.4 - 18.4
Depreciation and Amortization - - (13.5) - (13.5)
Other Operating Expenses (3.2) - - - (3.2)
----- ----- ----- ----- ------
Total Operating $(68.8) $(36.8) $ 4.9 $ - $(100.7)
===== ===== ===== ===== ======
Other Non-Operating $ - $ - $ - $ (8.8) $ (8.8)
===== ===== ===== ===== ======
</TABLE>
Operating Revenue - Increases in traffic which were stimulated
by the lower fares during 1994 were not sufficient to offset
USAir's lower yields (revenue per RPM) experienced during 1994.
The Company expects that capacity, as measured by ASMs, will
decrease by approximately 2.5% in 1995 compared with 1994, and
yields will be relatively unchanged for the entire year 1995
compared with 1994. The Company believes that for the foreseeable
future the demand for higher yield "business fares" will remain
essentially flat and relatively inelastic while the lower yield
"leisure" market will continue to grow with the general economy.
This trend will make it more difficult for the domestic airlines,
including USAir, to achieve meaningful yield increases in the
future.
As discussed above, severe winter weather in the first quarter
of 1994 had a material adverse effect on the Company's operations
and financial results. Passenger transportation revenue increased
during the second quarter compared with 1993 because increases in
passenger traffic more than offset the dilutive effect of the lower
fares. However, this trend did not continue in the third and
fourth quarters primarily due to the reduced number of passengers
following the two aircraft accidents. By early 1995, USAir's
traffic had recovered from the effects of the accidents and
approached a level normally associated with USAir's capacity in the
marketplace.
The Company's Passenger Transportation Revenue decreased
$197.4 million (3.0%) in 1994 compared with 1993, $159.6 million of
which is attributable to USAir and the remainder to the Company's
wholly-owned regional airlines. Despite the negative effect of the
adverse weather during the first quarter and the two accidents
during the third quarter, USAir's scheduled traffic as measured by
RPMs increased by 7.7% during 1994 on 2.6% of additional capacity,
as measured by ASMs, resulting in a 3.0 percentage point increase
in passenger load factor, a measure of capacity utilization.
However, USAir's yield decreased by 9.6% in 1994 compared with 1993
due to several factors including lower fares resulting from
increased competition from low cost, low fare carriers in USAir's
markets and industry fare discounting promotions. USAir expects
that its yield for the year 1995 will be relatively unchanged
compared with 1994. The Company expects that the low fares offered
in response to low cost, low fare competition will generally remain
in place and, even if traffic is stimulated, will continue to
materially and adversely affect its results of operations unless
USAir is successful in reducing its operating costs.
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In March 1993, the U.S. District Court in Atlanta, Georgia
entered a settlement involving USAir and five other U.S. air
carrier defendants in the Domestic Air Transportation Antitrust
Litigation class action lawsuit, which alleged that the airlines
used the Airline Tariff Publishing Company to signal and communi-
cate carrier pricing intentions and otherwise limit price competi-
tion for travel to and from numerous hub airports. Under the terms
of the settlement, the six air carriers have issued $396.5 million
in certificates valid for purchase of domestic air travel on any of
the six airlines. It is possible that this settlement could have
a dilutive effect on USAir's passenger transportation revenue and
associated cash flow. However, due to the interchangeability of
the certificates among the six carriers involved in the settlement,
the possibility that carriers not party to the settlement will
honor the certificates, and the potential stimulative effect on
travel created by the certificates, USAir cannot reasonably
estimate the impact of this settlement on future passenger revenue
and cash flows. USAir has estimated that any incremental cost
associated with the settlement will not be material based on the
nominal equivalent free trips associated with the settlement. The
travel certificates were mailed to claimants in December 1994 and
may be applied towards travel purchased between January 1995 and
December 1998.
On October 11, 1994, USAir and seven other carriers entered
into a settlement agreement with a group of State Attorneys General
resolving similar issues with the states. The settlement entitles
passengers traveling within the United States on state government
business to a 10% discount off the published fares of each of the
settling carriers and will be available for 18 months or until the
combined discount amount reaches $40 million. Following a notice
and public comment period, the reviewing judge will conduct a
hearing to determine whether this settlement is a fair one. The
hearing is scheduled for May 10, 1995. The Company does not expect
that this settlement will have a material adverse effect on its
financial condition or results of operations. As was the case with
the settlement of the private antitrust litigation, it is difficult
to predict the amount of discounted state travel that will occur on
USAir. Thus, a dollar impact of the settlement cannot be estima-
ted.
The Company's Cargo and Freight revenue decreased $10.2
million (5.9%) due to USAir's $10.1 million (5.9%) decrease caused
by overall lower volumes and lower mail yields during 1994. The
$121.6 million (34.3%) increase in the Company's Other Revenue
($125.2 million or 33.8% for USAir) is the result of several
factors including the wet lease arrangement between USAir and BA,
increased volume and rate for cancellation and rebooking fees, and
fees from companies which participate in USAir's frequent traveler
program. These increases are largely offset by increases in other
operating expenses. The duration of the British Airways wet lease
revenue is expected to be no more than a three year period for each
of the three aircraft involved. One each of the three aircraft
began the wet lease service in the months of June 1993, October
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<PAGE>
1993, and January 1994. The Company expects that the increased
levels in the other categories will continue.
Expense - The Company's Personnel Costs increased $48.4
million (1.7%) primarily due to USAir's $55.2 million (2.0%)
increase in personnel costs. Excluding the effect of the unusual
charges discussed and presented in the tables above, USAir's
personnel costs increased $157.3 million (6.1%) in 1994 compared
with 1993 due to the expiration during 1993 of employee wage
reductions, subsequent contractual and general salary increases,
and a lower discount rate used during 1994 in the calculation of
pension and postretirement benefit expense. These increases more
than offset any expense reductions realized as a result of the
workforce reduction during 1994. Aviation Fuel expense decreased
$38.2 million (5.4%), primarily because of USAir's $35.6 million
(5.2%) decrease, which is the result of an 8.8% reduction in the
cost of fuel partially offset by a 3.8% increase in consumption
compared with 1993. Fuel prices are expected to increase during
1995. Further, a 4.3 cent per gallon tax on transportation fuels
is scheduled to become effective within the airline industry on
October 1, 1995. This tax increase would result in over $50
million of additional annual expense for the Company. However, in
early 1995 legislation was introduced to repeal the tax on
transportation fuels scheduled to become effective October 1, 1995
in the airline industry. There can be no assurance if or when this
legislation will be passed. See Item 1. "Business - Jet Fuel" and
Note 2 to the Company's consolidated financial statements. The
Company's Commissions expense decreased $13.6 million (2.3%) and
$10.6 million (1.9%) at USAir as a result of decreased passenger
revenue. In early 1995, several large carriers, including USAir,
announced limits on the amount of travel agent commissions they
will pay. See Item 1. "Business - General Industry Conditions" and
Note 4 to the Company's consolidated financial statements. The
Company's Other Rent and Landing Fees expense decreased $9.3
million (2.1%) and $9.4 million (2.2%) at USAir primarily due to
lower operating costs at certain airport facilities. See Item 2.
"Properties." The Company's Aircraft Rent increased $91.0 million
(19.2%) primarily due to USAir's $89.8 million (20.8%) increase.
Excluding the effect of the unusual charges discussed and presented
in the tables above, USAir's aircraft rent decreased $25.7 million
(6.0%) in 1994 compared with 1993 due to the expiration or
renegotiation of several aircraft leases and additional wet lease
service over 1993 levels. The Company's Aircraft Maintenance
increased $18.1 million (4.8%) primarily because of USAir's $26.9
million (8.7%) increase which resulted from the $18.4 million
credit in 1993 (see above table) and initial repairs on certain of
USAir's newer aircraft in 1994. The Company's Depreciation and
Amortization expense increased $55.2 million (15.7%) due to USAir's
$61.0 million (18.8%) increase. Excluding the effect of
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<PAGE>
the unusual charges discussed and presented in the tables above,
USAir's depreciation and amortization expense increased $16.6
million (5.3%) in 1994 compared with 1993 primarily due to the
delivery of new Boeing 757-200 aircraft. The $158.0 million
(11.4%) increase in the Company's Other Expenses, Net is due to
USAir's $146.0 million (10.9%) increase. Excluding the effect of
the unusual charges discussed and presented in the tables above,
USAir's other expenses, net increased $65.0 million (4.9%) in 1994
compared with 1993 largely due to increases in several passenger
volume-related expense categories and expenses related to the
increase in USAir's other revenue category discussed above.
The Company's Interest Income improved by $14.5 million as a
result of higher cash levels and more favorable interest rates in
1994. USAir's results include intercompany transactions which are
eliminated from the Company's results. The Company's Interest
Expense increased $34.1 million (13.7%) primarily as a result of
interest incurred on certain aircraft-secured and unsecured
financings completed during 1993 and 1994. Interest Capitalized
decreased $4.0 million (22.5%) because average deposits for future
aircraft deliveries were lower during 1994 compared with 1993.
Other, Net reflects an $83.7 million improvement primarily due to
the $28.3 million gain discussed above and improved equity results
from USAir's 11% ownership investment in the Galileo International
Partnership, which owns and operates the Galileo Computerized
Reservation System ("CRS"), and USAir's 21% ownership investment in
the Apollo Travel Services Partnership, which markets the Galileo
CRS in the U.S. and Mexico.
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"). The adoption of FAS 109 resulted in no
cumulative adjustment. Results for 1994 and 1993 do not include
any income tax credit due to the FAS 109 limitations in recognizing
a current benefit for net operating losses. See Note 6 to the
Company's consolidated financial statements for additional
information.
1993 Compared with 1992
The Company recorded a net loss of $393.1 million on revenue
of $7.1 billion in 1993 compared with the 1992 net loss of $1.2
billion on revenue of $6.7 billion. Several unusual items, which
include the cumulative effect of accounting changes, make it diffi-
cult to compare these results. After excluding the effect of the
unusual items discussed below, which amount to $153.2 million and
$759.3 million in 1993 and 1992, respectively, the net loss would
have been $239.9 million in 1993 ($5.69 per common share after
preferred dividend requirement) compared with a loss of $469.6
million in 1992 ($11.09 per common share after preferred dividend
requirement).
The Company's 1993 financial results contain $153.2 million of
unusual items discussed above. The Company's 1992 financial
results contain $759.3 million of unusual items, including (i) a
$628.1 million charge for the cumulative effect of an accounting
change, as required by Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions" ("FAS 106"); (ii) a $107.4 million charge related to
aircraft which have been withdrawn from service; (iii) a $34.1
million loss related to the sale of ten McDonnell Douglas 82 ("MD-
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82") aircraft which USAir had on order but eliminated from its
fleet plan; and (iv) a $10.3 million gain resulting from the sale
of three of the Company's subsidiaries during 1992. The following
table indicates where these items (excluding the accounting change)
appear in the Company's consolidated statement of operations which
is found in Part II, Item 8A. of this report ($ millions, brackets
denote expense):
<TABLE>
<CAPTION>
Parked MD-82 Sale of
Line Item Aircraft Sale Subsidiaries Total
--------- -------- ------ ------------ -----
<S> <C> <C> <C> <C>
Aircraft Rent $ (72.4) $ - $ - $ (72.4)
Aircraft Maintenance (25.0) - - (25.0)
Depreciation and Amortization (8.0) - - (8.0)
Other Operating Expenses (2.0) - - (2.0)
------ ----- ----- ------
Total Operating $(107.4) $ - $ - $(107.4)
====== ===== ===== ======
Other Non-Operating $ - $(34.1) $ 10.3 $ (23.8)
====== ===== ===== ======
</TABLE>
Operating Revenue - The Company's Passenger Transportation
Revenue increased by $356.5 million (5.8%) in 1993 compared with
1992, primarily due to the $296.0 million (5.1%) increase at USAir.
USAir's RPMs increased by 0.4% during 1993 on 0.3% less capacity,
as measured by ASMs, resulting in a 0.4 percentage point increase
in passenger load factor, a measure of capacity utilization.
USAir's yield increased by 4.7% in 1993 compared with 1992 due to
the lower level of fare discounting in 1993 versus 1992. Several
factors during 1992 led to an industry-wide 50%-off sale for summer
travel that year.
The Company's Other Revenue increased by $38.8 million (12.3%)
in 1993. USAir's increase of $90.5 million (32.3%) was partially
offset at the Company level by a decrease in non-airline subsidiary
revenue resulting from the sale of three wholly-owned subsidiaries
in July 1992. USAir's 32.3% improvement was the result of several
factors including the wet lease arrangement between USAir and BA,
increased volume and rate for cancellation and rebooking fees,
contract services performed for USAir Shuttle under a management
agreement, and fees from companies which participate in USAir's
frequent traveler program. These increases were largely offset by
increases in operating expenses. The USAir Shuttle service revenue
is related to USAir's agreement to manage the USAir Shuttle which
began in 1992 and will continue for up to ten years from that date.
Expense - The Company's total operating expenses increased
$146.3 million (2.1%) in 1993 compared with 1992. The Company's
Personnel Costs increased by $217.7 million (8.3%), $205.6 million
of which is attributable to USAir. Without the effect of the
unusual charges discussed above, USAir experienced an increase in
employee salaries of $91.4 million (4.7%) and an increase in
employee benefits of $11.8 million (2.1%). The increase in
employee salaries is generally due to contractual and general
salary increases which occurred during 1993. The amount saved as
a result of USAir's 12-month salary reduction program was approxi-
mately the same in 1993 and 1992. The $11.8 million increase in
employee benefits is the result of increased pension expense,
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<PAGE>
offset partially by a decrease in other postretirement benefit
expense. The increased pension expense in 1993 resulted from the
establishment of a defined contribution pension plan for USAir's
non-contract employees on January 1, 1993. The defined benefit
plan for these employees was frozen at December 31, 1991.
The Company's Aviation Fuel Expense decreased $43.2 million
(5.7%) due to USAir's $42.8 million (5.9%) decrease which resulted
from a lower cost per gallon and decreased consumption. The
Company's Commissions increased by $27.2 million (4.8%), reflecting
USAir's $22.1 million (4.1%) increase which resulted from the
increase in Passenger Transportation Revenue. The Company's Other
Rent and Landing Fees increased $56.9 million (14.6%) due to
USAir's $57.3 million (15.3%) increase which was primarily the
result of increased facility rental expense following the opening
of the new terminal at Pittsburgh in October 1992. The Company's
Aircraft Rent expense decreased $57.4 million (10.8%) due to
USAir's $64.4 million (13.0%) decrease. Without the unusual
charges discussed above, USAir's aircraft rent expense increased
$8.0 million (1.9%) due to the addition of new leased aircraft in
1993. Excluding the effect of the unusual items discussed above,
the Company's and USAir's Aircraft Maintenance expense increased by
$37.6 million (10.6%) and $33.3 million (11.3%), respectively,
resulting from USAir's timing of aircraft maintenance cycles. The
Company's Other Operating Expense decreased by $57.4 million
(4.0%), reflecting a $24.4 million (1.8%) decrease at USAir and a
$58.4 million decrease which resulted from the sale of three
wholly-owned subsidiaries in July 1992, offset by increases at the
Company's other wholly-owned subsidiaries.
The Company's Interest Capitalized decreased $10.0 million
(36.1%) as the level of outstanding purchase deposits decreased
with the delivery of new aircraft and changes in delivery sched-
ules. The $9.5 million (21.8%) improvement in the Company's Other
Non-operating Expense, net is driven by the unusual gains and
losses described above.
Effective January 1, 1993, the Company adopted FAS 109. The
adoption of FAS 109 resulted in no cumulative adjustment. Results
for 1993 do not include any income tax credit due to the FAS 109
limitations in recognizing a current benefit for net operating
losses. See Note 6 to the Company's consolidated financial
statements for additional information.
Inflation and Changing Prices
Inflation and changing prices do not have a significant effect
on the Company's operating revenues and expenses (other than
depreciation and amortization) because such revenues and expenses
generally reflect current price levels.
Depreciation and amortization expense is based on historical
cost. For assets acquired through the purchase of Pacific
Southwest Airlines, USAir's historical cost is based on fair market
value of the assets on May 29, 1987. In the case of Piedmont
69
<PAGE>
Aviation, Inc., USAir's historical cost is based on the fair market
value of the assets on November 5, 1987, reduced by the tax effect
of that portion of fair market value not deductible for tax
purposes in the form of depreciation and amortization. Therefore,
aggregate depreciation and amortization is lower than if this
expense reflected today's replacement costs for existing productive
assets. In evaluating how inflation would increase depreciation
expense, however, consideration should also be given to the
reduction in other operating expenses, such as aircraft maintenance
and aviation fuel, that would be achieved from the operating
efficiencies of newer, more technologically advanced productive
assets.
Liquidity and Capital Resources
Cash provided by operations was approximately $1 million in
1994. At December 31, 1994, cash and cash equivalents totaled
approximately $429.5 million and short-term investments totaled
approximately $22.1 million. These amounts exclude approximately
$161.1 million which was deposited in trust accounts to collateral-
ize letters of credit or workers compensation policies and
classified as "Other Assets." Due to the coincidence of certain
semiannual, quarterly and monthly debt and lease payments,
substantial scheduled payments of more than $170 million were due
and paid in the month of January 1995. The Company ended the first
quarter of 1995 with approximately $400 million in cash and short-
term investments, substantially higher than previously expected
primarily due to the timing of certain working capital activity.
However, market, economic and other factors discussed below could
adversely affect the Company's future liquidity position.
The Company and USAir are highly leveraged. In order to meet
debt service, lease and other obligations and to finance daily
operations, the Company and USAir require substantial liquidity and
working capital. In view of the Company's limited liquidity in
relation to the size of USAir's operations and its associated
obligations, developments may occur that are beyond the control of
the Company and USAir which could have a material adverse effect on
the Company's prospects, liquidity and financial condition,
including intensified fare wars, substantial increases in jet fuel
prices, adverse weather conditions, negative public perception
regarding safety, and further incursion by low cost, low fare
carriers into USAir's markets. USAir is seeking in discussions
with the leadership of its unionized employees substantial wage
reductions, improved productivity and other cost savings and has
reached an agreement in principle with ALPA that is subject to
various significant conditions. See Item 1. "Business - Agreement
in Principle with Pilots' Union." However, if unforeseen adverse
developments occur, if the Company and USAir are unable to finance
unencumbered assets, or if timely agreements with the unions are
not finalized and consummated, the Company and USAir may pursue
other restructuring alternatives. See Item 1. "Business - Signifi-
cant Impact of Low Cost, Low Fare Competition" and "Low Cost, Low
Fare Competition" above.
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<PAGE>
The Company has deferred the dividend payments on all series
of its preferred stock. The aggregate annual dividend requirements
related to all series of the Company's preferred stock total
approximately $80 million. Furthermore, the Company is subject to
statutory restrictions on the payment of dividends according to
capital surplus requirements of Delaware law. At December 31,
1994, the Company's capital surplus was exhausted and therefore,
under Delaware law, the Company is legally restricted from paying
dividends on all outstanding common and preferred stock issuances
until its capital surplus becomes positive. Even if the Company is
successful in restructuring its costs, there can be no assurance
when or if dividend payments will resume. See Notes 8 and 9 to the
Company's consolidated financial statements for additional
information.
The Company currently is not party to a revolving credit
facility. The Company has historically utilized such a facility to
supplement its liquidity from time to time. On April 26, 1994, the
Company terminated its revolving credit facility with a group of
banks ("Credit Agreement"). As a result, 66 jet and turboprop
aircraft and certain spare engines with a net book value of
approximately $260 million at that time were released from a
mortgage related to the Credit Agreement. Certain of the Boeing
737-300 aircraft which USAir has agreed to sell are among the 66
unencumbered aircraft. Pursuant to resolutions of the boards of
directors of the Company and USAir, USAir is required to use any
proceeds from the contemplated aircraft sales to repay certain
debt. USAir has notified one of its creditors that it intends to
prepay approximately $60 million in aircraft-secured debt in May
1995 and will use proceeds from asset sales to make the payment.
USAir's revolving accounts receivable sale program ("Receiv-
ables Agreement") expired in December 1994. USAir was unable to
sell receivables under the agreement during 1994 because of failure
to comply with financial covenants required to be maintained in
connection with that agreement. USAir is currently engaged in
discussions with the financial institution that was party to the
Receivables Agreement regarding a new agreement. There can be no
assurance that USAir will be successful in reaching a new agreement
to sell its receivables.
On May 12, 1994, USAir reached an agreement with Boeing to
reschedule the delivery of 40 737-series aircraft from the 1997-
2000 time period to the years 2003-2005. In addition, as part of
the same agreement, USAir relinquished all of its options to
purchase aircraft during the 1996-2000 time period. In early 1995,
USAir reached an agreement in principle with Boeing and Rolls-Royce
plc to reschedule the delivery dates for eight 757-200 aircraft
from 1996 to 1998. As a result of these recent agreements, the
Company's capital commitments have been substantially reduced for
the 1995-2000 time period. See Note 4 to the Company's consolidat-
ed financial statements for the future aircraft commitments
schedule reflecting these agreements with Boeing and for future
expenditures required to comply with Stage 3 noise level require-
ments of the FAA. During 1993 to the present time, USAir's
71
<PAGE>
agreements with Boeing to defer and reschedule certain Boeing 737-
series and 757-200 deliveries reduced USAir's capital expenditures
by over $1 billion between 1993 and 1996 from previously planned
amounts.
The Company's and USAir's debt and equity securities are
presently rated below investment grade by Standard and Poor's
Corporation ("S&P") and Moody's Investors Service, Inc.
("Moody's"). In February 1994, as a result of USAir's low fare
initiative in certain markets and its high cost structure, S&P and
Moody's placed the securities of the Company and USAir on watch
with negative implications. On March 24, 1994, S&P downgraded the
Company's and USAir's securities. On September 29, 1994, following
the Company's announcement that it had deferred payment of
preferred dividends, Moody's and S&P further downgraded their
ratings of the Company's and USAir's securities. S&P continues to
keep the securities of the Company and USAir on watch with negative
implications. The ratings of the Company's and USAir's debt and
equity securities make it more difficult for the Company and USAir
to effect additional financing. On January 19, 1995, Moody's
announced that it is revising its rating practice on airline
equipment trust and pass through obligations and would consider
assigning higher ratings to certain of these securities. At the
same time, Moody's placed under review all existing airline
equipment trust certificates and pass through obligations
(including those of USAir) for possible upgrade. At this time,
USAir does not believe that an upgrade by Moody's would have any
material positive or negative effect on USAir's ability to effect
additional financings.
USAir and the Company have filed with the Securities and
Exchange Commission a shelf registration for various debt and
equity securities. Approximately $187 million of securities remain
available for sale on the shelf registration and may be sold from
time to time depending on market conditions. The Company will
continue to evaluate opportunities in the financial markets.
However, the Company believes that the availability of those
opportunities will be directly related to USAir's success in
restructuring its costs and its resulting financial prospects.
The Company and USAir are party to certain financial contracts
to reduce exposure to fluctuations in the price of jet fuel and
interest rates. Under the jet fuel arrangements, USAir pays a
fixed rate per notional gallon of fuel and receives in return a
floating rate per notional gallon based on the market rate during
the month of settlement. Under the interest rate agreements, the
Company pays a fixed rate on a notional principal amount and
receives a floating rate on the notional principal in return.
Decreases in the market cost of jet fuel and market interest rates
below the rates specified in the contracts require the Company and
USAir to make cash payments. However, the Company and USAir
believe these contracts do not present a material risk to the
Company's financial position or liquidity due to the relatively
simple terms of the agreements, their purpose, and their short
72
<PAGE>
remaining duration. See Note 2 to the Company's consolidated
financial statements for additional information.
USAir and certain of the Company's other subsidiaries have
received notices from the U.S. Environmental Protection Agency and
various state agencies that they are potentially responsible
parties with respect to the remediation of existing sites of
environmental concern. The Company believes that the ultimate
resolution of known environmental contingencies should not have a
material adverse effect on its liquidity or financial position
based on the Company's experience with similar environmental sites.
See Note 4 to the Company's consolidated financial statements.
During 1994, the Company's investment in new aircraft acquisi-
tions and purchase deposits totaled $270.6 million (which includes
$224.6 million presented as "non-cash" on the Company's consolidat-
ed statement of cash flows since debt was incurred upon delivery of
aircraft or to satisfy equipment deposit progress payments). USAir
took delivery of five new Boeing 757-200 aircraft during 1994. The
Company invested $134.1 million in non-aircraft property during
1994 (e.g., ground support equipment, computer equipment, software,
aircraft rotables and hushkits, and take-off and landing slots),
partly offset by $75.1 million in proceeds from disposition of
assets which includes the sale of certain aircraft and assets to
Mesa and insurance proceeds related to a jet aircraft involved in
the September 1994 accident. Net cash provided by financing
activities was $183.4 million, which includes (i) $172.2 million
net proceeds received by USAir upon the sale of $175 million
principal amount of 9 5/8% Senior Notes due 2001 through an
underwritten public offering and (ii) $136.7 million of new debt
issued which is secured by aircraft delivered before 1994, offset
by $87.1 million of scheduled debt payments and $49.7 million of
preferred dividend payments. In addition, as discussed above, the
Company incurred $270.6 million of debt upon delivery of five
Boeing 757-200 aircraft and to satisfy equipment deposit progress
payments. USAir has committed financing for its 1995 scheduled
aircraft deliveries.
During 1993, the Company's investment in new aircraft acquisi-
tions and purchase deposits totaled $545.3 million (which includes
$343.2 million presented as "non-cash" on the Company's consolidat-
ed statement of cash flows since debt was incurred upon delivery of
aircraft or to satisfy equipment deposit progress payments). USAir
took delivery of 11 Boeing 757-200, one Boeing 767-200, and six MD-
82 aircraft during the year. The MD-82s were immediately sold to
a third party. In addition, USAir sold two other MD-82 aircraft
which had been delivered in the fourth quarter of 1992. Proceeds
from the sale of the MD-82s approximated $168 million. The Company
completed financing arrangements for, including the $337.7 million
issue of Pass Through Certificates ("Certificates") which USAir
sold through an underwritten public offering on November 1, 1993,
or internally funded, all of its 1993 aircraft expenditures. The
Company invested $159.0 million in non-aircraft property during
1993 (e.g., ground support equipment, computer equipment, software,
aircraft rotables and hush kits, take-off and landing slots).
73
<PAGE>
On January 21, 1993, a wholly-owned subsidiary of BA purchased
30,000 shares of the 7% Series F Cumulative Convertible Senior
Preferred Stock ("Series F Preferred Stock"), for $300 million.
Substantially all of the $300 million received by the Company from
the sale of the Series F Preferred Stock was used to pay down debt
under the Company's Credit Agreement. The Series F Preferred Stock
is subject to mandatory redemption on January 15, 2008.
On May 4, 1993, the Company sold 11.5 million shares of $1 par
value Common Stock at $20.75 per share which netted proceeds of
approximately $231 million. BA partially exercised its preemptive
right to maintain its proportionate ownership percentage by
purchasing, on June 10, 1993, 9,919.8 shares of redeemable Series
T-2 Cumulative Exchangeable Senior Preferred Stock ("Series T-2
Preferred Stock") for approximately $99.2 million. For additional
information, see Note 8 to the Company's consolidated financial
statements. On March 7, 1994, BA announced that it would not make
any additional investments in the Company until the outcome of
measures by the Company to reduce costs and improve its financial
results is known.
On July 8, 1993, USAir sold $300 million principal amount of
10% Senior Notes due 2003 ("10% Notes") through an underwritten
public offering. The offering netted proceeds of approximately
$294 million. The 10% Notes are unconditionally guaranteed by the
Company.
All net proceeds received by USAir or the Company from the
Common Stock offering, the sale to BA of the Series T-2 Preferred
Stock, the sale of the 10% Notes and 9 5/8% Notes were added to the
working capital of the Company for general corporate purposes.
In 1992, the Company's investment in new aircraft acquisitions
and purchase deposits, net of deposits refunded, totaled $458.7
million (which includes $219.6 million presented as "non-cash" on
the Company's consolidated statement of cash flows since debt was
incurred upon delivery of aircraft or to satisfy equipment deposit
progress payments). The Company purchased eight Fokker F-100 and
four de Havilland Dash 8 aircraft during 1992. The acquisition of
these aircraft was financed through a combination of secured debt
financings and interim debt financings. In addition, USAir took
delivery of four MD-82s, two of which were immediately sold to a
third party. The remaining two aircraft delivered in 1992 were
sold to a third party in early 1993. Cash outflows for other
property during the period totaled $277.2 million, which includes
$61 million paid to Continental for landing and take-off slots at
LaGuardia and National Airports and $50 million paid to TWA for
London routes from BWI and Philadelphia International Airports.
See Item 1. "Business - British Airways Investment Agreement -
U.S.-U.K. Routes." Proceeds from disposition of assets of $429.5
million were realized during the year, primarily from sale-
leaseback transactions, the sale of the two MD-82 aircraft, and the
sale of three wholly-owned subsidiaries.
74
<PAGE>
At December 31, 1994, USAir Group's ratio of current assets to
current liabilities was .49 to 1 and the debt component of USAir
Group's capitalization structure was greater than 100% (also
greater than 100% if the three series of redeemable preferred stock
are considered to be debt) due to the existence of a net capital
deficiency.
(this space intentionally left blank)
75
<PAGE>
Item 8A. Financial Statements and Supplementary Information
USAir Group, Inc.
Independent Auditors' Report
The Stockholders and Board of Directors
USAir Group, Inc.:
We have audited the consolidated balance sheets of USAir Group,
Inc. and subsidiaries ("Group") as of December 31, 1994 and 1993,
and the related consolidated statements of operations, cash flows,
and changes in stockholders' equity (deficit) for each of the years
in the three-year period ended December 31, 1994. These consoli-
dated financial statements are the responsibility of Group's
management. Our responsibility is to express an opinion on these
consolidated 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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of USAir Group, Inc. and subsidiaries as of December 31,
1994 and 1993, and the results of their operations and their cash
flows for the three-year period ended December 31, 1994 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that Group will continue as a going concern. As discussed in Note
4(a) to the consolidated financial statements, Group has suffered
recurring losses from operations and has a net capital deficiency
that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are
also described in Note 4(a). The consolidated financial statements
do not include any adjustments that might result from the outcome
of this uncertainty.
As discussed in Note 11 to the consolidated financial statements,
effective January 1, 1993, Group changed its method of accounting
for postemployment benefits and effective January 1, 1992, Group
changed its method of accounting for postretirement benefits other
than pensions.
KPMG Peat Marwick LLP
Washington, D. C.
February 22, 1995, except as to Notes 4(a)
and 4(c) which are as of April 10, 1995
76
<PAGE>
<TABLE>
USAir Group, Inc.
Consolidated Statements of Operations
Years Ended December 31, (in thousands except per share amounts)
===================================================================================================
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Operating Revenues
Passenger transportation $6,357,547 $6,554,926 $ 6,198,409
Cargo and freight 163,598 173,824 172,360
Other 476,049 354,458 315,643
--------- --------- ----------
Total operating revenues 6,997,194 7,083,208 6,686,412
Operating Expenses
Personnel costs 2,889,764 2,841,344 2,623,645
Aviation fuel 671,926 710,109 753,301
Commissions 583,158 596,779 569,583
Other rent and landing fees 436,540 445,797 388,900
Aircraft rent 563,572 472,622 530,046
Aircraft maintenance 392,181 374,084 379,870
Depreciation and amortization 407,638 352,467 344,150
Other, net 1,543,771 1,385,798 1,443,204
--------- --------- ----------
Total operating expenses 7,488,550 7,179,000 7,032,699
--------- --------- ----------
Operating income (loss) (491,356) (95,792) (346,287)
Other Income (Expense)
Interest income 27,088 12,632 9,898
Interest expense (284,034) (249,916) (248,691)
Interest capitalized 13,760 17,763 27,802
Other, net 49,619 (34,054) (43,540)
--------- --------- ----------
Other income (expense), net (193,567) (253,575) (254,531)
--------- --------- ----------
Income (loss) before taxes and cumulative
effect of accounting change (684,923) (349,367) (600,818)
Income tax provision (credit) - - -
--------- --------- ----------
Income (loss) before cumulative effect of
accounting change (684,923) (349,367) (600,818)
Cumulative effect of change in method of
accounting for postemployment benefits
in 1993 and for postretirement benefits
other than pensions (net of tax benefit
of $117,571) in 1992 - (43,749) (628,098)
--------- --------- ----------
Net income (loss) (684,923) (393,116) (1,228,916)
Preferred dividend requirement (78,036) (73,651) (51,766)
--------- --------- ----------
Net income (loss) applicable to common
stockholders $ (762,959) $ (466,767) $(1,280,682)
========= ========= ==========
Income (loss) per common share
Before accounting change $ (12.73) $ (7.68) $ (13.88)
Effect of accounting change - (0.80) (13.35)
--------- --------- ----------
Income (loss) per common share $ (12.73) $ (8.48) $ (27.23)
========= ========= ==========
Shares used for computation (000) 59,915 55,070 47,026
See accompanying Notes to consolidated financial statements.
77
<PAGE>
USAir Group, Inc.
Consolidated Balance Sheets
December 31, (dollars in thousands except per share amounts)
===================================================================================================
<CAPTION>
1994 1993
ASSETS ---- ----
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 429,538 $ 368,347
Short-term investments 22,133 -
Receivables, net 324,539 364,020
Materials and supplies, net 258,664 362,019
Prepaid expenses and other 81,642 83,334
---------- ----------
Total current assets 1,116,516 1,177,720
Property and Equipment
Flight equipment 5,162,599 5,031,351
Ground property and equipment 1,059,027 1,074,526
Less accumulated depreciation and amortization (2,085,499) (1,883,858)
---------- ----------
4,136,127 4,222,019
Purchase deposits 195,701 156,621
---------- ----------
Property and equipment, net 4,331,828 4,378,640
Other Assets
Goodwill, net 526,615 542,666
Other intangibles, net 319,711 311,332
Other assets, net 513,372 467,555
---------- ----------
Total other assets 1,359,698 1,321,553
--------- ----------
$6,808,042 $6,877,913
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 85,538 $ 87,833
Accounts payable 318,323 335,918
Traffic balances payable and unused tickets 568,215 630,147
Accrued expenses 1,287,977 1,182,886
---------- ---------
Total current liabilities 2,260,053 2,236,784
Long-Term Debt, Net of Current Maturities 2,895,378 2,444,017
Deferred Credits and Other Liabilities
Deferred gains, net 413,961 440,327
Postretirement benefits other than pensions, non-current 958,956 907,343
Non-current benefit liabilities and other 417,878 303,299
---------- ---------
Total deferred credits and other liabilities 1,790,795 1,650,969
Commitments and Contingencies
Redeemable Cumulative Convertible Preferred Stock
Series A, 358,000 shares issued, no par value 358,000 358,000
(redemption value of $374,821 at December 31, 1994)
Series F, 30,000 shares issued, no par value 300,000 300,000
(redemption value of $307,031 at December 31, 1994)
Series T, 10,000 shares issued, no par value 100,719 100,719
(redemption value of $102,662 at December 31, 1994)
Stockholders' Equity (Deficit)
Series B cumulative convertible preferred stock, no par
value, 4,263,000 depositary shares issued 213,153 213,153
(liquidation preference of $220,147 at December 31, 1994)
Common stock, par value $1 per share, authorized
150,000,000 shares, issued 61,088,000 and
61,080,000 shares, respectively 61,088 61,080
Paid-in capital 1,344,336 1,417,346
Retained earnings (deficit) (2,417,498) (1,682,912)
Common stock held in treasury, 1,864,000 shares
at December 31, 1993 - (83,891)
Deferred compensation (90,965) (94,957)
Adjustment for minimum pension liability (7,017) (42,395)
--------- ---------
Total stockholders' equity (deficit) (896,903) (212,576)
--------- ---------
$6,808,042 $6,877,913
========= =========
See accompanying Notes to consolidated financial statements.
78
<PAGE>
USAir Group, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, (in thousands)
===================================================================================================
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents beginning of year $ 368,347 $ 296,038 $ 319,603
Cash flows from operating activities
Net income (loss) (684,923) (393,116) (1,228,916)
Adjustments to reconcile net income (loss) to cash
provided by (used for) operating activities
Depreciation and amortization 407,638 352,467 344,150
Deferred income taxes - - (111,128)
Loss (gain) on disposition of property (24,099) 10,328 30,405
Other (38,052) (2,614) (28,907)
Changes in certain assets and liabilities
Decrease (increase) in receivables 41,101 (180,152) 25,536
Decrease (increase) in materials, supplies,
prepaid expenses and intangible pension assets 74,663 24,234 (99,256)
Increase (decrease) in traffic balances payable
and unused tickets (61,932) 35,517 105,448
Increase (decrease) in accounts payable and
accrued expenses 235,105 84,727 252,756
Increase (decrease) in postretirement benefits
other than pensions, non-current 51,613 65,967 841,376
-------- -------- ----------
Net cash provided by (used for) operating
activities 1,114 (2,642) 131,464
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (46,022) (202,085) (239,060)
Additions to other property (134,086) (159,031) (277,230)
Proceeds from disposition of property 75,075 178,387 429,463
Change in short term investments (21,994) - -
Change in restricted cash and investments 2,578 (14,221) (95,331)
Other 1,110 (4,378) (11,411)
-------- -------- ----------
Net cash provided by (used for) investing
activities (123,339) (201,328) (193,569)
Cash flows from financing activities
Issuance of debt 308,856 597,834 1,073,336
Reduction of debt (87,073) (889,872) (991,717)
Issuance of common stock 52 230,891 3,452
Issuance of preferred stock - 400,719 -
Sale of treasury stock 11,244 8,273 5,235
Dividends paid (49,663) (71,566) (51,766)
-------- -------- ----------
Net cash provided by (used for) financing
activities 183,416 276,279 38,540
-------- -------- ----------
Net increase (decrease) in cash and cash equivalents 61,191 72,309 (23,565)
-------- -------- ----------
Cash and cash equivalents end of year $ 429,538 $ 368,347 $ 296,038
======== ======== ==========
Noncash investing and financing activities
Issuance of debt for aircraft acquisitions $ 224,614 $ 343,188 $ 219,611
Issuance of debt for additions to other property $ - $ 669 $ -
Reduction of debt - aircraft related $ - $ 47,685 $ -
Issuance of debt for materials $ - $ - $ 909
Supplemental Information
Cash paid during the year for interest, net of
amounts capitalized $ 265,703 $ 236,122 $ 220,713
======== ======== ==========
Net cash received (paid) during the year for
income taxes $ 317 $ (967) $ 30,480
======== ======== ==========
See accompanying Notes to consolidated financial statements.
79
<PAGE>
USAir Group, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Three Years Ended December 31, 1994 (dollars in thousands except per share amounts)
========================================================================================================================
<CAPTION>
Adjustments
For
Retained Deferred Minimum
Preferred Common Paid-In Earnings Treasury Compen- Pension
Stock B Stock Capital (Deficit) Stock sation Liability Total
--------- ------ ------- --------- -------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1991 $213,153 $ 49,400 $1,220,958 $ 62,452 $(123,914) $(103,887) $ - $ 1,318,162
Reversion of 28,000 shares
of restricted stock pre-
viously granted - (28) (465) - - 740 - 247
Exercise of 6,000 options - - (207) - 270 - - 63
Sale of 209,000 shares of
common stock - 209 3,243 - - - - 3,452
Sale of 384,000 shares of
treasury stock - - (12,097) - 17,268 - - 5,171
Dividends declared
(preferred stock):
Series A-$92.50 per share - - - (33,115) - - - (33,115)
Series B-$4.375 per
depositary share - - - (18,651) - - - (18,651)
Amortization of deferred
compensation - - 333 - - 4,137 - 4,470
Equity reduction for minimum
pension liability - - - - - - (6,820) (6,820)
Net income (loss) - - - (1,228,916) - - - (1,228,916)
------- ------- --------- ---------- -------- -------- -------- ----------
Balance December 31, 1992 213,153 49,581 1,211,765 (1,218,230) (106,376) (99,010) (6,820) 44,063
Reversion of 1,600 shares
of restricted stock
previously granted - (1) (19) - - 31 - 11
Sale of 11,500,000 shares
of common stock - 11,500 219,391 - - - - 230,891
Exercise of 33,500 options - - (929) - 1,506 - - 577
Sale of 466,400 shares of
treasury stock - - (13,283) - 20,979 - - 7,696
Dividends declared (preferred
stock):
Series A-$92.50 per share - - - (33,115) - - - (33,115)
Series B-$4.375 per
depositary share - - - (18,651) - - - (18,651)
Series F-$700 per share - - - (17,967) - - - (17,967)
Series T-Variable dividend
rate - see Note 8 - - - (1,833) - - - (1,833)
Amortization of deferred
compensation - - 421 - - 4,022 - 4,443
Equity reduction for minimum
pension liability - - - - - - (35,575) (35,575)
Net income (loss) - - - (393,116) - - - (393,116)
------- ------- --------- ---------- -------- -------- -------- ----------
Balance December 31, 1993 213,153 61,080 1,417,346 (1,682,912) (83,891) (94,957) (42,395) (212,576)
(Continued on next page)
80
<PAGE>
USAir Group, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Three Years Ended December 31, 1994 (dollars in thousands except per share amounts)
========================================================================================================================
<CAPTION>
Adjustments
For
Retained Deferred Minimum
Preferred Common Paid-In Earnings Treasury Compen- Pension
Stock B Stock Capital (Deficit) Stock sation Liability Total
--------- ------ ------- --------- -------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1993 213,153 61,080 1,417,346 (1,682,912) (83,891) (94,957) (42,395) (212,576)
Reversion of 4,000 shares
of restricted stock
previously granted - (4) (28) - - 58 - 26
Sale of 12,400 shares
of common stock - 12 40 - - - - 52
Exercise of 5,000 options - - (177) - 225 - - 48
Sale of 1,859,000 shares of
treasury stock - - (72,470) - 83,666 - - 11,196
Dividends declared (preferred
stock):
Series A-$92.50 per share - - - (16,557) - - - (16,557)
Series B-$4.375 per
depositary share - - - (13,988) - - - (13,988)
Series F-$700 per share - - - (15,750) - - - (15,750)
Series T-Variable dividend
rate - see Note 8 - - - (3,368) - - - (3,368)
Amortization of deferred
compensation - - (375) - - 3,934 - 3,559
Equity reduction for minimum
pension liability - - - - - - 35,378 35,378
Net income (loss) - - - (684,923) - - - (684,923)
------- ------- --------- ---------- -------- -------- -------- ----------
Balance December 31, 1994 $213,153 $ 61,088 $1,344,336 $(2,417,498) $ - $ (90,965) $ (7,017) $ (896,903)
======= ======= ========= ========== ======== ======== ======== ==========
See accompanying Notes to consolidated financial statements.
81
</TABLE>
<PAGE>
USAir Group, Inc.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying consolidated financial statements include the
accounts of USAir Group, Inc. ("USAir Group" or the "Company") and
its wholly-owned subsidiaries USAir, Inc. ("USAir"), Piedmont
Airlines, Inc. ("Piedmont"), Jetstream International Airlines, Inc.
("Jetstream"), Allegheny Airlines, Inc. ("Allegheny") (formerly
Pennsylvania Commuter Airlines, Inc. ("PCA")), USAir Leasing and
Services, Inc. ("Leasing"), USAir Fuel Corporation and Material
Services Company, Inc. All significant intercompany accounts and
transactions have been eliminated.
At December 31, 1992, USAM Corp. ("USAM"), a subsidiary of
USAir, owned 11% of the Covia Partnership ("Covia") which owned and
operated a computerized reservation system ("CRS"). In September
1993, Covia purchased the assets of the corporation that owned and
operated the Galileo CRS which provided CRS services to travel
agent subscribers in Europe. Covia was immediately separated into
three new entities and, as a result, USAM owns 11% of the Galileo
International Partnership which owns and operates the Galileo CRS,
approximately 11% of the Galileo Japan Partnership which markets
the Galileo CRS in Japan, and approximately 21% of the Apollo
Travel Services Partnership which markets the Galileo CRS in the
U.S. and Mexico. USAM accounts for these investments using the
equity method because it is represented on the board of directors
of each of the partnerships and therefore participates in policy
making processes.
On August 1, 1992, two wholly-owned USAir Group regional
airline subsidiaries, Allegheny Commuter Airlines, Inc. and PCA,
merged. The combined entity is now called Allegheny Airlines, Inc.
On July 15, 1992, USAir Group completed the sale of three of
its wholly-owned subsidiaries: Piedmont Aviation Services, Inc.,
Air Service, Inc. and Aviation Supply Corporation. The Company
realized a gain of $10.3 million as a result of the sale. The
three former subsidiaries engaged in fixed base operations and the
sale and repair of aircraft and aircraft components. These
subsidiaries were included in the accounts until their sale.
USAir Group's principal operating subsidiary, USAir, and three
regional airline subsidiaries, Piedmont, Jetstream and Allegheny,
operate within one industry (air transportation); therefore, no
segment information is provided.
Certain 1993 and 1992 amounts have been reclassified to
conform with 1994 classifications.
82
<PAGE>
(b) Cash and Cash Equivalents and Short-Term Investments
For financial statement purposes, the Company considers all
highly liquid investments purchased with a maturity of three months
or less to be cash equivalents. Cash and cash equivalents are
stated at cost, which approximates market value. Short-term
investments consist of certificates of deposit and commercial paper
with original maturities greater than three months but less than
one year. Short-term investments are stated at cost plus accrued
interest, which approximates market value.
(c) Materials and Supplies
Inventories of materials and supplies are valued at average
cost and are charged to operations as consumed. An allowance for
obsolescence is provided for flight equipment expendable parts.
(d) Property and Equipment
Property and equipment is stated at cost or, if acquired under
capital leases, at the lower of the present value of minimum lease
payments or fair market value at the inception of the lease.
Maintenance and repairs, including the overhaul of aircraft
components, are charged to operating expense as incurred and costs
of major improvements are capitalized for both owned and leased
assets. Interest related to deposits on aircraft purchase
contracts and facility and equipment construction projects is
capitalized as additional cost of the asset or as leasehold
improvement if the asset is leased. Depreciation and amortization
for principal asset classifications is provided on a straight-line
basis to estimated residual values over estimated depreciable lives
as follows:
<TABLE>
<CAPTION>
Depreciable
Assets Lives Residual Values
------ ----------- ---------------
(years) (in millions)
<S>
Aircraft <C> <C>
Boeing 767-200ER 20 $14.0
Boeing 757-200 20 8.0
Boeing 737-300/400 20 7.5
Boeing 737-200 5-17 0.6-5.0
McDonnell Douglas MD-80 20 7.5
Douglas DC-9-30 17 3.0
Fokker 100 20 5.0
Fokker F28 6-8 1.0-2.0
Turboprop aircraft 10-17 0.5-1.5
Improvements to leased aircraft life of lease -
Ground property, equipment and 1-10 or
leasehold improvements life of lease -
Buildings 25-30 -
</TABLE>
83
<PAGE>
Property acquired under capital lease is amortized on a
straight-line basis over the term of the lease and charged to
Depreciation and Amortization Expense.
(e) Goodwill, Other Intangibles and Other Assets
Goodwill, the cost in excess of fair value of identified net
assets acquired, is being amortized on a straight-line basis over
40 years. The $629 million goodwill resulting from the acquisition
of Pacific Southwest Airlines ("PSA") and Piedmont Aviation, Inc.
("Piedmont Aviation"), both in 1987, is being amortized as
Depreciation and Amortization Expense. Accumulated amortization at
December 31, 1994 and 1993 related to the PSA and Piedmont
acquisitions was $113 million and $97 million, respectively. The
$11 million goodwill resulting from USAM's CRS investments is being
amortized as other non-operating expense, consistent with the
classification of income or loss on the investments. USAM's
associated accumulated amortization at December 31, 1994 and 1993
was $2 million and $1 million, respectively. USAir evaluates
whether or not goodwill is impaired by comparing the goodwill
balances with estimated future undiscounted cash flows which, in
USAir's judgment, are attributable to the goodwill. This analysis
is performed separately for the goodwill which resulted from each
acquisition.
Intangible assets consist mainly of purchased operating rights
at various airports, purchased route authorities, capitalized
software costs and the intangible assets associated with the
underfunded amounts of certain pension plans. The operating
rights, valued at purchase cost or appraised value if acquired from
PSA or Piedmont Aviation, are being amortized over periods ranging
from ten to 25 years as Depreciation and Amortization Expense. The
purchased route authorities are being amortized over periods of 25
years as Depreciation and Amortization Expense. Capitalized
software costs are being amortized as Depreciation and Amortization
Expense over five years, the expected period of benefit. Accumu-
lated amortization related to intangible assets at December 31,
1994 and 1993 was $80 million and $72 million, respectively.
Based on the most recent analyses, USAir believes that
goodwill and other intangible assets were not impaired at Decem-
ber 31, 1994.
The increase in Other Assets, net in 1994 is primarily
attributable to changes in non-current pension assets. USAir's
Other Assets balance includes a $47 million receivable from British
Airways Plc related to the relinquishment of two U.S. to London
routes.
(f) Restricted Cash and Investments
Restricted cash and investments consist primarily of deposits
in trust accounts to collateralize letters of credit or workers
compensation policies. These amounts are classified as Other
Assets on the accompanying balance sheets.
84
<PAGE>
(g) Deferred Gains on Sale and Leaseback Transactions
Gains on aircraft sale and leaseback transactions are deferred
and amortized over the term of the leases as a reduction of rental
expense.
(h) Passenger Revenue Recognition
Passenger ticket sales are recognized as revenue when the
transportation service is rendered. At the time of sale, a
liability is established (Traffic Balances Payable and Unused
Tickets) and subsequently eliminated either through carriage of the
passenger, through billing from another carrier which renders the
service or by refund to the passenger.
(i) Frequent Traveler Awards
USAir accrues the estimated incremental cost of providing
outstanding travel awards earned by participants in its Frequent
Traveler Program when such award levels are reached.
(j) Investment Tax Credit
Investment tax credit benefits have been recorded using the
"flow-through" method as a reduction of the Federal income tax
provision.
(k) Advertising Costs
Advertising costs are expensed when incurred as other operat-
ing expense. Advertising expense for 1994, 1993 and 1992 was $63
million $59 million and $84 million, respectively.
(l) Income (Loss) Per Common Share
Income (loss) per common share is computed by dividing net
income (loss), after deducting preferred stock dividend require-
ments, by the weighted average number of shares of Common Stock
outstanding, net of treasury stock. The Company has deferred
quarterly dividend payments on all series of its preferred stock
beginning September 30, 1994. However, the accumulated unpaid
dividends and interest on unpaid dividends continue to be deducted
from net income or loss in order to calculate income or loss per
common share (see Notes 8 and 9). The 1994 preferred dividend
requirement includes dividends deferred (including interest) of
$32.8 million, or $0.55 per common share. USAir Group's outstand-
ing redeemable Series A Cumulative Convertible Preferred Stock
("Series A Preferred Stock"), Series B Cumulative Convertible
Preferred Stock ("Series B Preferred Stock"), redeemable Series F
Cumulative Senior Preferred Stock ("Series F Preferred Stock"),
redeemable Series T Cumulative Convertible Exchangeable Senior
Preferred Stock ("Series T Preferred Stock") and Common Stock
equivalents are anti-dilutive. See Note 10 regarding Common Stock
held in trust by an ESOP.
85
<PAGE>
(2) Financial Instruments
(a) Terms of Certain Financial Instruments
USAir has entered into hedging arrangements to reduce its
exposure to fluctuations in the price of jet fuel. Net settlements
are recorded as adjustments to aviation fuel expense. The total
notional number of gallons under these arrangements was 86 million
and 194 million at December 31, 1994 and 1993, respectively. Under
these arrangements, the Company will pay $0.496 to $0.521 per
notional gallon in 1995 and receive a floating rate per notional
gallon based on current market prices. In 1994, the Company paid
$0.481 to $0.594 per notional gallon and received a floating rate
per notional gallon based on current market prices. Decreases in
the market price of fuel to levels below the fixed prices require
cash payments by the Company and cause an increase in the Company's
aviation fuel expense. The hedging arrangements represent approxi-
mately 7% and 16% of USAir's expected 1995 and actual 1994 fuel
consumption, respectively. USAir is party to such hedging
arrangements with several entities. Although the agreements, which
expire in 1995, expose the Company to credit loss in the event of
nonperformance by the other parties to the agreements, the Company
does not anticipate such nonperformance because of the favorable
creditworthiness status of the other parties. The Company may
continue to enter into such arrangements, depending on market
conditions.
The Company has entered into interest rate swap transactions
to manage interest rate exposure. Net settlements are recorded as
an adjustment to interest expense. The Company is party to such
interest rate swap agreements with banks and other financial
institutions. The notional principal amount of these agreements
was $150 million at December 31, 1994 and 1993. Under these swap
agreements, the Company pays interest at fixed rates averaging 9.8%
at December 31, 1994 and 1993, and receives floating rate interest
payments based on three-month LIBOR. Although the agreements, which
expire in 1995, expose the Company to credit loss in the event of
non-performance by the other parties to the agreements, the Company
does not anticipate such non-performance because of the favorable
creditworthiness status of the other parties.
An aggregate of $32 million of future principal payments of
USAir's long-term debt due 1998 through 2000 is payable in Japanese
Yen. This foreign currency exposure has been hedged to maturity by
USAir's participation in foreign currency contracts. Although the
Company is exposed to credit loss in the event of non-performance
by the counterparty to the contracts, the Company does not
anticipate such non-performance because of the favorable credit-
worthiness status of the other party.
(b) Fair Value of Financial Instruments
Unless a quoted market price indicates otherwise, the fair
values of cash and investments generally approximate carrying
values because of the short maturity of these instruments. The
86
<PAGE>
Company has estimated the fair value of long-term debt based on
quoted market prices for the same or similar issues or on the
current rates offered to the Company for debt of similar remaining
maturities. The estimated fair values of the Series A Preferred
Stock, the Series F Preferred Stock and the Series T Preferred
Stock are obtained by consulting with an independent external
valuation source. The fair values of interest rate swap agree-
ments, energy swap agreements and foreign currency contracts are
obtained from dealer quotes whereby these values represent the
estimated amount the Company would receive or pay to terminate such
agreements.
The estimated fair values of the Company's financial instru-
ments, none of which are held for trading purposes, are summarized
as follows (brackets denote liability):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1994 1993
--------------------- --------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Cash and cash
equivalents $ 429,538 $ 429,538 $ 368,347 $ 368,347
Short-term 22,133 22,078 - -
investments
Restricted cash
and investments* 170,686 170,581 173,357 173,305
Long-term debt (ex-
cludes capital
lease obliga-
tions) (2,898,203)(2,484,390)(2,426,461)(2,477,523)
Redeemable pre-
ferred stock (758,719) (242,341) (758,719) (718,633)
Interest rate swap
agreements:
In a net payable
position - (3,221) - (14,492)
Energy swap agree-
ments:
In a net receivable
(payable) position - 259 - (10,352)
Foreign currency
contracts:
In a net receivable
(payable) position - 5,352 - (1,874)
</TABLE>
* Amounts included in Other Assets on the Company's consolidated
balance sheets.
87
<PAGE>
(3) Long-Term Debt
Details of long-term debt are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1994 1993
---- ----
(in thousands)
<S> <C> <C>
Senior Debt:
12 7/8% Senior Debentures due 2000 $ 77,000 $ 77,000
10% Senior Notes due 2003 300,000 300,000
9 5/8% Senior Notes due 2001 175,000 -
12.15% to 15.23% U.S. Government
Guaranteed Obligations, due 1995 3,090 6,180
13 1/8% Equipment Trust Certificates - 972
4.2% to 12% Equipment Financing
Agreements, Installments due 1995
to 2016 2,140,387 1,890,418
8.6% Airport Facility Revenue Bond
due 2022 27,620 27,620
4.0% to 7.1% Aircraft Purchase
Deposit Financing, Installments
due 1995 to 1999 172,301 120,311
Other 2,805 3,960
--------- ---------
2,898,203 2,426,461
Capital Lease Obligations 82,713 105,389
--------- --------
Total 2,980,916 2,531,850
Less Current Maturities 85,538 87,833
--------- ---------
$2,895,378 $2,444,017
========= =========
</TABLE>
Maturities of long-term debt and debt under capital leases for
the next five years are as follows:
(in thousands)
1995 $ 85,538
1996 84,765
1997 96,005
1998 165,535
1999 89,635
Thereafter 2,459,438
Interest rates on $529 million principal amount of long-term
debt at December 31, 1994 are subject to adjustment to reflect
prime rate and other rate changes.
On April 26, 1994, the Company terminated its credit agreement
dated March 30, 1987, as amended, with a group of banks ("Credit
Agreement"). During 1994, there were no borrowings under the
Credit Agreement. As a result of the termination, 66 jet and
turboprop aircraft and certain spare engines with a net book value
of approximately $260 million at that time were released from a
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<PAGE>
mortgage related to the Credit Agreement. The Company had been in
violation of certain covenants at March 31, 1994. The Credit
Agreement was scheduled by its terms to expire on September 30,
1994.
During 1993 and 1992, the maximum amount of Credit Agreement
borrowings outstanding at any month end was $250 million and $450
million, respectively. All outstanding Credit Agreement borrowings
were paid off in May 1993 and no other funds were borrowed during
the remainder of 1993. The average amount of Credit Agreement
borrowings outstanding and the weighted average interest rate for
1993 were $37 million and 5.8%, respectively. The average amount
of Credit Agreement borrowings outstanding and the weighted average
interest rate for 1992 were $174 million and 6.2%, respectively.
Equipment financings totaling $2.2 billion were collateralized
by aircraft and engines with a net book value of $2.3 billion at
December 31, 1994.
(4) Commitments and Contingencies
(a) Operating Environment
The U.S. airline industry has undergone dramatic and permanent
changes in recent years, generally resulting in lower operating
costs and fares. The current competitive environment is the result
of several factors including the emergence and expansion of low
cost, low fare carriers, the protection and cost restructuring
opportunities afforded to certain carriers while operating under
Chapter 11 of the Bankruptcy Code, and other cost restructuring
initiatives among major airlines, including employee concessions in
exchange for equity ownership. The Company has incurred annual
operating losses for every year since 1990 and has a net capital
deficiency at December 31, 1994. The Company is currently in
negotiations with employee labor groups in an effort to obtain
employee concessions that will substantially reduce operating
costs. On March 29, 1995, USAir and the negotiating committee of
the Air Line Pilots Association ("ALPA") Master Executive Council,
which represents USAir's pilots, signed an agreement in principle
on wage and other concessions in exchange for financial returns and
governance participation for USAir pilots. The agreement in
principle is subject to many significant conditions, including
approval of the boards of directors of the Company and USAir and of
the shareholders of the Company and the execution of definitive
documentation. USAir continues to negotiate with representatives
of its other unions but it is uncertain whether any final agree-
ments will be reached. No assurance can be given whether or when
any transactions with any of the unions will be consummated or what
the terms of any such transactions might be. In addition, the
Company is evaluating other strategic decisions that could be
implemented to improve the operating results of the airline. The
Company believes that it must reduce its operating costs substan-
tially if it is to survive in this low cost, low fare competitive
environment.
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<PAGE>
(b) Lease Commitments
The Company's airline subsidiaries lease certain aircraft,
engines, computer and ground equipment, in addition to the majority
of their ground facilities. Ground facilities include executive
offices, overhaul and maintenance bases and ticket and administra-
tive offices. Public airports are utilized for flight operations
under lease arrangements with the municipalities or agencies owning
or controlling such airports. Substantially all leases provide
that the lessee shall pay taxes, maintenance, insurance and certain
other operating expenses applicable to the leased property. Most
leases also include renewal options and some aircraft leases
include purchase options.
The following amounts applicable to capital leases are
included in property and equipment:
<TABLE>
<CAPTION>
December 31,
---------------------
1994 1993
---- ----
(in thousands)
<S> <C> <C>
Flight equipment $218,881 $266,743
Ground property and equipment 10,961 10,961
------- -------
229,842 277,704
Less accumulated amortization 153,341 184,999
------- -------
$ 76,501 $ 92,705
======= =======
</TABLE>
At December 31, 1994, obligations under capital and noncancel-
able operating leases for future minimum lease payments were as
follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
------- ---------
(in thousands)
<S> <C> <C>
1995 $ 26,358 $ 783,945
1996 22,492 766,450
1997 21,697 773,401
1998 10,687 733,111
1999 10,687 688,620
Thereafter 27,675 7,637,310
------- ----------
Total minimum lease payments 119,596 $11,382,837
==========
Less amount representing interest 36,883
-------
Present value of net minimum lease
payments $ 82,713
=======
</TABLE>
90
<PAGE>
Jetstream has the option to lease an additional 20 aircraft.
If the options for aircraft leases are exercised, deliveries could
begin as early as 1996 and the projected lease payments presented
above would increase.
Rental expense under operating leases for 1994, 1993 and 1992
was $748 million, $781 million and $707 million, respectively. The
$748 million rental expense for 1994 excludes charges of $103
million related to USAir's grounded BAe-146 fleet and $13 million
primarily related to USAir's decision to cease operations of its
remaining Boeing 727-200 aircraft in 1995. The $707 million rental
expense for 1992 excludes a charge of $72 million related to
USAir's grounded BAe-146 fleet.
(c) Legal Proceedings
The Company and various subsidiaries have been named as
defendants in various suits and proceedings which involve, among
other things, environmental concerns and employment matters. These
suits and proceedings are in various stages of litigation, and the
status of the law with respect to several of the issues involved is
unsettled. For these reasons the outcome of these suits and
proceedings is difficult to predict. In the Company's opinion,
however, the disposition of these matters is not likely to have a
material adverse effect on its financial condition or results of
operations.
USAir is involved in legal proceedings arising out of its two
aircraft accidents that occurred in July and September 1994 near
Charlotte, North Carolina and Pittsburgh, Pennsylvania, respec-
tively. The National Transportation Safety Board (the "NTSB") held
hearings beginning in September 1994 relating to the July accident
and January 1995 relating to the September accident. In April
1995, the NTSB issued its finding of probable causes with respect
to the accident near Charlotte. It assigned as probable causes
flight crew errors and the failure of air traffic control to convey
weather and windshear hazard information. The NTSB has not yet
issued its final accident investigation report for the accident
near Pittsburgh. USAir expects that it will be at least two to
three years before the accident litigation and related settlements
will be concluded. USAir believes that it is fully insured with
respect to this litigation and has recovered its hull claims
related to the loss of the two aircraft. Therefore, the Company
believes that the litigation will not have a material adverse
effect on the Company's results of operations or financial
condition. However, due to these two aircraft accidents, it is
probable that the Company's insurance costs will increase upon
renewals of various policies in 1995.
USAir and certain of the Company's other subsidiaries have
received notices from the U.S. Environmental Protection Agency and
various state agencies that it is a potentially responsible party
with respect to the remediation of existing sites of environmental
concern. Only two of these sites have been included on the
Superfund National Priorities List. USAir and the other subsidiar-
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<PAGE>
ies continue to negotiate with various governmental agencies
concerning known and possible cleanup sites. These companies have
made financial contributions for the performance of remedial
investigations and feasibility studies at sites in Moira, New York;
Escondido, California; Newberry Township, Pennsylvania; Elkton,
Maryland; and Salisbury, Maryland.
Because of changing environmental laws and regulations, the
large number of other potentially responsible parties and certain
pending legal proceedings, it is not possible to reasonably
estimate the amount or timing of future expenditures related to
environmental matters. The Company provides for costs related to
environmental contingencies when a loss is probable and the amount
is reasonably estimable. Although management believes adequate
reserves have been provided for all known contingencies, it is
possible that additional reserves could be required in the future
which could have a material effect on results of operations.
However, the Company believes that the ultimate resolution of known
environmental contingencies should not have a material adverse
effect on the Company's financial position or results of operations
based on the Company's experience with similar environmental sites.
In March 1993, the U.S. District Court in Atlanta, Georgia
entered a settlement involving USAir and five other U.S. air
carrier defendants in the Domestic Air Transportation Antitrust
Litigation class action lawsuit, which alleged that the airlines
used the Airline Tariff Publishing Company to signal and communi-
cate carrier pricing intentions and otherwise limit price competi-
tion for travel to and from numerous hub airports. Under the terms
of the settlement, the six air carriers have issued $396.5 million
in certificates valid for purchase of domestic air travel on any of
the six airlines. It is possible that this settlement could have
a dilutive effect on USAir's passenger transportation revenue and
associated cash flow. However, due to the interchangeability of
the certificates among the six carriers involved in the settlement,
the possibility that carriers not party to the settlement will
honor the certificates and the potential stimulative effect on
travel created by the certificates, USAir cannot reasonably
estimate the impact of this settlement on future passenger revenue
and cash flows. USAir estimates that any incremental cost
associated with the settlement will not be material based on the
nominal equivalent free trips associated with the settlement. The
travel certificates were mailed to claimants in December 1994 and
may be applied towards travel purchased between January 1995 and
December 1998.
On October 11, 1994, USAir and seven other carriers entered
into a settlement agreement with a group of State Attorneys General
resolving similar issues with the states. The settlement entitles
passengers traveling within the United States on state government
business to a 10% discount off the published fares of each of the
settling carriers and will be available for 18 months or until the
combined discount amount reaches $40 million. Following a notice
and public comment period, the reviewing judge will conduct a
hearing to determine whether this settlement is a fair one. The
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<PAGE>
hearing is scheduled for May 10, 1995. The Company does not expect
that this settlement will have a material adverse effect on its
financial condition. As was the case with the settlement of the
private antitrust litigation, it is difficult to predict the amount
of discounted state travel that will occur on USAir. Thus, a
dollar impact of the settlement cannot be estimated.
In February and March 1995, several class action lawsuits were
filed in various Federal district courts by travel agencies and a
travel agency trade association alleging that most of the major
U.S. airlines, including USAir, violated the antitrust laws when
they individually capped travel agent commissions at $50 for round-
trip domestic tickets with base fares above $500 and at $25 for
one-way domestic tickets with base fares above $250. USAir intends
to vigorously defend itself against the allegations made in these
lawsuits. The plaintiffs are seeking unspecified treble damages
for restraint of trade and an injunction to prevent the airlines
from implementing or maintaining the cap or commission. Because
the lawsuits are in the first stages of litigation, USAir is unable
to predict at this time their ultimate resolution or potential
impact on the Company's financial condition and results of
operations.
In March 1995, a number of U.S. carriers, including USAir,
received a Civil Investigative Demand ("CID") from the Department
of Justice related to an investigation of incentives paid to travel
agents over and above the base commission payments, which are the
subject matter of the suits recently brought by travel agencies as
discussed above. USAir responded to an earlier CID on this topic
during 1994. USAir is required to produce documents and respond to
interrogatories in connection with this CID. USAir intends to
comply with the requirements of the CID. Because this matter is in
the investigatory stage, USAir is unable to predict at this time
its ultimate resolution or potential impact on the Company's
financial condition and results of operations.
In February 1995, two members of USAir's frequent traveler
program filed a class action lawsuit in Pennsylvania state court
against USAir after it raised the required minimum level of miles
necessary to earn a free ticket. The plaintiffs allege breach of
contract and seek unspecified damages and specific performance of
the contract allegedly breached. USAir denies the allegations.
The ultimate resolution of this lawsuit and its potential impact on
the Company's financial condition and results of operations cannot
be predicted at this time.
(d) Aircraft Commitments
USAir and The Boeing Company ("Boeing") reached an agreement
in principle in early 1995 regarding the deferral of eight 757-200
aircraft from 1996 to 1998.
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<PAGE>
The following schedule of USAir's new aircraft deliveries and
scheduled payments at December 31, 1994 (including progress
payments, payments at delivery, buyer furnished equipment, spares,
and capitalized interest) reflects USAir's agreement in principle
with Boeing discussed above:
<TABLE>
<CAPTION>
Delivery Period - Firm Orders
----------------------------------------------
There-
1995 1996 1997 1998 1999 after Total
---- ---- ---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Boeing
757-200 7 - - 8 - - 15
737 Series - - - - - 40 40
--- --- --- --- --- ----- -----
Total 7 - - 8 - 40 55
=== === === === === ===== =====
Payments
(millions) $214 $ - $ 70 $265 $ - $1,855 $2,404
=== === === === === ===== =====
</TABLE>
In addition, USAir has a commitment to purchase hushkits for
certain of its McDonnell Douglas DC-9-30 aircraft and a substantial
portion of its Boeing 737-200 aircraft. The installation of these
hushkits will bring the aircraft into compliance with Federal
Aviation Administration ("FAA") Stage 3 noise level requirements.
The projected payments associated with the purchase of the hushkits
are: $10.5 million - 1995; $44.3 million - 1996; $45.5 million -
1997; $45.2 million - 1998; and $25.0 million - 1999.
(e) Concentration of Credit Risk
USAir Group does not believe it is subject to any significant
concentration of credit risk. At December 31, 1994, most of the
Company's receivables related to tickets sold to individual
passengers through the use of major credit cards (45%) or to
tickets sold by other airlines (17%) and used by passengers on
USAir or the regional airline subsidiaries. These receivables are
short-term, generally being settled shortly after sale. Bad debt
losses, which have been minimal in the past, have been considered
in establishing allowances for doubtful accounts.
(f) Guarantees
At December 31, 1994, USAir guaranteed payments of certain
debt obligations of the Galileo International Partnership amounting
to approximately $9 million.
94
<PAGE>
(5) Sale of Receivables
The revolving receivables sales facility ("Receivables
Agreement") to which USAir had been a party expired on December 21,
1994. USAir was unable to sell receivables under the Receivables
Agreement during 1994 because it was in violation of certain
financial covenants. USAir had no outstanding amounts due under
the Receivables Agreement at December 31, 1993. The average dollar
amount of outstanding sales during 1993 and 1992 was $255 million
and $100 million, respectively. USAir is currently engaged in
discussions to arrange a replacement facility. There can be no
assurance that USAir will be successful in reaching a new agreement
to sell its receivables.
(6) Income Taxes
Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"). FAS 109 required a change from the deferred
method under Accounting Principles Board Opinion No. 11 to the
asset and liability method of accounting for income taxes. No
cumulative adjustment at January 1, 1993, and no income tax credit
for the years ended December 31, 1994 and 1993, were recognized due
to the FAS 109 limitation in recognizing benefits for net operating
losses.
The Company files a consolidated Federal income tax return
with its wholly-owned subsidiaries.
The components of the provision (credit) for income taxes are
as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Current provision (credit):
Federal $ - $ - $ -
State - - -
------ ------ -------
Total current credit 0 0 0
------ ------ -------
Deferred provision (credit):
Federal - - -
State - - -
------ ------ -------
Total deferred credit 0 0 0
------ ------ -------
Provision (credit) for
income taxes $ 0 $ 0 $ 0
====== ====== =======
</TABLE>
95
<PAGE>
The significant components of deferred income tax expense/
(benefit) for the years ended December 31, 1994 and 1993, are as
follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
(in thousands)
<S> <C> <C>
Deferred tax benefit (exclusive of
the other components listed below) $(240,366) $(136,191)
Adjustments to deferred tax assets
and liabilities for enacted changes
in tax laws and rate - (8,880)
Increase for the year in the valuation
allowance for deferred tax assets 240,366 145,071
-------- --------
Total $ 0 $ 0
======== ========
</TABLE>
For the year ended December 31, 1992 deferred income taxes
result from differences in the recognition of revenue and expenses
and investment tax credits for tax and financial reporting
purposes. The major items resulting in these differences and the
related tax effects are shown in the following chart:
1992
----
(in thousands)
Equipment depreciation and amortization $ 70,441
Gain on sale and leaseback transactions (55,238)
Net operating loss carryforward 53,753
Employee benefits (36,015)
Tax benefits purchased/sold 6,752
Investment tax credits (2,372)
Leasing transactions (33,296)
Frequent traveler program (2,815)
Other (1,210)
--------
Total deferred provision (credit) $ 0
========
A reconciliation of taxes computed at the statutory Federal
tax rate on earnings before income taxes to the provision (credit)
for income taxes is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Tax provision (credit)
computed at statutory
rate $(239,723) $(137,591) $(204,278)
Book expenses not deductible
for tax purposes 17,257 10,390 22,770
Limitation in recognizing
tax benefit of net operating
loss 222,466 136,081 181,508
(continued on next page)
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<PAGE>
Adjustments to deferred
tax assets and liabilities
for enacted changes in
tax laws and rates - (8,880) -
-------- -------- --------
Provision (credit) for
income taxes $ 0 $ 0 $ 0
======== ======== ========
Effective tax rate 0% 0% 0%
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1994 and 1993 are presented below:
<TABLE>
<CAPTION>
1994 1993
---- ----
(in thousands)
<S> <C> <C>
Deferred tax assets:
Leasing transactions $ 167,772 $ 132,551
Tax benefits purchased/sold 63,557 79,434
Gain on sale and leaseback
transactions 156,127 164,613
Employee benefits 487,236 430,257
Net operating loss carryforwards 723,275 557,494
Alternative minimum tax credit
carryforwards 21,146 21,146
Investment tax credit carryforwards 49,802 49,802
Other deferred tax assets 82,081 62,615
--------- ---------
Total gross deferred tax assets 1,750,996 1,497,912
Less valuation allowance (805,204) (564,838)
--------- ---------
Net deferred tax assets 945,792 933,074
Deferred tax liabilities:
Equipment depreciation and
amortization (909,353) (874,640)
Other deferred tax liabilities (36,439) (58,434)
--------- ---------
Net deferred tax liabilities (945,792) (933,074)
--------- ---------
Net deferred taxes $ 0 $ 0
========= =========
</TABLE>
The valuation allowance for deferred tax assets as of
January 1, 1993, was $420 million. The valuation allowance
increased $145 million in 1993 and $240 million in 1994.
At December 31, 1994, the Company had unused net operating
losses of $1.9 billion for Federal tax purposes, which expire in
the years 2005-2009. The Company also has available, to reduce
future taxes payable, $775 million alternative minimum tax net
operating losses expiring in 2007 to 2009, $50 million of invest-
ment tax credits expiring in 2002 and 2003, and $21 million of
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<PAGE>
minimum tax credits which do not expire. The Federal income tax
returns of the Company through 1986 have been examined and settled
with the Internal Revenue Service.
(7) British Airways Plc Investment
On January 21, 1993, USAir Group and BA entered into an
investment agreement (the "Investment Agreement") under which a
wholly-owned subsidiary of BA purchased certain series of convert-
ible preferred stock during 1993 (see Note 8 - Redeemable Preferred
Stock) and BA entered into code sharing and wet lease arrangements
with USAir contemplated by the Investment Agreement. On March 7,
1994, BA announced that it would not make any additional invest-
ments in the Company until the outcome of measures by the Company
to reduce its costs and improve its financial results is known.
At December 31, 1994, the preferred stock held by BA con-
stituted approximately 21.5% of the total voting interest in the
Company. To the extent permitted by foreign ownership restrictions
which are applicable by statute regulations or interpretation by
regulatory authorities, including the U.S. Department of Transpor-
tation ("DOT") ("Foreign Ownership Restrictions"), the preferred
stock owned by BA votes on all matters presented to the Company's
stockholders for a vote and has voting power equal to the underly-
ing shares of Common Stock. Pursuant to the Investment Agreement,
on January 21, 1993, BA designated three of its officers to serve
on the Company's and USAir's boards of directors.
In addition to BA's holdings of the Company's preferred stock
at December 31, 1994, BA has the option, which it has announced it
will not exercise under current circumstances, to purchase, at a
minimum, an additional $450 million of the Company's preferred
stock. Under certain circumstances, BA is entitled, at its option,
to purchase, on or prior to January 21, 1996, 50,000 shares of
Series C Cumulative Convertible Senior Preferred Stock ("Series C
Preferred Stock") resulting in an additional cash investment in the
Company of $200 million, and, on or prior to January 21, 1998,
25,000 shares of Series E Cumulative Convertible Senior Preferred
Stock ("Series E Preferred Stock") resulting in an additional cash
investment in the Company of $250 million. If the DOT approves all
the transactions and acts contemplated by the Investment Agreement,
at the election of either BA or the Company on or prior to
January 21, 1998, BA's purchase of the Series C Preferred Stock
(unless previously consummated) and BA's purchase of the Series E
Preferred Stock must be consummated under certain circumstances.
On March 15, 1993, the DOT issued an order ("DOT Order")
stating, among other things, that BA's initial investment does not
impair USAir's citizenship under current U.S. Foreign Ownership
Restrictions. However, the DOT instituted a proceeding to consider
whether USAir will remain a U.S. citizen if the transactions and
acts contemplated by the Investment Agreement, including the
possible sale of Series C Preferred Stock and Series E Preferred
Stock, to BA, are consummated. The DOT has indefinitely suspended
the period for comments from interested parties pending its
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<PAGE>
resolution of requests by other airlines for production of
additional documents from USAir. The DOT Order states that the DOT
expects and advises USAir and BA not to proceed with the closing of
the purchase of the Series C Preferred Stock or the Series E
Preferred Stock until the DOT has completed its review of USAir's
citizenship. In any event, on March 7, 1994, BA announced it would
not make any additional investments in the Company under current
circumstances. The Company cannot predict the outcome of the
proceedings or if further transactions contemplated under the
Investment Agreement, including the sale of Series C and Series E
Preferred Stock to BA, will be consummated. The sale of additional
preferred stock to BA on June 10, 1993 (see Note 8(c)) did not
result in BA's ownership of voting stock in the Company exceeding
applicable Foreign Ownership Restrictions and therefore does not
affect the Company's U.S. citizenship under those restrictions.
(8) Redeemable Preferred Stock and Dividend Restrictions
(a) Series A Preferred Stock and Dividend Restrictions
At December 31, 1994, the Company had 358,000 shares of its
9 1/4% Series A Cumulative Convertible Redeemable Preferred Stock
("Series A Preferred Stock"), without par value, outstanding which
were convertible into 9,239,944 shares of the Company's Common
Stock at a conversion price of approximately $38.74 per share. The
Series A Preferred Stock ranks pari passu with the Series F
Cumulative Convertible Senior Preferred Stock ("Series F Preferred
Stock"), without par value, and Series T-_ Cumulative Convertible
Exchangeable Senior Preferred Stock ("Series T Preferred Stock"),
without par value, and senior to the Series B Cumulative Convert-
ible Preferred Stock ("Series B Preferred Stock"), without par
value, Junior Participating Preferred Stock, Series D ("Series D
Preferred Stock"), without par value, and the Common Stock, with
respect to dividend payments and the distribution of assets. At
December 31, 1994, the Series A Preferred Stock is entitled to
approximately 25.8099 votes per share, or a total of 9,239,944
votes, and votes together with the Series F Preferred Stock, the
Series T Preferred Stock and the Common Stock, on all matters
submitted to a vote of stockholders of the Company.
The Series A Preferred Stock is redeemable on August 7, 1999
at $1,000 per share. The Company has the right to redeem the stock
at a 10% premium until that time. The agreement relating to the
sale of the Series A Preferred Stock imposes certain restrictions
on the purchaser's ability to increase its ownership of, and to
transfer, its stock in USAir Group. The Series A Preferred Stock
is owned by affiliates of Berkshire Hathaway Inc. ("Berkshire").
There have been no changes in the balance sheet value of the Series
A Preferred Stock since its issuance in 1989.
The Company has deferred quarterly dividend payments on all
outstanding series of preferred stock. The annual dividends on the
Series A Preferred Stock amount to approximately $33.1 million. So
long as preferred dividends are deferred, the Series A Preferred
Stock will continue to cumulate dividends at its stated dividend
99
<PAGE>
rate of 9.25% plus additional dividends (interest) on the balance
of the deferred dividends at the higher of the stated dividend rate
or the prime rate plus five percentage points. Accordingly, the
redemption value of the Series A Preferred Stock at December 31,
1994 is $374.8 million (the face amount of the issuance of $358.0
million plus unpaid dividends and interest of $16.8 million).
Under the terms of the Series A Preferred Stock, Berkshire has
the right to elect two additional directors to the Board of the
Company after a scheduled dividend payment has not been paid for
thirty days. Berkshire has informed the Company that it does not
intend to exercise this right at this time. Further, Berkshire's
Chairman Warren E. Buffet and Vice Chairman Charles T. Munger serve
as directors on the Company's and USAir's Boards of Directors.
Messrs. Buffet and Munger have advised the Company that they will
not stand for re-election to the Company's and USAir's Boards in
1995. Under the terms of the Series B Preferred Stock, the holders
of that security would have the right to elect two additional
directors to the Board if six quarterly dividends are not paid.
That right will become effective on February 15, 1996 if dividends
are not resumed prior to that time. If Berkshire were to exercise
its right or the holders of the Series B Preferred Stock were to
exercise their right to nominate additional directors, BA would
have the right to designate additional nominees for election as
directors to the Board pursuant to its Investment Agreement with
the Company.
The Company, organized under the laws of the State of
Delaware, is subject to statutory restrictions on the payment of
dividends according to capital surplus requirements of Delaware
law. At December 31, 1994, the Company's capital surplus was
exhausted and therefore, under Delaware law, the Company is legally
restricted from paying dividends on all outstanding common and
preferred stock issuances. Surplus is the remainder of (i) net
assets (total assets less total liabilities), less (ii) total
capital (that amount of preferred and common equity designated as
capital by a company's board of directors). At December 31, 1994,
the Company's capital deficit was approximately $199.3 million.
The Company's net assets were in a deficit balance of approximately
$138.2 million, and its total capital was approximately $61.1
million (the $61.1 million is all attributable to the Company's
common stock; capital for all of the Company's preferred stock
issuances is a nominal amount of one cent per share). In order for
the Company to return to a capital surplus position, it must
realize substantial profits or increase its equity through other
measures, such as the sale of additional common or preferred stock.
Even if the Company is successful in restructuring its costs, there
can be no assurance when or if preferred dividend payments will
resume.
(b) Series F Preferred Stock
At December 31, 1994, the Company had outstanding 30,000
shares of its 7% Series F Preferred Stock which was convertible
into 15,458,851 shares of the Company's Common Stock at a conver-
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<PAGE>
sion price of approximately $19.41 per share. The Series F
Preferred Stock ranks pari passu with the Series A Preferred Stock
and Series T Preferred Stock and senior to the Series B Preferred
Stock, Series D Preferred Stock, and the Common Stock, with respect
to dividend payments and the distribution of assets. At Decem-
ber 31, 1994, each share of Series F Preferred Stock was entitled
to 515.295 votes per share to the extent permitted by the existing
Foreign Ownership Restrictions and votes with the Company's Series
A Preferred Stock, the Series T Preferred Stock and the Company's
Common Stock as a single class. Under Foreign Ownership Restric-
tions, no more than 25% of the Company's voting interest may be
held by persons other than U.S. citizens. In accordance with the
terms of any preferred stock held by BA, conversion rights and
voting rights may not be exercised to the extent that doing so
would result in a loss of the Company's or any of its subsidiaries'
operating certificates and authorities under Foreign Ownership
Restrictions, and it is assumed for this purpose that Series F
Preferred Stock will be fully converted before any other preferred
stock held by BA.
The Series F Preferred Stock is convertible at any time on or
after January 21, 1997 to the extent that such conversion would not
violate U.S. Foreign Ownership Restrictions. Series F Preferred
Stock may be converted at the option of the Company at any time
after January 21, 1998 if the average composite closing market
price of Common Stock during any 30-day calendar period is at least
133% of the conversion price. The Series F Preferred Stock is
mandatorily redeemable on January 21, 2008. If BA has not
purchased the Series C Preferred Stock by January 21, 1996, then
the Company may at its option redeem, in whole or in part, Series
F Preferred Stock at the higher of market value or the price of
$10,000 per share, plus accrued dividends. The Series F Certifi-
cate provides that if on any one occasion on or prior to Janu-
ary 21, 1996, any court or regulatory authority issues a final
order that any material part of the Investment Agreement is
unenforceable (except pursuant to bankruptcy or like event), then
the conversion price of Series F Preferred Stock shall be reduced
by 10.2564%. There have been no changes in the balance sheet value
of the Series F Preferred Stock since its issuance in 1993.
The Company deferred quarterly dividend payments on all
outstanding series of preferred stock beginning with payments due
September 30, 1994. The annual dividends on the Series F Preferred
Stock amount to approximately $21.0 million. So long as preferred
dividends are deferred, the Series F Preferred Stock will continue
to cumulate dividends at its stated dividend rate of 7.0% plus
additional dividends (interest) on the balance of the deferred
dividends at the stated dividend rate. Accordingly, the redemption
value of the Series F Preferred Stock at December 31, 1994 is
$307.0 million (the face amount of the issuance of $300.0 million
plus unpaid dividends and interest of $7.0 million). The Company
is currently unable to pay dividends due to limitations under
Delaware law. See discussion above in Note 8(a).
101
<PAGE>
(c) Series T Preferred Stock
Under the Investment Agreement, BA has preemptive and optional
purchase rights to maintain its proportionate ownership of the
Company's Common Stock and convertible securities, measured in
terms of the BA percentage ("BA Percentage") which approximates
BA's fully diluted ownership percentage based on BA's current and
potential holdings in the Company. The BA Percentage is calculated
without regard to Foreign Ownership Restrictions at the time of the
calculation. BA may exercise such preemptive or optional purchase
rights by purchasing, from time to time, a series of Series T
Preferred Stock.
At December 31, 1994, the Company had two series of the
Series T Preferred Stock outstanding. On June 10, 1993, BA
exercised its preemptive purchase right by purchasing 9,919.8
shares of a series of the Series T Preferred Stock ("Series T-2
Preferred Stock") for approximately $99.2 million and exercised its
optional purchase right by purchasing 152.1 shares of a series of
Series T Preferred Stock ("T-1 Preferred Stock") for approximately
$1.5 million. BA's preemptive right was triggered by the issuance
of Common Stock, as described in Note 9 - Stockholders' Equity, and
BA's optional purchase rights were triggered by the Company's
issuance of additional shares of Common Stock through the exercise
of options under various employee stock option plans and through
the sale of shares to certain defined contribution plans during the
period from January 21, 1993 to March 31, 1993. BA has advised the
Company that it will not exercise its optional purchase rights to
buy additional series of Series T Preferred Stock triggered by the
Company's issuance of Common Stock pursuant to certain employee
benefit plans during the second, third and fourth quarters of 1993
and during 1994.
There have been no changes in the balance sheet value of the
Series T-1 Preferred Stock and Series T-2 Preferred Stock since
their issuance in 1993.
The terms of all series of the Series T Preferred Stock are
substantially similar to those of the Series F Preferred Stock
except as noted. Each share of Series T-2 Preferred Stock carries
a conversion price of $26.40 and is convertible into approximately
378.7879 shares of Common Stock or Non-Voting Class ET stock. Each
share of Series T-1 Preferred Stock has a conversion price of
$20.50 and is convertible into approximately 487.8049 shares of
Common Stock or Non-Voting Class ET stock. With respect to the
Series T Preferred Stock, dividends are payable quarterly in
arrears, at 50 basis points over the three month LIBOR rate. Any
shares of the Series T Preferred Stock held by any person other
than BA or its subsidiaries may be redeemed for cash at any time at
the option of the Company at $10,000 plus accrued dividends plus a
redemption premium equal to $700 from the date of issue until the
first anniversary thereof and reduced by $46.67 on each anniversary
thereafter.
102
<PAGE>
The Series T Preferred Stock is exchangeable, at the option of
the Company, for that principal amount of floating rate convertible
subordinated notes of the Company (the "T Notes") equal to the
liquidation preference of the shares to be exchanged and bearing
interest at the dividend rate. Any accrued dividends on the Series
T Preferred Stock to be exchanged will be treated as accrued
interest on the T Notes. Each $10,000 aggregate principal amount
of such T Notes will be entitled to a number of votes equal to the
number of votes to which each share of Series T Preferred Stock was
entitled at the time of its exchange for T Notes, subject to
adjustment. If issued, T Notes will have terms otherwise consis-
tent with the terms of the Series T Preferred Stock.
The Company has deferred quarterly dividend payments on all
outstanding series of preferred stock beginning with payments due
September 30, 1994. The annual dividends on the Series T Preferred
Stock amount to approximately $6.6 million. So long as preferred
dividends are deferred, the Series T Preferred Stock will continue
to cumulate dividends at its dividend rate of the three-month LIBOR
rate plus one-half of a percentage point plus additional dividends
(interest) on the balance of the deferred dividends at the dividend
rate. Accordingly, the redemption value of the Series T Preferred
Stock at December 31, 1994 is $102.7 million (the face amount of
the issuance of $100.7 million plus unpaid dividends and interest
of $2.0 million). The Company is currently unable to pay dividends
due to limitations under Delaware law. See discussion above in
Note 8(a).
(9) Stockholders' Equity
(a) Common Stock
The Company had 150,000,000 authorized shares of Common Stock,
par value $1, at December 31, 1994 and 1993. If BA purchases the
Series C Preferred Stock (see Note 7 - British Airways Plc
Investment), the number of authorized shares of various classes of
Common Stock will increase to 300,000,000. BA has indicated,
however, that it will not make any additional investments in the
Company under current circumstances. At December 31, 1994,
approximately 51,781,000 shares were reserved for issuance upon the
conversion of preferred stock and for offerings under employee
stock purchase, stock option, stock incentive and retirement plans.
The Company is currently unable to pay dividends due to limitations
under Delaware law. See discussion above in Note 8(a).
On May 4, 1993, the Company sold 11.5 million shares of
previously unissued Common Stock at $20.75 per share through a
public, underwritten offering. The offering netted proceeds of
approximately $231 million.
(b) Preferred Stock and Senior Preferred Stock
At December 31, 1994, the Company had 5,000,000 authorized
shares of preferred stock, without nominal or par value, of which
358,000 shares were issued as Series A Preferred Stock, approxi-
103
<PAGE>
mately 43,000 shares were issued as Series B Preferred Stock and
1,035,000 shares were reserved as Series D Preferred Stock. Also,
at December 31, 1994, the Company had 3,000,000 authorized shares
of Senior Preferred Stock, without nominal or par value, of which
30,000 shares were issued as Series F Preferred Stock and approxi-
mately 10,000 were issued as Series T Preferred Stock.
(c) Series B Preferred Stock
At December 31, 1994, the Company had 4,263,050 Depositary
Shares, representing 42,630.5 shares of its $437.50 Series B
Preferred Stock outstanding. Each Depositary Share represents
1/100 of a share of the Series B Preferred Stock. The Series B
Preferred Stock is convertible at any time, at the option of the
holder, at the rate of 249.25 shares of Common Stock of the Company
per preferred share, or 2.4925 shares of Common Stock per Deposi-
tary Share. The Series B Preferred Stock ranks junior to the
Company's Series A Preferred Stock, the Series F Preferred Stock
and the Series T Preferred Stock and senior to the Series D
Preferred Stock and the Common Stock with respect to dividend
payments and the distribution of assets, whether upon liquidation
or otherwise. Except under certain circumstances, the holders of
Series B Preferred Stock have no voting rights.
The Series B Preferred Stock is redeemable, at the option of
the Company and with consent of the holders of Series F Preferred
Stock, (i) in whole but not in part, only in certain circumstances,
for so long as any shares of Series A Preferred Stock are outstand-
ing; and (ii) in whole or in part if no shares of Series A
Preferred Stock are outstanding, in each case initially at a
redemption price of approximately $53.06 per 1/100 of a share and
thereafter at prices declining to $50 per 1/100 of a share
(equivalent to $5,000 per share of Series B Preferred Stock) on or
after May 15, 2001, plus dividends accrued and accumulated but
unpaid to the redemption date.
The Company has deferred quarterly dividend payments on all
outstanding series of preferred stock beginning with payments due
September 30, 1994. The annual dividends on the Series B Preferred
Stock amount to approximately $18.7 million. So long as preferred
dividends are deferred, the Series B Preferred Stock will continue
to cumulate dividends at its stated dividend rate of 8.75% but is
not subject to additional dividends (interest) on the balance of
the deferred dividends. Accordingly, the liquidation preference of
the Series B Preferred Stock at December 31, 1994 is $220.1 (the
face amount of the issuance of $213.2 million plus unpaid dividends
of $6.9 million). The Company is currently unable to pay dividends
due to limitations under Delaware law. See discussion above in
Note 8(a).
(d) Preferred Stock Purchase Rights
Each outstanding share of Common Stock is accompanied by one
Preferred Share Purchase Right ("Right") and each outstanding share
of Series A Preferred Stock, Series F Preferred Stock and Series T
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<PAGE>
Preferred Stock is accompanied by a Right for each share into which
it is convertible. Each Right entitles the holder to buy 1/100th
of a share of Series D Preferred Stock at an exercise price of $175
per Right. The Rights expire on June 29, 1996. As long as the
Rights remain outstanding, the Company will issue one Right with
each new share of Common Stock issued upon the conversion of any
preferred stock into, or the exercise of any options for, Common
Stock, as long as such preferred stock or options were outstanding
prior to the Rights becoming exercisable.
Generally, the Rights become exercisable only if a party other
than, under certain circumstances, BA acquires 20% or more of the
Company's Common Stock or announces a tender offer for 20% or more
of the Common Stock. The Rights are redeemable at $.03 per Right
at any time before 20% or more of the Company's Common Stock has
been acquired. If at any time after the Rights become exercisable
and before they have been redeemed the Company is involved in a
merger or other business combination transaction, the Rights will
automatically entitle a holder, other than a holder of 20% or more
of the Company's Common Stock, to receive, upon exercise of each
Right, a number of shares of Common Stock, or a number of common
shares of the acquiring company, as the case may be, having a
market value of two times the exercise price of each Right. In
addition, at any time after the acquisition of 30% or more of the
Common Stock by any person and prior to the acquisition by such
person of 50% or more of the Common Stock, the Board of the Company
may exchange the Rights (other than Rights owned by such person
which have become void), in whole or in part, at an exchange ratio
of one share of Common Stock, or 1/100th of a share of Series D
Preferred Stock, per Right.
Until the first to occur of the redemption or expiration of
the Rights, the Company will issue one Right with each new share of
Common Stock issued upon the conversion of any securities into, or
the exercise of any options or warrants for, Common Stock if such
securities, options or warrants were outstanding prior to when
Rights became exercisable.
(e) Treasury Stock
In 1989, the Company's Board authorized the repurchase from
time to time of up to 9.4 million shares of its Common Stock in
open market transactions. In 1989, approximately 2.1 million
shares were repurchased in addition to 635,000 that it held in
treasury prior to that time. The Company sold approximately
1,864,000 shares, 500,000 shares, and 390,000 shares of its
treasury stock during 1994, 1993, and 1992, respectively. As of
December 31, 1994, there were no shares of Common Stock held in
treasury. Due to the capital surplus requirements of Delaware law,
the Company is currently unable to repurchase shares of its Common
Stock.
105
<PAGE>
(f) Employee Stock Option and Purchase Plans
At December 31, 1994, approximately 5.0 million shares of
Common Stock were reserved for the possible exercise of options
under the 1992 Stock Option Plan ("1992 Plan"). Under the 1992
Plan, employees whose pay was reduced, generally during a 12 month
period in 1992 and 1993, received options to purchase 50 shares of
Common Stock at a price of $15 per share for each $1,000 of salary
reduction. Participating employees have five years from the grant
date to exercise such options. All outstanding options under the
1992 plan were fully vested at December 31, 1994.
At December 31, 1994, 5.3 million shares of Common Stock were
reserved for the granting of stock options or restricted stock
under the Company's 1984 Stock Option and Stock Appreciation Rights
("SARs") Plan and 1988 Stock Incentive Plan. These plans provide
that options may be granted as either nonqualified or incentive
stock options. Options awarded under the two plans prior to 1992,
except for those that reverted, have vested. Options awarded
during 1992, 1993 and 1994 become exercisable generally within
three years from date of grant. Optionees may also receive SARs
which permit them to receive, in lieu of the right to exercise the
stock option, an amount equivalent to the difference between the
stock option price and the fair market value of the Common Stock on
the date of exercising the right. This amount may be paid in
stock, in cash, or in any combination of the two. Also, restricted
stock award grants for 15,800 shares and 57,000 shares were
outstanding at December 31, 1994 and 1993, respectively. Deferred
compensation related to the restricted stock, which vests over
periods of up to five years, amounted to $16 thousand and $0.3
million at December 31, 1994 and 1993, respectively.
As of December 31, 1994, options to acquire approximately 9
million shares under all three plans, including 76,200 options with
tandem SARs, were outstanding at a weighted average exercise price
of $18.14. Of those outstanding, approximately 8.3 million options
were exercisable at December 31, 1994. Options were exercised to
purchase approximately 5,000 shares and 33,500 shares of Common
Stock at average exercise prices of $9.63 and $17.24 during 1994
and 1993, respectively.
(10) Employee Stock Ownership Plan
In August 1989, USAir established an Employee Stock Ownership
Plan ("ESOP"). The Company sold 2,200,000 shares of Common Stock
to an Employee Stock Ownership Trust to hold on behalf of USAir's
employees, exclusive of officers, in accordance with the terms of
the Trust and the ESOP. Financing of approximately $111.4 million
for the Trust's purchase of the shares was provided by USAir
through a 9 3/4% loan to the Trust, and an additional $2.2 million
was contributed to the Trust by USAir. The loan is being repaid
with contributions made by USAir. The contributions are made in
amounts equal to the periodic loan payments as they come due, less
dividends available for loan payment. As the loan is repaid over
time, participating employees receive allocations of the Common
106
<PAGE>
Stock purchased by the Trust. The initial maturity of the loan is
30 years. However, the ESOP provides that if USAir's profitability
as measured by return on sales exceeds certain goals during the
life of the ESOP, USAir's contributions and the repayment of the
loan will be accelerated. Annual contributions made by USAir and
therefore loan repayments made by the Trust were $11.4 million in
each of 1994, 1993 and 1992. The interest portion of these
contributions was $10.5 million in 1994, $10.5 million in 1993 and
$10.6 million in 1992. Approximately 438,000 shares of Common
Stock have been allocated to employees. USAir recognized approxi-
mately $4 million of compensation expense related to the ESOP in
each of 1994, 1993 and 1992 based on shares allocated to employees
(the "shares allocated" method). Deferred compensation related to
the ESOP amounted to approximately $91 million, $95 million and $98
million at December 31, 1994, 1993 and 1992, respectively. Shares
held by the ESOP trust are included in shares outstanding for the
Company's income (loss) per share calculation.
(11) Employee Benefit Plans
(a) Pension Plans
The Company's subsidiaries have several pension plans in
effect covering substantially all employees. One qualified defined
benefit plan covers USAir maintenance employees and provides
benefits of stated amounts for specified periods of service.
Qualified defined benefit plans for substantially all other
employees provide benefits based on years of service and compensa-
tion. The qualified defined benefit plans are funded, on a current
basis, to meet requirements of the Employee Retirement Income
Security Act of 1974.
The defined benefit pension plan for USAir non-contract
employees was frozen at the end of 1991 for all non-contract
participants, resulting in a one-time book gain of approximately
$107 million in 1991. All non-contract plan participants became
100% vested at the time of the freeze. As a result of this plan
curtailment, the accrual of service costs related to defined
benefits for USAir non-contract and certain other employees ceased
at the end of 1991. USAir implemented a defined contribution
pension plan for non-contract employees in January 1993.
(this space intentionally left blank)
107
<PAGE>
The funded status of the qualified defined benefit plans at
December 31, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
1994 1993
Plans in Which Plans in Which
----------------- -----------------
Plan Accumu- Plan Accumu-
Assets lated Assets lated
Exceed Benefits Exceed Benefits
Accumu- Exceed Accumu- Exceed
lated Plan lated Plan
Benefits Assets Benefits Assets
-------- ------ -------- ------
(in millions)
<S> <C> <C> <C> <C>
Fair value of plan assets $1,703 $ 183 $1,904 $ 176
Actuarial present value of:
Vested benefit obligation 1,521 242 1,810 266
Nonvested benefit obliga-
tion 28 17 48 20
----- ----- ----- -----
Accumulated benefits
based on salaries to
date 1,549 259 1,858 286
Additional benefits
based on estimated
future salary levels 477 - 643 2
----- ----- ----- -----
Projected benefit
obligation 2,026 259 2,501 288
----- ----- ----- -----
Projected benefit obligation
in excess of fair value
of plan assets (323) (76) (597) (112)
Unrecognized net transition
asset (29) (12) (32) (13)
Unrecognized prior service
cost (14) 69 15 73
Unrecognized net loss 358 15 627 52
----- ----- ----- -----
Pension (liability) prepaid
before adjustment (8) (4) 13 -
Adjustment to recognize
minimum liability - (72) - (110)
----- ----- ----- -----
Pension (liability) prepaid
as adjusted and recognized
in consolidated balance
sheets $ (8) $ (76) $ 13 $ (110)
===== ===== ===== =====
</TABLE>
<PAGE>
Unrecognized transition assets are being amortized over
periods up to 27 years. The weighted average discount rate used to
determine the actuarial present value of the projected benefit
obligation was 9.0% and 7.6% as of December 31, 1994 and 1993,
respectively. The expected long-term rate of return on plan assets
used in 1994 and 1993 was 9.5%. Rates of 3% to 6% were used to
estimate future salary levels. At December 31, 1994, plan assets
consisted of approximately 8% in cash equivalents and short-term
debt investments, 27% in equity investments, and 65% in fixed
income and other investments. At December 31, 1993, plan assets
consisted of approximately 8% in cash equivalents and short-term
debt investments, 37% in equity investments, and 55% in fixed
income and other investments.
The following items are the components of the net periodic
pension cost for the qualified defined benefit plans:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(in millions)
<S> <C> <C> <C>
Service cost (benefits
earned during the period) $ 127 $ 93 $ 81
Interest cost on projected
benefit obligation 217 189 171
Actual return on plan assets 48 (226) (115)
Net amortization and deferral (254) 40 (64)
---- ---- ----
Net periodic pension cost $ 138 $ 96 $ 73
==== ==== ====
</TABLE>
Net pension cost for 1993 presented above excludes a settle-
ment charge of approximately $33.9 million, related to "early-out"
incentive programs offered to a limited number of USAir employees
during the years. No such charges were incurred in 1994 or 1992.
Non-qualified supplemental pension plans are established for
certain employee groups, which provide incremental pension payments
from the Company's funds so that total pension payments equal
amounts that would have been payable from the Company's principal
pension plans if it were not for limitations imposed by income tax
regulations.
(this space intentionally left blank)
109
<PAGE>
The following table sets forth the non-qualified plans' status
at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
(in millions)
<S> <C> <C>
Fair value of plan assets $ - $ -
Actuarial present value of:
Vested benefit obligation 32 29
Nonvested benefit obligation 2 2
----- -----
Accumulated benefit obligation
based on salaries to date 34 31
Additional benefits based on
estimated future salary levels 2 2
---- ----
Projected benefit obligation 36 33
---- ----
Projected benefit obligation in excess
of fair value of plan assets (36) (33)
Unrecognized net transition asset - -
Unrecognized prior service cost 1 1
Unrecognized net loss 3 5
Pension (liability) prepaid before ---- ----
adjustment (32) (27)
Adjustment to recognize minimum
liability (5) (6)
---- ----
Unfunded accrued supplementary costs
as adjusted and recognized in
consolidated balance sheets $ (37) $ (33)
==== ====
</TABLE>
Net periodic supplementary pension cost for the non-qualified
supplemental pension plans included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(in millions)
<S> <C> <C> <C>
Service cost (benefits
earned during the period) $ - $ - $ -
Interest cost on projected
benefit obligation 3 2 2
Actual return on plan assets - - -
Net amortization and deferral 21 12 7
--- --- ---
Net periodic supplementary
pension cost $ 24 $ 14 $ 9
=== === ===
</TABLE>
The discount rate used to determine the actuarial present
value of the projected benefit obligation was 9.0% and 7.5% as of
December 31, 1994 and 1993, respectively. Rates of 3% to 5% were
used to estimate future salary levels.
110
<PAGE>
In addition to the qualified and non-qualified defined benefit
plans described above, USAir also contributes to certain defined
contribution plans primarily for employees not covered under a
collective bargaining agreement. Company contributions are based
on a formula which considers the age and pre-tax earnings of each
employee and the amount of employee contributions. The Company's
contribution expense was $43 million and $42 million for 1994 and
1993, respectively. The Company recognized no such expense in 1992
because the plans became effective January 1, 1993.
(b) Postretirement Benefits Other Than Pensions
USAir offers medical and life insurance benefits to employees
hired prior to March 29, 1993 who retire from USAir and their
eligible dependents. The medical benefits provided by USAir are
coordinated with Medicare benefits. Retirees generally contribute
amounts towards the cost of their medical expenses based on years
of service with the Company. USAir provides uninsured death
benefit payments to survivors of retired employees for stated
dollar amounts, or in the case of retired pilot employees, death
benefit payments determined by age and level of pension benefit.
The plans for postretirement medical and death benefits are funded
on the pay-as-you-go basis.
USAir adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("FAS 106"), during 1992 and elected to record the
January 1, 1992 Accumulated Postretirement Benefit Obligation
("APBO") using the immediate recognition approach. The cumulative
effect of adopting FAS 106 was $745.7 million ($628.1 million net
of tax benefit).
The following table sets forth the financial status of the
plans as of December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
(in millions)
<S> <C> <C>
Accumulated Postretirement Benefit
Obligation (APBO):
Retirees $ 245 $ 291
Fully eligible active plan participants 144 153
Other plan participants 306 356
---- ----
Total APBO 695 800
Unrecognized prior service credit 167 179
Unrecognized net gain (loss) 123 (54)
---- ----
Accrued postretirement benefit cost $ 985 $ 925
==== ====
</TABLE>
111
<PAGE>
The components of net periodic postretirement benefit cost are
as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(in millions)
<S> <C> <C> <C>
Service cost (benefits attributed to
employee service during the period) $ 36 $ 31 $ 46
Interest cost on APBO 60 56 69
Net amortization and deferral (12) (12) -
--- --- ---
Net periodic postretirement
benefit cost $ 84 $ 75 $115
=== === ===
</TABLE>
The postretirement benefit expense for 1993 presented above
excludes a charge of approximately $15.5 million related to "early-
out" programs offered to a limited number of employees during the
year. No such charges were incurred in 1994 or 1992.
The discount rate used to determine the APBO was 9.0%, 7.75%
and 8.75% at December 31, 1994, 1993 and 1992, respectively. The
assumed health care cost trend rate used in measuring the APBO was
9.5% in 1994, declining by 1% per year after 1994 to an ultimate
rate of 4.5%. If the assumed health care cost trend rate were
increased by one percentage point, the APBO at December 31, 1994
would be increased by 11% and 1994 periodic postretirement benefit
cost would increase 13%.
(c) Postemployment Benefits
USAir adopted Statement of Financial Accounting Standards No.
112, "Employer's Accounting for Postemployment Benefits" ("FAS
112"), during 1993. FAS 112 requires the use of an accrual method
to recognize postemployment benefits such as disability-related
benefits. The cumulative effect at January 1, 1993 of adopting FAS
112 was $43.7 million.
(12) Supplemental Balance Sheet Information
The components of certain accounts in the accompanying balance
sheets are as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
(in thousands)
<S> <C> <C>
(a) Cash and cash equivalents:
Cash $ 17,559 $ 16,638
Cash equivalents, at cost which
approximates market 411,979 351,709
-------- --------
$ 429,538 $ 368,347
======== ========
(continued on next page)
112
<PAGE>
(b) Receivables, net:
Accounts receivable $ 334,010 $ 374,838
Less allowance for doubtful
accounts 9,471 10,818
-------- --------
$ 324,539 $ 364,020
======== ========
(c) Materials and supplies, net:
Materials and supplies $ 431,455 $ 457,190
Less allowance for obsolescence 172,791 95,171
-------- --------
$ 258,664 $ 362,019
======== ========
(d) Accrued expenses:
Salaries and wages $ 262,326 $ 256,853
Rents 494,202 451,304
All other 531,449 474,729
--------- ---------
$1,287,977 $1,182,886
========= =========
</TABLE>
(13) Non-Recurring and Unusual Items
(a) 1994
The Company's results for 1994 include (i) a $132.8 million
charge related to USAir's grounded BAe-146 fleet, recorded in the
fourth quarter of 1994; (ii) a $54.0 million charge for obsolete
inventory and rotables to reflect market value, recorded in the
fourth quarter of 1994; (iii) a $50 million addition to passenger
transportation revenue in the fourth quarter of 1994 to adjust
estimates made during the first three quarters of 1994; (iv) a
$40.1 million charge primarily related to USAir's decision to cease
operations of its remaining Boeing 727 aircraft in 1995, recorded
in the third quarter of 1994; (v) a $25.9 million charge related to
USAir's decision to substantially reduce service between Los
Angeles and San Francisco and close its San Francisco crew base,
recorded in the third quarter of 1994; (vi) a $28.3 million gain
resulting from the sale of certain aircraft and assets to Mesa Air
Group, Inc. (formerly Mesa Airlines, Inc.) ("Mesa") and the
accounting treatment of the hull insurance recovery on the aircraft
destroyed in the September accident, recorded in the third quarter
of 1994; and (vii) a $1.7 million charge related to the sale of
assets to Mesa, recorded in the third quarter of 1994.
(b) 1993
The Company's results for 1993 include non-recurring charges
of (i) $43.7 million for the cumulative effect of an accounting
change, as required by FAS 112 which was adopted during the third
quarter of 1993, retroactive to January 1, 1993; (ii) $68.8 million
for severance, early retirement and other personnel-related
expenses recorded primarily during the third quarter of 1993 in
connection with a workforce reduction of approximately 2,500 full-
time positions between November 1993 and the first quarter of 1994;
113
<PAGE>
(iii) $36.8 million based on a projection of the repayment of
certain employee pay reductions, recorded in the fourth quarter of
1993; (iv) $13.5 million for certain airport facilities at
locations where USAir has, among other things, discontinued or
reduced its service, recorded in the fourth quarter of 1993; (v)
$8.8 million for a loss on USAir's investment in the Galileo
International Partnership which operates a computerized reserva-
tions system, recorded in the fourth quarter of 1993; and (vi)
$18.4 million credit related to non-operating aircraft recorded in
the second quarter of 1993.
(c) 1992
The Company's results for 1992 include (i) a charge of $628.1
million for the cumulative effect of an accounting change as
required by FAS 106, effective January 1, 1992; (ii) a $107.4
million charge related to certain aircraft which have been
withdrawn from service, recorded in the fourth quarter of 1992;
(iii) a $34.1 million non-operating loss related to the sale of ten
MD-82 aircraft which USAir eliminated from its fleet plan, recorded
in the fourth quarter of 1992; and (iv) a $10.3 million gain on the
sale of three wholly-owned subsidiaries, recorded in the third
quarter of 1992 (see Note 1).
(14) Selected Quarterly Financial Data (Unaudited)
The following table presents selected quarterly financial data
for 1994 and 1993:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in millions except per share amounts)
<S> <C> <C> <C> <C>
1994
Operating revenues $1,686 $1,880 $1,751 $1,681
Operating income (loss) $ (140) $ 74 $ (155) $ (270)
Net income (loss) $ (197) $ 14 $ (180) $ (322)
===== ===== ===== =====
Net income (loss)
applicable to
common stockholders $ (216) $ (6) $ (200) $ (342)
Income (loss) per common
share $(3.64) $ (.09) $(3.32) $(5.63)
Note:
Certain amounts have been reclassified to conform with fourth
quarter classifications.
(continued on next page)
114
<PAGE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in millions except per share amounts)
<S> <C> <C> <C> <C>
1993
Operating revenues $1,716 $1,816 $1,749 $1,802
Operating income (loss) $ (2) $ 62 $ (114) $ (42)
Income (loss) before
cumulative effect of
accounting change $ (61) $ 6 $ (178) $ (116)
Cumulative effect of
accounting change -
FAS 112 (44) - - -
----- ----- ----- -----
Net income (loss) $ (105) $ 6 $ (178) $ (116)
===== ===== ===== =====
Net income (loss)
applicable to common
stockholders $ (122) $ (13) $ (197) $ (135)
===== ===== ===== =====
Income (loss) per common
share
Before cumulative
effect of accounting
change $(1.65) $(0.23) $(3.33) $(2.29)
Cumulative effect of
accounting change (0.92) - - -
----- ----- ----- -----
Income (loss) per
common share $(2.57) $(0.23) $(3.33) $(2.29)
===== ===== ===== =====
</TABLE>
See Note 13 - Non-Recurring and Unusual Items.
Note:
The sum of the four quarters may not equal yearly totals due to
rounding of quarterly results.
Certain 1993 amounts have been reclassified to conform with 1994
classifications.
(this space intentionally left blank)
115
<PAGE>
Item 8B. Financial Statements and Supplementary Information
USAir, Inc.
Independent Auditors' Report
The Stockholder and Board of Directors
USAir, Inc.:
We have audited the consolidated balance sheets of USAir, Inc. and
subsidiary ("USAir") as of December 31, 1994 and 1993, and the
related consolidated statements of operations, cash flows, and
changes in stockholder's equity (deficit) for each of the years in
the three-year period ended December 31, 1994. These consolidated
financial statements are the responsibility of USAir's management.
Our responsibility is to express an opinion on these consolidated
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 consolidated financial statements referred to
above present fairly, in all material respects, the financial
position of USAir, Inc. and subsidiary as of December 31, 1994 and
1993, and the results of their operations and their cash flows for
the three-year period ended December 31, 1994 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that USAir will continue as a going concern. As discussed in Note
4(a) to the consolidated financial statements, USAir has suffered
recurring losses from operations and has a net capital deficiency
that raise substantial doubt about its ability to continue as a
going concern. Management's plans in regard to these matters are
also described in Note 4(a). The consolidated financial statements
do not include any adjustments that might result from the outcome
of this uncertainty.
As discussed in Note 9 to the consolidated financial statements,
effective January 1, 1993, USAir changed its method of accounting
for postemployment benefits and effective January 1, 1992, USAir
changed its method of accounting for postretirement benefits other
than pensions.
KPMG Peat Marwick LLP
Washington, D. C.
February 22, 1995, except as to Notes 4(a)
and 4(c) which are as of April 10, 1995
116
<PAGE>
<TABLE>
USAir, Inc.
Consolidated Statements of Operations
Years Ended December 31, (in thousands)
==================================================================================================
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Operating Revenues
Passenger transportation $5,922,223 $6,081,788 $ 5,785,830
Cargo and freight 160,364 170,500 169,534
Other 496,006 370,760 280,258
--------- --------- ----------
Total operating revenues 6,578,593 6,623,048 6,235,622
Operating Expenses
Personnel costs 2,753,269 2,698,039 2,492,424
Aviation fuel 642,305 677,859 720,649
Commissions 549,192 559,793 537,688
Other rent and landing fees 422,190 431,591 374,273
Aircraft rent 521,395 431,616 496,061
Aircraft maintenance 335,791 308,890 318,986
Depreciation and amortization 386,262 325,214 317,349
Other, net 1,485,161 1,339,152 1,363,547
--------- --------- ----------
Total operating expenses 7,095,565 6,772,154 6,620,977
--------- --------- ----------
Operating income (loss) (516,972) (149,106) (385,355)
Other Income (Expense)
Interest income 28,044 24,794 48,866
Interest expense (285,846) (238,628) (229,643)
Interest capitalized 13,760 17,754 27,181
Other, net 44,831 (29,862) (50,725)
--------- --------- ----------
Other income (expense), net (199,211) (225,942) (204,321)
--------- --------- ----------
Income (loss) before taxes and cumulative
effect of accounting changes (716,183) (375,048) (589,676)
Income tax provision (credit) - - -
--------- --------- ----------
Income (loss) before cumulative effect
of accounting changes (716,183) (375,048) (589,676)
Cumulative effect of changes in method of
accounting for postemployment benefits
in 1993 and for postretirement benefits
other than pensions (net of tax benefit
of $106,721) in 1992 - (43,749) (638,822)
--------- --------- ----------
Net income (loss) $ (716,183) $ (418,797) $(1,228,498)
========= ========= ==========
See accompanying Notes to consolidated financial statements.
117
<PAGE>
USAir, Inc.
Consolidated Balance Sheets
December 31, (dollars in thousands except per share amount)
====================================================================================================
<CAPTION>
1994 1993
---- ----
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 428,925 $ 367,835
Short-term investments 22,133 - Receivable
from parent company - 16,092
Receivables, net 326,012 367,403
Materials and supplies, net 238,481 338,808
Prepaid expenses and other 77,111 78,131
--------- ----------
Total current assets 1,092,662 1,168,269
Property and Equipment
Flight equipment 4,914,776 4,824,031
Ground property and equipment 1,040,329 1,045,306
Less accumulated depreciation and amortization (2,006,041) (1,786,817)
--------- ---------
3,949,064 4,082,520
Purchase deposits 195,701 156,621
--------- ---------
Property and equipment, net ($162,000 pledged for
parent company debt at December 31, 1993) 4,144,765 4,239,141
Other Assets
Goodwill, net 526,615 542,666
Other intangibles, net 319,229 310,545
Other assets, net 592,689 548,847
--------- ---------
Total other assets 1,438,533 1,402,058
--------- ---------
$6,675,960 $6,809,468
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current Liabilities
Current maturities of long-term debt $ 80,714 $ 85,715
Accounts payable 305,719 316,843
Payable to parent company 85,175 -
Traffic balances payable and unused tickets 591,154 659,606
Accrued expenses 1,255,098 1,150,062
--------- ---------
Total current liabilities 2,317,860 2,212,226
Long-Term Debt, Net of Current Maturities
Long-term debt 2,849,488 2,441,935
Notes payable - parent company - 105,080
--------- ---------
Total long-term debt, net of current maturities 2,849,488 2,547,015
Deferred Credits and Other Liabilities
Deferred gains, net 409,091 434,586
Postretirement benefits other than pensions, non-current 958,706 907,093
Non-current benefit liabilities and other 414,000 300,497
--------- ---------
Total deferred credits and other liabilities 1,781,797 1,642,176
Commitments and Contingencies
Stockholder's Equity (Deficit) Common stock,
par value $1 per share, authorized
1,000 shares, issued and outstanding 1,000 shares 1 1
Paid-in capital 2,416,131 2,416,131
Retained earnings (deficit) (2,682,300) (1,966,117)
Adjustment for minimum pension liability (7,017) (41,964)
--------- ---------
Total stockholder's equity (deficit) (273,185) 408,051
--------- ---------
$6,675,960 $6,809,468
========= =========
See accompanying Notes to consolidated financial statements.
118
<PAGE>
USAir, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, (in thousands)
===================================================================================================
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents beginning of year $ 367,835 $ 295,432 $ 312,460
Cash flows from operating activities
Net income (loss) (716,183) (418,797) (1,228,498)
Adjustments to reconcile net loss to cash provided
by (used for) operating activities
Depreciation and amortization 386,262 325,214 317,349
Deferred income taxes - - (105,765)
Loss (gain) on disposition of property (16,671) 10,405 40,756
Other (33,453) (327) (23,969)
Changes in certain assets and liabilities
Decrease (increase) in receivables 127,902 (59,916) 25,596
Decrease (increase) in materials, supplies,
prepaid expenses and intangible pension assets 70,750 32,069 (108,526)
Increase (decrease) in traffic balances payable
and unused tickets (68,452) 37,178 109,072
Increase (decrease) in accounts payable and
accrued expenses 326,795 80,778 245,758
Increase (decrease) in postretirement benefits
other than pensions, non-current 51,613 65,833 841,260
-------- -------- ----------
Net cash provided by (used for) operating activities 128,563 72,437 113,033
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (46,022) (125,981) (34,852)
Additions to other property (128,874) (150,793) (248,935)
Proceeds from disposition of property 55,540 176,019 298,386
Change in short-term investments (21,994) - -
Change in restricted cash and investments 2,578 (14,221) (95,331)
Other 1,110 (4,378) (11,411)
--------- --------- ----------
Net cash provided by (used for) investing
activities (137,662) (119,354) (92,143)
Cash flows from financing activities
Issuance of debt 172,156 329,556 64,620
Reduction of debt (101,967) (210,236) (102,538)
-------- -------- ----------
Net cash provided by (used for) financing
activities 70,189 119,320 (37,918)
-------- -------- ----------
Net increase (decrease) in cash and cash equivalents 61,090 72,403 (17,028)
-------- -------- ----------
Cash and cash equivalents end of year $ 428,925 $ 367,835 $ 295,432
======== ======== ==========
Noncash investing and financing activities
Issuance of debt for aircraft acquisitions $ 224,614 $ 343,188 $ 219,611
Issuance of parent company debt for aircraft acquisitions $ - $ 76,094 $ 213,038
Issuance of debt for other property acquisitions $ - $ 669 $ -
Issuance of parent company debt for other property
acquisitions $ - $ - $ 18,620
Reduction of debt-aircraft related $ - $ 47,685 $ -
Reduction of parent company debt applied to inter-
company receivable $ - $ 79,539 $ 161,070
Aircraft acquisitions-transfer from affiliated company $ 3,569 $ 70,700 $ -
Other property acquisitions-transfer from affiliated
company $ 7,925 $ - $ -
Proceeds from disposition of property applied to inter-
company receivable $ - $ - $ 87,730
Aircraft dispositions - transfer to affiliated company $ 81,913 $ - $ -
Supplemental Information
Cash paid during the year for interest, net of amounts
capitalized $ 267,959 $ 221,811 $ 180,066
======== ======== ==========
Cash received during the year for income tax refunds,
net of taxes paid $ - $ - $ 28,170
======== ======== ==========
See accompanying Notes to consolidated financial statements.
119
<PAGE>
USAir, Inc.
Consolidated Statements of Changes in Stockholder's Equity (Deficit)
Three Years Ended December 31, 1994 (in thousands)
====================================================================================================
<CAPTION>
Adjustment
For
Retained Minimum
Common Paid-In Earnings Pension
Stock Capital (Deficit) Liability Total
------ -------- --------- ---------- -----
<S> <C> <C> <C> <C> <C>
Balance December 31, 1991 $ 1 $2,416,131 $ (318,822) $ - $ 2,097,310
Net income (loss) - - (1,228,498) - (1,228,498)
Equity reduction for minimum
pension liability - - - (6,820) (6,820)
--- --------- ---------- ------- ----------
Balance December 31, 1992 1 2,416,131 (1,547,320) (6,820) 861,992
Net income (loss) - - (418,797) - (418,797)
Equity reduction for minimum
pension liability - - - (35,144) (35,144)
--- --------- ---------- ------- ----------
Balance December 31, 1993 1 2,416,131 (1,966,117) (41,964) 408,051
Net income (loss) - - (716,183) - (716,183)
Equity reduction for minimum
pension liability - - - 34,947 34,947
--- --------- ---------- ------- ----------
Balance December 31, 1994 $ 1 $2,416,131 $(2,682,300) $ (7,017) $ (273,185)
=== ========= ========== ======= ==========
See accompanying Notes to consolidated financial statements.
120
</TABLE>
<PAGE>
USAir, Inc.
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
(a) Basis of Presentation
The accompanying consolidated financial statements include the
accounts of USAir, Inc. ("USAir") and its wholly-owned subsidiary
USAM Corp. ("USAM"). USAir is a wholly-owned subsidiary of USAir
Group, Inc. ("USAir Group" or "the Company"). All significant
intercompany accounts and transactions have been eliminated.
At December 31, 1992, USAM owned 11% of the Covia Partnership
("Covia") which owned and operated a computerized reservation
system ("CRS"). In September 1993, Covia purchased the assets of
the corporation that owned and operated the Galileo CRS which
provided services to travel agent subscribers in Europe. Covia was
immediately separated into three new entities and, as a result,
USAM owns 11% of the Galileo International Partnership which owns
and operates the Galileo CRS, approximately 11% of the Galileo
Japan Partnership which markets the Galileo CRS in Japan and
approximately 21% of the Apollo Travel Services Partnership which
markets the Galileo CRS in the U.S. and Mexico. USAM accounts for
these investments using the equity method because it is represented
on the board of directors of each of the partnership and therefore
participates in policy making processes.
Certain 1993 and 1992 amounts have been reclassified to
conform with 1994 classifications.
(b) Cash and Cash Equivalents and Short-Term Investments
For financial statement purposes, USAir considers all highly
liquid investments purchased with a maturity of three months or
less to be cash equivalents. Cash and cash equivalents are stated
at cost, which approximates market value. Short-term investments
consist of certificates of deposit and commercial paper with
original maturities greater than three months but less than one
year. Short-term investments are stated at cost plus accrued
interest, which approximates market value.
(c) Materials and Supplies
Inventories of materials and supplies are valued at average
cost and are charged to operations as consumed. An allowance for
obsolescence is provided for flight equipment expendable parts.
(d) Property and Equipment
Property and equipment is stated at cost or, if acquired under
capital leases, at the lower of the present value of minimum lease
payments or fair market value at the inception of the lease.
121
<PAGE>
Maintenance and repairs, including the overhaul of aircraft
components, are charged to operating expense as incurred and costs
of major improvements are capitalized for both owned and leased
assets. Interest related to deposits on aircraft purchase
contracts and facility and equipment construction projects is
capitalized as additional cost of the asset or as leasehold
improvement if the asset is leased. Depreciation and amortization
for principal asset classifications is provided on a straight-line
basis to estimated residual values over estimated depreciable lives
as follows:
<TABLE>
<CAPTION>
Depreciable
Assets Lives Residual Values
------ ----------- ---------------
(years) (in millions)
<S> <C> <C>
Aircraft
Boeing 767-200ER 20 $14.0
Boeing 757-200 20 8.0
Boeing 737-300/400 20 7.5
Boeing 737-200 5-17 0.6-5.0
McDonnell Douglas MD-80 20 7.5
Douglas DC-9-30 17 3.0
Fokker 100 20 5.0
Fokker F28 6-8 1.0-2.0
Turboprop aircraft 15 1.5
Improvements to leased aircraft life of lease -
Ground property, equipment and 1-10 or
leasehold improvements life of lease -
Buildings 30 -
</TABLE>
Property acquired under capital lease is amortized on a
straight-line basis over the term of the lease and charged to
Depreciation and Amortization Expense.
(e) Goodwill, Other Intangibles and Other Assets
Goodwill, the cost in excess of fair value of identified net
assets acquired, is being amortized on a straight-line basis over
40 years. The $629 million goodwill resulting from the acquisition
of Pacific Southwest Airlines ("PSA") and Piedmont Aviation, Inc.
("Piedmont Aviation"), both in 1987, is being amortized as
Depreciation and Amortization Expense. Accumulated amortization at
December 31, 1994 and 1993 related to the PSA and Piedmont
acquisitions was $113 million and $97 million, respectively. The
$11 million goodwill resulting from USAM's CRS investments is being
amortized as other non-operating expense, consistent with the
classification of income or loss on the investments. USAM's
associated accumulated amortization at December 31, 1994 and 1993
was $2 million and $1 million, respectively. USAir evaluates
whether or not goodwill is impaired by comparing the goodwill
balances with estimated future undiscounted cash flows which, in
USAir's judgment, are attributable to the goodwill. This analysis
is performed separately for the goodwill which resulted from each
acquisition.
122
<PAGE>
Intangible assets consist mainly of purchased operating rights
at various airports, purchased route authorities, capitalized
software costs and the intangible assets associated with the
underfunded amounts of certain pension plans. The operating
rights, valued at purchase cost or appraised value if acquired from
PSA or Piedmont Aviation, are being amortized over periods ranging
from ten to 25 years as Depreciation and Amortization Expense. The
purchased route authorities are being amortized over periods of 25
years as Depreciation and Amortization Expense. Capitalized
software costs are being amortized as Depreciation and Amortization
Expense over five years, the expected period of benefit. Accumu-
lated amortization related to intangible assets at December 31,
1994 and 1993 was $80 million and $72 million, respectively.
Based on the most recent analyses, USAir believes that
goodwill and other intangible assets were not impaired at Decem-
ber 31, 1994.
The increase in Other Assets, net in 1994 is primarily
attributable to changes in non-current pension assets. USAir's
Other Assets balance includes a $47 million receivable from British
Airways Plc related to the relinquishment of two U.S. to London
routes.
(f) Restricted Cash and Investments
Restricted cash and investments consist primarily of deposits
in trust accounts to collateralize letters of credit or workers
compensation policies. These amounts are classified as Other
Assets on the accompanying balance sheets.
(g) Deferred Gains on Sale and Leaseback Transactions
Gains on aircraft sale and leaseback transactions are deferred
and amortized over the term of the leases as a reduction of rental
expense.
(h) Passenger Revenue Recognition
Passenger ticket sales are recognized as revenue when the
transportation service is rendered. At the time of sale, a
liability is established (Traffic Balances Payable and Unused
Tickets) and subsequently eliminated either through carriage of the
passenger, through billing from another carrier which renders the
service or by refund to the passenger. Approximately $23 million
and $29 million of amounts owed to wholly-owned subsidiaries of
USAir Group for passenger transportation revenue are included in
Traffic Balances Payable and Unused Tickets at December 31, 1994
and 1993, respectively.
(i) Frequent Traveler Awards
USAir accrues the estimated incremental cost of providing
outstanding travel awards earned by participants in its Frequent
Traveler Program when such award levels are reached.
123
<PAGE>
(j) Investment Tax Credit
Investment tax credit benefits have been recorded using the
"flow-through" method as a reduction of the Federal income tax
provision.
(k) Advertising Costs
Advertising costs are expensed when incurred as other
operating expense. Advertising expense for 1994, 1993 and 1992 was
$63 million, $59 million and $83 million, respectively.
(2) Financial Instruments
(a) Terms of Certain Financial Instruments
USAir has entered into hedging arrangements to reduce its
exposure to fluctuations in the price of jet fuel. Net settlements
are recorded as adjustments to aviation fuel expense. The total
notional number of gallons under these agreements was 86 million
and 194 million at December 31, 1994 and 1993, respectively. Under
these arrangements, USAir will pay $0.496 to $0.521 per notional
gallon in 1995 and receive a floating rate per notional gallon
based on current market prices. In 1994 USAir paid $0.481 to
$0.594 per notional gallon and received a floating rate per
notional gallon based on current market prices. Decreases in the
market price of fuel to levels below the fixed prices require cash
payments by USAir and cause an increase in USAir's aviation fuel
expense. The hedging arrangements represent approximately 7% and
16% of USAir's expected 1995 and actual 1994 fuel consumption,
respectively. USAir is party to such hedging arrangements with
several entities. Although the agreements, which expire in 1995,
expose USAir to credit loss in the event of nonperformance by the
other parties to the agreements, USAir does not anticipate such
nonperformance because of the favorable creditworthiness status of
the other parties. USAir may continue to enter into such arrange-
ments, depending on market conditions.
An aggregate of $32 million of future principal payments of
the Equipment Financing Agreements due 1998 through 2000 are
payable in Japanese Yen. This foreign currency exposure has been
hedged to maturity by participation in foreign currency contracts.
Although USAir is exposed to credit loss in the event of non-
performance by the counterparty to the contracts, USAir does not
anticipate such non-performance because of the favorable credit-
worthiness status of the other party.
(b) Fair Value of Financial Instruments
Unless a quoted market price indicates otherwise, the fair
values of cash and investments generally approximate carrying
values because of the short maturity of these instruments. USAir
has estimated the fair value of long-term debt based on quoted
market prices for the same or similar issues or on the current
rates offered to the Company for debt of similar remaining
124
<PAGE>
maturities. The fair values of energy swap agreements and foreign
currency contracts are obtained from dealer quotes whereby these
values represent the estimated amount USAir would receive or pay to
terminate such agreements.
The estimated fair values of USAir's financial instruments,
none of which are held for trading purposes, are summarized as
follows (brackets denote liability):
<TABLE>
<CAPTION>
December 31,
-------------------------------------------
1994 1993
-------------------- --------------------
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Cash and cash
equivalents $ 428,925 $ 428,925 $ 367,835 $ 367,835
Short-term 22,133 22,078 - -
investments
Restricted cash
and investments* 170,686 170,581 173,357 173,305
Long-term debt (ex-
cludes capital
lease obliga-
tions) (2,847,878)(2,435,786)(2,528,348)(2,569,031)
Energy swap agree-
ments:
In a net receivable
(payable) position - 259 - (10,352)
Foreign currency
contracts:
In a net receivable
(payable) position - 5,352 - (1,874)
</TABLE>
* Amounts are included in Other Assets on USAir's consolidated
balance sheets.
(this space intentionally left blank)
125
<PAGE>
(3) Long-Term Debt
Details of long-term debt are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1994 1993
---- ----
(in thousands)
<S> <C> <C>
Senior Debt:
12 7/8% Senior Debentures due 2000 $ 77,000 $ 77,000
10% Senior Notes due 2003 300,000 300,000
9 5/8% Senior Notes due 2001 175,000 -
12.15% to 15.23% U.S. Government
Guaranteed Obligations due 1995 3,090 6,180
13 1/8% Equipment Trust Certificates - 972
4.2% to 12% Equipment Financing Agree-
ments, Installments due 1995 to 2016 2,090,064 1,887,822
6.3% to 12% Intercompany Aircraft
Loans with USAir Group - 105,080
8.6% Airport Facility Revenue Bond
due 2022 27,620 27,620
4.0% to 7.1% Aircraft Purchase
Deposit Financing, Installments due
1995 to 1999 172,301 120,311
Other 2,803 3,363
--------- ---------
2,847,878 2,528,348
Capital Lease Obligations 82,324 104,382
--------- ---------
Total 2,930,202 2,632,730
Less Current Maturities 80,714 85,715
--------- ---------
$2,849,488 $2,547,015
========= =========
</TABLE>
Maturities of long-term debt and debt under capital leases for
the next five years are as follows:
(in thousands)
1995 $ 80,714
1996 80,536
1997 91,630
1998 160,616
1999 84,105
Thereafter 2,432,601
Interest rates on $480 million principal amount of long-term
debt at December 31, 1994 are subject to adjustment to reflect
prime rate and other rate changes.
Equipment financings totaling $2.2 billion were collateralized
by aircraft and engines with a net book value of $2.2 billion at
December 31, 1994.
126
<PAGE>
(4) Commitments and Contingencies
(a) Operating Environment
The U.S. airline industry has undergone dramatic and permanent
changes in the last several years, generally resulting in lower
operating costs and fares. The current competitive environment is
the result of several factors including the emergence and expansion
of low cost, low fare carriers, the protection and cost restructur-
ing opportunities afforded to certain carriers while operating
under Chapter 11 of the bankruptcy code, and other cost restructur-
ing initiatives among major airlines, including employee conces-
sions in exchange for equity ownership. USAir has incurred annual
operating losses for every year since 1990 and has a net capital
deficiency at December 31, 1994. USAir is currently in negotia-
tions with employee labor groups in an effort to obtain employee
concessions that will substantially reduce operating costs. On
March 29, 1995, USAir and the negotiating committee of the Air Line
Pilots Association ("ALPA") Master Executive Council, which
represents USAir's pilots, signed an agreement in principle on wage
and other concessions in exchange for financial returns and
governance participation for USAir pilots. The agreement in
principle is subject to many significant conditions, including
approval of the boards of directors of the Company and USAir and of
the shareholders of the Company and the execution of definitive
documentation. USAir continues to negotiate with representatives
of its other unions but it is uncertain whether any final agree-
ments will be reached. No assurance can be given whether or when
any transactions with any of the unions will be consummated or what
the terms of any such transactions might be. In addition, USAir is
evaluating other strategic decisions that could be implemented to
improve the operating results of the airline. USAir believes that
it must reduce its operating costs substantially if it is to
survive in this low cost, low fare competitive environment.
(b) Lease Commitments
USAir leases certain aircraft, engines, computer and ground
equipment, in addition to the majority of its ground facilities.
Ground facilities include executive offices, overhaul and mainte-
nance bases and ticket and administrative offices. Public airports
are utilized for flight operations under lease arrangements with
the municipalities or agencies owning or controlling such airports.
Substantially all leases provide that the lessee shall pay taxes,
maintenance, insurance and certain other operating expenses
applicable to the leased property. Most leases also include
renewal options and some aircraft leases include purchase options.
127
<PAGE>
The following amounts applicable to capital leases are
included in property and equipment:
<TABLE>
<CAPTION>
December 31,
---------------------
1994 1993
---- ----
(in thousands)
<S> <C> <C>
Flight equipment $216,600 $264,462
Ground property and equipment 10,961 10,961
------- -------
227,561 275,423
Less accumulated amortization 151,217 183,091
------- -------
$ 76,344 $ 92,332
======= =======
</TABLE>
At December 31, 1994, obligations under capital and noncancel-
able operating leases for future minimum lease payments were as
follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ---------
(in thousands)
<S> <C> <C>
1995 $ 25,961 $ 748,509
1996 22,492 726,824
1997 21,697 738,509
1998 10,687 700,959
1999 10,687 661,788
Thereafter 27,675 7,352,048
------- ----------
Total minimum lease payments 119,199 $10,928,637
==========
Less amount representing interest 36,875
-------
Present value of net minimum lease
payments $ 82,324
=======
</TABLE>
The above table excludes $107 million future sublease rental
revenues related to equipment under operating leases. Rental
expense under operating leases for 1994, 1993 and 1992 was $703
million, $739 million and $678 million, respectively. The $703
million rental expense for 1994 excludes charges of $103 million
related to USAir's grounded BAe-146 fleet and $13 million primarily
related to USAir's decision to cease operations of its remaining
Boeing 727 aircraft in 1995. The $678 million rental expense for
1992 excludes a charge of $72 million related to USAir's grounded
BAe-146 fleet.
128
<PAGE>
(c) Legal Proceedings
USAir has been named as defendant in various suits and
proceedings which involve, among other things, environmental
concerns and employment matters. These suits and proceedings are
in various stages of litigation, and the status of the law with
respect to several of the issues involved is unsettled. For these
reasons the outcome of these suits and proceedings is difficult to
predict. In USAir's opinion, however, the disposition of these
matters is not likely to have a material adverse effect on its
financial condition or results of operations.
USAir is involved in legal proceedings arising out of its two
aircraft accidents that occurred in July and September 1994 near
Charlotte, North Carolina and Pittsburgh, Pennsylvania, respective-
ly. The National Transportation Safety Board (the "NTSB") held
hearings beginning in September 1994 relating to the July accident
and January 1995 relating to the September accident. In April
1995, the NTSB issued its finding of probable causes with respect
to the accident near Charlotte. It assigned as probable causes
flight crew errors and the failure of air traffic control to convey
weather and windshear hazard information. The NTSB has not yet
issued its final accident investigation report for the accident
near Pittsburgh. USAir expects that it will be at least two to
three years before the accident litigation and related settlements
will be concluded. USAir believes that it is fully insured with
respect to this litigation and has recovered its hull claims
related to the loss of the two aircraft. Therefore, USAir
believes that the litigation will not have a material adverse
effect on USAir's results of operations or financial condition.
However, due to these two aircraft accidents, it is probable that
USAir's insurance costs will increase upon renewals of various
policies in 1995.
USAir and certain of the Company's other subsidiaries have
received notices from the U.S. Environmental Protection Agency and
various state agencies that it is a potentially responsible party
with respect to the remediation of existing sites of environmental
concern. Only two of these sites have been included on the
Superfund National Priorities List. USAir and the other subsidiar-
ies continue to negotiate with various governmental agencies
concerning known and possible cleanup sites. These companies have
made financial contributions for the performance of remedial
investigations and feasibility studies at sites in Moira, New York;
Escondido, California; Newberry Township, Pennsylvania; Elkton,
Maryland; and Salisbury, Maryland.
Because of changing environmental laws and regulations, the
large number of other potentially responsible parties and certain
pending legal proceedings, it is not possible to reasonably
estimate the amount or timing of future expenditures related to
environmental matters. USAir provides for costs related to
environmental contingencies when a loss is probable and the amount
is reasonably estimable. Although management believes adequate
reserves have been provided for all known contingencies, it is
129
<PAGE>
possible that additional reserves could be required in the future
which could have a material effect on results of operations.
However, USAir believes that the ultimate resolution of known
environmental contingencies should not have a material adverse
effect on USAir's financial position based on USAir's experience
with similar environmental sites.
In March 1993, the U.S. District Court in Atlanta, Georgia
entered a settlement involving USAir and five other U.S. air
carrier defendants in the Domestic Air Transportation Antitrust
Litigation class action lawsuit, which alleged that the airlines
used the Airline Tariff Publishing Company to signal and communi-
cate carrier pricing intentions and otherwise limit price competi-
tion for travel to and from numerous hub airports. Under the terms
of the settlement, the six air carriers have issued $396.5 million
in certificates valid for purchase of domestic air travel on any of
the six airlines. It is possible that this settlement could have
a dilutive effect on USAir's passenger transportation revenue and
associated cash flow. However, due to the interchangeability of
the certificates among the six carriers involved in the settlement,
the possibility that carriers not party to the settlement will
honor the certificates and the potential stimulative effect on
travel created by the certificates, USAir cannot reasonably
estimate the impact of this settlement on future passenger revenue
and cash flows. USAir estimates that any incremental cost
associated with the settlement will not be material based on the
nominal equivalent free trips associated with the settlement. The
travel certificates were mailed to claimants in December 1994 and
may be applied towards travel purchased between January 1995 and
December 1998.
On October 11, 1994, USAir and seven other carriers entered
into a settlement agreement with a group of State Attorneys General
resolving similar issues with the states. The settlement entitles
passengers traveling within the United States on state government
business to a 10% discount off the published fares of each of the
settling carriers and will be available for 18 months or until the
combined discount amount reaches $40 million. Following a notice
and public comment period, the reviewing judge will conduct a
hearing to determine whether this settlement is a fair one. The
hearing is scheduled for May 10, 1995. USAir does not expect that
this settlement will have a material adverse effect on its
financial condition. As was the case with the settlement of the
private antitrust litigation, it is difficult to predict the amount
of discounted state travel that will occur on USAir. Thus, a
dollar impact of the settlement cannot be estimated.
In February and March 1995, several class action lawsuits were
filed in various Federal district courts by travel agencies and a
travel agency trade association alleging that most of the major
U.S. airlines, including USAir, violated the antitrust laws when
they individually capped travel agent commissions at $50 for round-
trip domestic tickets with base fares above $500 and at $25 for
one-way domestic tickets with base fares above $250. USAir intends
to vigorously defend itself against the allegations made in these
130
<PAGE>
lawsuits. The plaintiffs are seeking unspecified treble damages
for restraint of trade and an injunction to prevent the airlines
from implementing or maintaining the cap on commissions. Because
the lawsuits are in the first stages of litigation, USAir is unable
to predict at this time their ultimate resolution or potential
impact on the Company's financial condition and results of
operations.
In March 1995, a number of U.S. carriers, including USAir,
received a Civil Investigative Demand ("CID") from the Department
of Justice related to an investigation of incentives paid to travel
agents over and above the base commission payments, which are the
subject matter of the suits recently brought by travel agencies as
discussed above. USAir responded to an earlier CID on this topic
during 1994. USAir is required to produce documents and respond to
interrogatories in connection with this CID. USAir intends to
comply with the requirements of the CID. Because this matter is in
the investigatory stage, USAir is unable to predict at this time
its ultimate resolution or potential impact on the Company's
financial condition and results of operations.
In February 1995, two members of USAir's frequent traveler
program filed a class action lawsuit in Pennsylvania state court
against USAir after it raised the required minimum level of miles
necessary to earn a free ticket. The plaintiffs allege breach of
contract and seek unspecified damages and specific performance of
the contract allegedly breached. USAir denies the allegations.
The ultimate resolution of this lawsuit and its potential impact on
the Company's financial condition and results of operations cannot
be predicted at this time.
(d) Aircraft Commitments
USAir and The Boeing Company ("Boeing") reached an agreement
in principle in early 1995 regarding the deferral of eight 757-200
aircraft from 1996 to 1998.
The following schedule of USAir's new aircraft deliveries and
schedule payments at December 31, 1994 (including progress
payments, payments at delivery, buyer furnished equipment, spares
and capitalized interest) reflects USAir's agreement in principle
with Boeing discussed above:
<TABLE>
<CAPTION>
Delivery Period - Firm Orders
--------------------------------------------
There-
1995 1996 1997 1998 1999 after Total
---- ---- ---- ---- ---- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Boeing
757-200 7 - - 8 - - 15
737 Series - - - - - 40 40
--- --- --- --- --- ----- -----
Total 7 - - 8 - 40 55
=== === === === === ===== =====
Payments
(millions) $214 $ - $ 70 $265 $ - $1,855 $2,404
=== === === === === ===== =====
</TABLE>
131
<PAGE>
In addition, USAir has a commitment to purchase hushkits for
certain of its McDonnell Douglas DC-9-30 aircraft and a substantial
portion of its Boeing 737-200 aircraft. The installation of these
hushkits will bring the aircraft into compliance with Federal
Aviation Administration ("FAA") Stage 3 noise level requirements.
The projected payments associated with the purchase of the hushkits
are: $10.5 million - 1995; $44.3 million - 1996; $45.5 million -
1997; $45.2 million - 1998; and $25.0 million - 1999.
(e) Concentration of Credit Risk
USAir does not believe it is subject to any significant
concentration of credit risk. At December 31, 1994, most of
USAir's receivables related to tickets sold to individual passen-
gers through the use of major credit cards (45%) or to tickets sold
by other airlines (17%) and used by passengers on USAir or USAir
Group's regional airline subsidiaries. These receivables are
short-term, generally being settled shortly after sale. Bad debt
losses, which have been minimal in the past, have been considered
in establishing allowances for doubtful accounts.
(f) Guarantees
At December 31, 1994, USAir guaranteed payments of certain
debt obligations of the Galileo International Partnership amounting
to approximately $9 million. In addition, at December 31, 1994,
USAir guaranteed payments of debt and lease obligations of Piedmont
Airlines, Inc. and Jetstream International Airlines, Inc., wholly-
owned subsidiaries of USAir Group, amounting to $123 million.
(5) Sale of Receivables
The revolving receivables sales facility ("Receivables
Agreement"), to which USAir had been a party, expired on Decem-
ber 21, 1994. USAir was unable to sell receivables under the
Receivables Agreement during 1994 because it was in violation of
certain financial covenants. USAir had no outstanding amounts due
under the Receivables Agreement at December 31, 1994. The average
dollar amount of outstanding receivable sales during 1993 and 1992
was $255 million and $100 million, respectively. USAir is
currently engaged in discussions to arrange a replacement facility.
There can be no assurance that USAir will be successful in reaching
a new agreement to sell its receivables.
(6) Income Taxes
Effective January 1, 1993, USAir adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" ("FAS 109"). FAS 109 required a change from the deferred
method under Accounting Principles Board Opinion No. 11 to the
asset and liability method of accounting for income taxes. No
cumulative adjustment at January 1, 1993, and no income tax credit
for the years ended December 31, 1994 and 1993, were recognized due
to the FAS 109 limitation in recognizing benefits for net operating
132
<PAGE>
losses. USAir files a consolidated Federal income tax return with
its parent USAir Group pursuant to a tax allocation agreement.
The components of the provision (credit) for income taxes are
as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Current provision (credit):
Federal $ - $ - $ -
State - - -
------ ------ ------
Total current credit 0 0 0
------ ------ ------
Deferred provision (credit):
Federal - - -
State - - -
------ ------ ------
Total deferred credit 0 0 0
------ ------ ------
Provision (credit) for
income taxes $ 0 $ 0 $ 0
====== ====== ======
</TABLE>
The significant components of deferred income tax expense/
(benefit) for the years ended December 31, 1994 and 1993, are as
follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
(in thousands)
<S> <C> <C>
Deferred tax benefit (exclusive of the
other components listed below) $(234,269) $(121,847)
Adjustments to deferred tax assets and
liabilities for enacted changes in
tax laws and rates - (9,429)
Increase for the year in the valuation
allowance for deferred tax assets 234,269 131,276
-------- --------
Total $ 0 $ 0
======== ========
</TABLE>
(this space intentionally left blank)
133
<PAGE>
For the year ended December 31, 1992, deferred income taxes
result from differences in the recognition of revenue and expenses
and investment tax credits for tax and financial reporting
purposes. The major items resulting in these differences and the
related tax effects are shown in the following chart:
1992
----
(in thousands)
Equipment depreciation and amortization $ 67,582
Gain on sale and leaseback transactions (55,514)
Net operating loss carryforward 55,671
Employee benefits (35,737)
Tax benefits purchased/sold 7,464
Investment tax credits (2,372)
Leasing transactions (33,527)
Frequent traveler program (2,815)
Other (752)
-------
Total deferred provision (credit) $ 0
=======
A reconciliation of taxes computed at the statutory Federal
tax rate on earnings before income taxes to the provision (credit)
for income taxes is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Tax provision (credit)
computed at statutory
rate $(250,664) $(146,579) $(200,490)
Book expenses not deduct-
ible for tax purposes 15,691 9,348 21,256
Limitation in recognizing
tax benefit of net
operating loss 234,973 146,660 179,234
Adjustments to deferred
tax assets and liabilities
for enacted changes in tax
laws and rates - (9,429) -
-------- -------- --------
Provision (credit) for
income taxes $ 0 $ 0 $ 0
======== ======== ========
Effective tax rate 0% 0% 0%
======== ======== ========
</TABLE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1994 and 1993 are presented below:
(continued on next page)
134
<PAGE>
<TABLE>
<CAPTION>
1994 1993
---- ----
(in thousands)
<S> <C> <C>
Deferred tax assets:
Leasing transactions $ 164,513 $ 129,276
Tax benefits purchased/sold 76,784 79,434
Gain on sale and leaseback
transactions 154,246 162,400
Employee benefits 484,347 429,312
Net operating loss carryforwards 675,254 508,240
Alternative minimum tax credit
carryforwards 20,881 20,881
Investment tax credit carryforwards 47,880 47,880
Other deferred tax assets 81,984 61,210
--------- ---------
Total gross deferred tax assets 1,705,889 1,438,633
Less valuation allowance (803,085) (568,816)
--------- ---------
Net deferred tax assets 902,804 869,817
Deferred tax liabilities:
Equipment depreciation and
amortization (866,356) (840,584)
Other deferred tax liabilities (36,448) (29,233)
--------- ---------
Net deferred tax liabilities (902,804) (869,817)
--------- ---------
Net deferred taxes $ 0 $ 0
========= =========
</TABLE>
The valuation allowance for deferred tax assets as of
January 1, 1993, was $438 million. The valuation allowance
increased $131 million in 1993 and $234 million in 1994.
At December 31, 1994, USAir had unused net operating losses of
$1.8 billion for Federal tax purposes, which expire in the years
2005-2009. USAir also has available, to reduce future taxes
payable, $740 million alternative minimum tax net operating losses
expiring in 2007 to 2009, $48 million of investment tax credits
expiring in 2002 and 2003, and $21 million of minimum tax credits
which do not expire. The Federal income tax returns of the Company
through 1986 have been examined and settled with the Internal
Revenue Service.
(7) Stockholder's Equity and Dividend Restrictions
USAir Group owns all of the outstanding Common Stock of USAir.
USAir, organized under the Laws of the State of Delaware, is
subject to statutory restrictions on the payment of dividends
according to capital surplus requirements of Delaware law. At
December 31, 1994, USAir's capital surplus was exhausted and
therefore, under Delaware law, USAir is legally restricted from
paying dividends to USAir Group. Surplus is the remainder of (i)
net assets (total assets less total liabilities), less (ii) total
capital (that amount of preferred and common equity designated as
135
<PAGE>
capital by a company's board of directors). At December 31, 1994,
USAir's capital deficit was approximately $273.2 million. USAir's
net assets were in a deficit balance of approximately $273.2
million, and its total capital was a nominal amount. In order for
USAir to return to a capital surplus position, it must realize
substantial profits or increase its equity through other measures,
such as the sale of additional common or preferred stock.
Covenants related to USAir 10% and 9 5/8% Senior Unsecured
Notes currently do not permit the payment of dividends by USAir to
USAir Group.
(8) Employee Stock Ownership Plan
In August 1989, USAir established an Employee Stock Ownership
Plan ("ESOP"). USAir Group sold 2,200,000 shares of its Common
Stock to an Employee Stock Ownership Trust to hold on behalf of
USAir's employees, exclusive of officers, in accordance with the
terms of the Trust and the ESOP. Financing of approximately $111.4
million for the Trust's purchase of the shares was provided by
USAir through a 9 3/4% loan to the Trust, and an additional $2.2
million was contributed to the Trust by USAir. The loan is being
repaid with contributions made by USAir. The contributions are
made in amounts equal to the periodic loan payments as they come
due, less dividends available for loan payment. As the loan is
repaid over time, participating employees receive allocations of
the Common Stock purchased by the Trust. The initial maturity of
the loan is 30 years. However, the ESOP provides that if USAir's
profitability as measured by return on sales exceeds certain goals
during the life of the ESOP, USAir's contributions and the
repayment of the loan will be accelerated. Annual contributions
made by USAir and therefore loan repayments made by the Trust were
$11.4 million in each of 1994, 1993 and 1992. The interest portion
of these contributions was $10.5 million in 1994, $10.5 million in
1993 and $10.6 million in 1992. Approximately 438,000 shares of
Common Stock have been allocated to employees. USAir recognized
approximately $4 million of compensation expense related to the
ESOP in each of 1994, 1993 and 1992 based on shares allocated to
employees (the "shares allocated" method). Deferred compensation
related to the ESOP amounted to approximately $91 million, $95
million and $98 million at December 31, 1994, 1993 and 1992,
respectively.
(9) Employee Benefit Plans
(a) Pension Plans
USAir has several pension plans in effect covering substan-
tially all employees. One qualified defined benefit plan covers
USAir maintenance employees and provides benefits of stated amounts
for specified periods of service. Qualified defined benefit plans
for substantially all other employees provide benefits based on
years of service and compensation. The qualified defined benefit
plans are funded, on a current basis, to meet requirements of the
Employee Retirement Income Security Act of 1974.
136
<PAGE>
The defined benefit pension plan for USAir non-contract
employees was frozen at the end of 1991 for all non-contract
participants, resulting in a one-time book gain of approximately
$107 million in 1991. All non-contract plan participants became
100% vested at the time of the freeze. As a result of this plan
curtailment, the accrual of service costs related to defined
benefits for USAir non-contract and certain other employees ceased
at the end of 1991. USAir implemented a defined contribution
pension plan for non-contract employees in January 1993.
The funded status of the qualified defined benefit plans at
December 31, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
1994 1993
Plans in Which Plans in Which
----------------- -----------------
Plan Accumu- Plan Accumu-
Assets lated Assets lated
Exceed Benefits Exceed Benefits
Accumu- Exceed Accumu- Exceed
lated Plan lated Plan
Benefits Assets Benefits Assets
-------- ------ -------- ------
(in millions)
<S> <C> <C> <C> <C>
Fair value of plan assets $1,690 $ 183 $1,897 $ 172
Actuarial present value of:
Vested benefit obligation 1,513 242 1,806 262
Nonvested benefit obliga-
tion 27 17 47 20
----- ----- ----- -----
Accumulated benefit
obligation based
on salaries to date 1,540 259 1,853 282
Additional benefits
based on estimated
future salary levels 470 - 637 -
----- ----- ----- -----
Projected benefit
obligation 2,010 259 2,490 282
----- ----- ----- -----
Projected benefit obligation
in excess of fair value of
plan assets (320) (76) (593) (110)
Unrecognized net transition
asset (29) (12) (33) (13)
Unrecognized prior service
cost (15) 69 15 72
Unrecognized net loss 358 15 624 51
----- ----- ----- -----
Pension (liability) prepaid
before adjustment (6) (4) 13 -
(continued on next page)
137
<PAGE>
Adjustment to recognize
minimum liability - (72) - (110)
----- ----- ----- -----
Pension (liability) prepaid
as adjusted and recognized
in consolidated balance
sheets $ (6) $ (76) $ 13 $ (110)
===== ===== ===== =====
</TABLE>
Unrecognized transition assets are being amortized over
periods up to 27 years. The weighted average discount rate used to
determine the actuarial present value of the projected benefit
obligation was 9.0% and 7.6% as of December 31, 1994 and 1993,
respectively. The expected long-term rate of return on plan assets
used in 1994 and 1993 was 9.5%. Rates of 3% to 6% were used to
estimate future salary levels. At December 31, 1994, plan assets
consisted of approximately 8% in cash equivalents and short-term
debt investments, 27% in equity investments, and 65% in fixed
income and other investments. At December 31, 1993, plan assets
consisted of approximately 8% in cash equivalents and short-term
debt investments, 37% in equity investments, and 55% in fixed
income and other investments.
The following items are the components of the net periodic
pension cost for the qualified defined benefit plans:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(in millions)
<S> <C> <C> <C>
Service cost (benefits
earned during the period) $ 124 $ 90 $ 79
Interest cost on projected
benefit obligation 216 188 171
Actual return on plan assets 48 (224) (114)
Net amortization and deferral (254) 40 (65)
---- ---- ----
Net periodic pension cost $ 134 $ 94 $ 71
==== ==== ====
</TABLE>
Net pension cost for 1993 presented above excludes a charge of
approximately $33.9 million related to "early-out" incentive
programs offered to a limited number of USAir employees during the
years. No such charges were incurred in 1994 or 1992.
Non-qualified supplemental pension plans are established for
certain employee groups, which provide incremental pension payments
from USAir's funds so that total pension payments equal amounts
that would have been payable from USAir's principal pension plans
if it were not for limitations imposed by income tax regulations.
138
<PAGE>
The following table sets forth the non-qualified plans' status
at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
(in millions)
<S> <C> <C>
Fair value of plan assets $ - $ -
Actuarial present value of:
Vested benefit obligation 30 26
Nonvested benefit obligation 2 2
--- ---
Accumulated benefits based on
salaries to date 32 28
Additional benefits based on
estimated future salary levels 1 2
---- ----
Projected benefit obligation 33 30
---- ----
Projected benefit obligation in
excess of fair value of plan assets (33) (30)
Unrecognized prior service cost 1 1
Unrecognized net loss 2 4
Pension (liability) prepaid ---- ----
before adjustment (30) (25)
Adjustment to recognize minimum
liability (5) (5)
---- ----
Unfunded accrued supplementary costs
as adjusted and recognized in
consolidated balance sheets $ (35) $ (30)
==== ====
</TABLE>
Net periodic supplementary pension cost for the non-qualified
supplemental pension plans included the following components:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(in millions)
<S> <C> <C> <C>
Service cost (benefits earned
during the period) $ - $ - $ -
Interest cost on projected benefit
obligation 2 2 2
Actual return on plan assets - - -
Net amortization and deferral 21 12 6
--- --- ---
Net periodic supplementary pension
cost $ 23 $ 14 $ 8
=== === ===
</TABLE>
The discount rate used to determine the actuarial present
value of the projected benefit obligation was 9.0% and 7.5% as of
December 31, 1994 and 1993, respectively. A rate of 3% was used to
estimate future salary levels.
139
<PAGE>
In addition to the qualified and non-qualified defined benefit
plans described above, USAir also contributes to certain defined
contribution plans primarily for employees not covered under a
collective bargaining agreement. USAir contributions are based on
a formula which considers the age and pre-tax earnings of each
employee and the amount of employee contributions. USAir's
contribution expense was $43 million and $42 million for 1994 and
1993, respectively. USAir recognized no such expense in 1992
because the plans became effective January 1, 1993.
(b) Postretirement Benefits Other Than Pensions
USAir offers medical and life insurance benefits to employees
hired prior to March 29, 1993 who retire from the Company and their
eligible dependents. The medical benefits provided by USAir are
coordinated with Medicare benefits. Retirees generally contribute
amounts towards the cost of their medical expenses based on years
of service with USAir. USAir provides uninsured death benefit
payments to survivors of retired employees for stated dollar
amounts, or in the case of retired pilot employees, death benefit
payments determined by age and level of pension benefit. The plans
for postretirement medical and death benefits are funded on the
pay-as-you-go basis.
USAir adopted Statement of Financial Accounting Standards No.
106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" ("FAS 106"), during 1992 and elected to record the
January 1, 1992 Accumulated Postretirement Benefit Obligation
("APBO") using the immediate recognition approach. The cumulative
effect of adopting FAS 106 was $745.5 million ($638.8 million net
of tax benefit).
The following table sets forth the financial status of the
plans as of December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
---- ----
(in millions)
<S> <C> <C>
Accumulated Postretirement Benefit
Obligation (APBO):
Retirees $ 245 $ 291
Fully eligible active plan participants 144 153
Other plan participants 306 356
---- ----
Total APBO 695 800
Unrecognized prior service credit 167 179
Unrecognized net gain (loss) 123 (54)
---- ----
Accrued postretirement benefit cost $ 985 $ 925
==== ====
</TABLE>
140
<PAGE>
The components of net periodic postretirement benefit cost are
as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
(in millions)
<S> <C> <C> <C>
Service cost (benefits attributed to
employee service during the period) $ 36 $ 31 $ 46
Interest cost on APBO 60 56 69
Net amortization and deferral (12) (12) -
--- --- ---
Net periodic postretirement benefit
cost $ 84 $ 75 $115
=== === ===
</TABLE>
The postretirement benefit expense for 1993 presented above
excludes a charge of approximately $15.5 million related to "early-
out" programs offered to a limited number of employees during the
year. No such charges were incurred in 1994 or 1992.
The discount rate used to determine the APBO was 9.0%, 7.75%
and 8.75% at December 31, 1994, 1993 and 1992, respectively. The
assumed health care cost trend rate used in measuring the APBO was
9.5% in 1994, declining by 1% per year after 1994 to an ultimate
rate of 4.5%. If the assumed health care cost trend rate were
increased by 1 percentage point, the APBO at December 31, 1994
would be increased by 11% and 1994 periodic postretirement benefit
cost would increase 13%.
(c) Postemployment Benefits
USAir adopted Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits" ("FAS
112"), during 1993. FAS 112 requires the use of an accrual method
to recognize postemployment benefits such as disability-related
benefits. The cumulative effect at January 1, 1993 of adopting FAS
112 was $43.7 million.
(10) Supplemental Balance Sheet Information
The components of certain accounts in the accompanying balance
sheets are as follows:
<TABLE>
<CAPTION>
1994 1993
---- ----
(in thousands)
<S> <C> <C>
(a) Cash and cash equivalents:
Cash $ 16,946 $ 16,126
Cash equivalents, at cost which
approximates market 411,979 351,709
-------- --------
$ 428,925 $ 367,835
======== ========
(continued on next page)
141
<PAGE>
(b) Receivables, net:
Accounts receivable $ 335,234 $ 377,998
Less allowance for doubtful
accounts 9,222 10,595
-------- --------
$ 326,012 $ 367,403
======== ========
(c) Materials and supplies, net:
Materials and supplies $ 408,308 $ 431,400
Less allowance for obsolescence 169,827 92,592
-------- --------
$ 238,481 $ 338,808
======== ========
(d) Accrued expenses:
Salaries and wages $ 258,426 $ 252,865
Rents 477,972 431,065
All other 518,700 466,132
--------- ---------
$1,255,098 $1,150,062
========= =========
</TABLE>
(11) Non-Recurring and Unusual Items
(a) 1994
USAir's results for 1994 include (i) a $132.8 million charge
related to its grounded BAe-146 fleet, recorded in the fourth
quarter of 1994; (ii) a $54.0 million charge for obsolete inventory
and rotables to reflect market value, recorded in the fourth
quarter of 1994; (iii) a $50 million addition to passenger
transportation revenue in the fourth quarter of 1994 to adjust
estimates made during the first three quarters of 1994; (iv) a
$40.1 million charge primarily related to USAir's decision to cease
operations of its remaining Boeing 727 aircraft in 1995, recorded
in the third quarter of 1994; (v) a $25.9 million charge related to
USAir's decision to substantially reduce service between Los
Angeles and San Francisco and close its San Francisco crew base,
recorded in the third quarter of 1994; and (vi) an $18.6 million
gain resulting from the accounting treatment of the hull insurance
recovery on the aircraft destroyed in the September accident,
recorded in the third quarter of 1994.
(b) 1993
USAir's results for 1993 include non-recurring charges of (i)
$43.7 million for the cumulative effect of an accounting change, as
required by FAS 112 which was adopted during the third quarter of
1993, retroactive to January 1, 1993; (ii) $68.8 million for
severance, early retirement and other personnel-related expenses
recorded primarily during the third quarter of 1993 in connection
with a workforce reduction of approximately 2,500 full-time
positions between November 1993 and the first quarter of 1994;
(iii) $36.8 million based on a projection of the repayment of
certain employee pay reductions, recorded in the fourth quarter of
1993; (iv) $13.5 million for certain airport facilities at
locations where USAir has, among other things, discontinued or
142
<PAGE>
reduced its service, recorded in the fourth quarter of 1993; (v)
$8.8 million for a loss on USAir's investment in the Galileo
International Partnership, which operates a computerized reserva-
tion system, recorded in the fourth quarter of 1993; and (vi) $18.4
million credit related to non-operating aircraft, recorded in the
second quarter of 1993.
(c) 1992
USAir's results for 1992 include (i) a charge of $628.1
million for the cumulative effect of an accounting change as
required by FAS 106, effective January 1, 1992; (ii) a $107.4
million charge related to certain aircraft which have been
withdrawn from service, recorded in the fourth quarter of 1992; and
(iii) a $34.1 million non-operating loss related to the sale of ten
MD-82 aircraft which USAir eliminated from its fleet plan, recorded
in the fourth quarter of 1992.
(12) Selected Quarterly Financial Data (Unaudited)
The following table presents selected quarterly financial data
for 1994 and 1993:
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in millions)
<S> <C> <C> <C> <C>
1994
Operating revenues $1,589 $1,763 $1,642 $1,584
Operating income (loss) $ (135) $ 60 $ (164) $ (278)
Net income (loss) $ (190) $ 1 $ (196) $ (332)
===== ===== ===== =====
Note:
Certain amounts have been reclassified to conform with fourth
quarter classifications.
1993
Operating revenues $1,605 $1,693 $1,634 $1,690
Operating income (loss) $ (17) $ 40 $ (125) $ (47)
Income (loss) before
cumulative effect of
accounting change $ (65) $ (8) $ (183) $ (119)
Cumulative effect of
accounting change -
FAS 112 (44) - - -
----- ----- ----- -----
Net income (loss) $ (109) $ (8) $ (183) $ (119)
===== ===== ===== =====
</TABLE>
See Note 11 - Non-Recurring and Unusual Items.
Note:
The sum of the four quarters may not equal yearly totals due to
rounding of quarterly results.
Certain 1993 amounts have been reclassified to conform with 1994
classifications.
143
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Account-
ing and Financial Disclosure
None
Part III
Item 10. Directors and Executive Officers of USAir Group, Inc.
Each of the persons listed below is currently a director of
the Company and was elected in 1994 by the stockholders of the
Company. Each director of the Company is also a director of USAir.
Except as noted otherwise, the following biographies disclose the
age and describe the business experience of each director for at
least the past five years. As required by the Investment Agree-
ment, the Board amended the Company's By-Laws on January 21, 1993
to increase the authorized number of directors by three and
immediately thereafter elected Messrs. Marshall, Maynard and
Stevens to fill the new directorships. Under the Investment
Agreement, the Company is required to use its best efforts to
ensure that the slate of persons nominated by the Company for
election as directors of the Company includes that number of
persons designated by BA that is the percentage of the total then
authorized number of directors, which is currently 16, of the
Company that is nearest to but not greater than the percentage (but
in no event greater than 25%) of the aggregate voting power of the
securities that vote with the Common Stock as a single class for
the election of directors of the Company then held by BA and its
wholly-owned subsidiaries. Under this provision of the Investment
Agreement, BA is entitled to designate three directors to the Board
and has accordingly designated Messrs. Marshall, Maynard and
Stevens. Messrs. Buffet and Munger have advised the Company that
they will not stand for re-election as directors of the Company and
of USAir at the 1995 annual meeting. They had previously announced
that their continued service as directors of the Company and of
USAir was dependent upon USAir successfully reaching a timely
agreement with its organized labor groups that, in the opinion of
Messrs. Buffett and Munger, provided USAir with sufficient labor
cost savings which, when combined with other cost reduction
programs being implemented by USAir, would afford USAir a reason-
able opportunity to achieve profitability in a low fare competitive
environment. On March 13, 1995, in announcing the decision of
Messrs. Buffett and Munger not to stand for re-election, Berkshire
Hathaway Inc. stated, "To date, USAir has not been successful in
achieving necessary labor cost savings."
144
<PAGE>
Served as
Director
since
--------
Warren E. Buffett, 64 ................................. 1993
Mr. Buffett has been Chairman and Chief Executive
Officer of Berkshire Hathaway Inc. (insurance,
candy, retailing, manufacturing and publishing)
since 1970. He is also a Director of Capital-
Cities/ABC, Inc., The Coca-Cola Company, The Gil-
lette Company and Salomon Inc. Mr. Buffett is a
member of the Finance and Planning Committee of the
Board.
Edwin I. Colodny, 68 ................................. 1975
Mr. Colodny is of counsel to the law firm of Paul,
Hastings, Janofsky & Walker. He retired as Chair-
man of the Company and of USAir in July 1992. He
served as Chief Executive Officer of USAir from
1975 until retiring as an employee of USAir in June
1991. Mr. Colodny is a Director of Martin Marietta
Corporation, Comsat Corporation and Esterline
Technologies, Inc., and is a member of the Board of
Trustees of the University of Rochester. He is a
member of the Finance and Planning and Nominating
Committees of the Board.
Mathias J. DeVito, 64 ................................. 1981
Mr. DeVito is Chairman of the Board of The Rouse
Company (real estate development and management).
He also serves as a Director of First Maryland
Bancorp and subsidiaries of The Rouse Company. He
is a member of the Board of the Business Committee
for the Arts, Chairman of the Board of Empower
Baltimore Management Corporation and former Chair-
man of the Greater Baltimore Committee. Mr. DeVito
is Chairman of the Compensation and Benefits Com-
mittee and a member of the Finance and Planning
Committee of the Board.
George J. W. Goodman, 64 .............................. 1978
Mr. Goodman is President of Continental Fidelity,
Inc. which provides editorial and investment ser-
vices. He is the author of a number of books and
articles on finance and economics under the pen
name "Adam Smith" and is the host of a television
series of that name seen on public broadcasting
stations in the U.S. and on other networks abroad.
He is a Director of Cambrex Corporation. Mr.
Goodman also serves as a member of the Advisory
Committee of the Center for International Relations
145
<PAGE>
at Princeton University, and is a Trustee of the
Urban Institute. He is a member of the Compensa-
tion and Benefits and Finance and Planning Commit-
tees of the Board.
John W. Harris, 48 .................................... 1991
Mr. Harris is President of The Harris Group (real-
estate development). From 1972 through 1991, he
was President of The Bissell Companies, Inc. (real-
estate development). He is a Director of Southern
Bell Telephone and Telegraph Company. Mr. Harris
is former Chairman of the Greater Charlotte Chamber
of Commerce and a member of the Board of Trustees
of the University of North Carolina and serves on
the boards of several community service organiza-
tions. He is a member of the Audit and Compensa-
tion and Benefits Committees of the Board.
Edward A. Horrigan, Jr., 65 ........................... 1987
Mr. Horrigan is the former Chairman of the Board of
Directors of Liggett Group Inc. (consumer prod-
ucts), a position he had held from May 1993 until
his retirement in December 1994. He is also the
retired Vice Chairman of the Board of RJR Nabisco,
Inc. and retired Chairman and Chief Executive
Officer of R. J. Reynolds Tobacco Company, Winston-
Salem, North Carolina (consumer products). He is a
Director of the Haggai Foundation. Mr. Horrigan is
a member of the Audit and Nominating Committees of
the Board.
Robert LeBuhn, 62 ..................................... 1966
Mr. LeBuhn was the Chairman of Investor Interna-
tional (U.S.), Inc. (investments) until his retire-
ment in January 1995. He is now a private investor
and is a Director of Acceptance Insurance Compa-
nies, Amdura Corp., Lomas Financial Corp., Cambrex
Corporation and Enzon, Inc. He is Trustee and
President of the Geraldine R. Dodge Foundation,
Morristown, New Jersey and is a member of the New
York Society of Security Analysts. He is Chairman
of the Finance and Planning Committee and a member
of the Nominating Committee of the Board.
Sir Colin Marshall, 61 ................................ 1993
Sir Colin was elected Chairman of BA in February
1993. Previously, he had been Chief Executive of
BA and a member of BA's Board of Directors since
1983. Sir Colin is a Director of HSBC Holdings
Plc, IBM, United Kingdom Holdings Limited and
Qantas Airways Limited. He is a member of the
146
<PAGE>
Finance and Planning Committee of the Board.
Roger P. Maynard, 52 .................................. 1993
Mr. Maynard has been Director of Corporate Strategy
of BA since 1991. Previously, from 1987, he had
held various positions at BA, including Director of
Investor Relations & Marketplace Performance and
Executive Vice President North America. Mr. Maynard
is a member of the Nominating and Compensation and
Benefits Committees of the Board.
John G. Medlin, Jr., 61 ............................... 1987
Mr. Medlin is Chairman of the Board and, until
December 31, 1993, was Chief Executive Officer of
Wachovia Corporation (bank holding company). Mr.
Medlin also serves as a Director of BellSouth
Company, Burlington Industries, Inc., Media Gener-
al, Inc., National Services Industries, Inc., RJR
Nabisco, Inc. and Nabisco Holdings Corporation. He
is Chairman of the Nominating Committee and a
member of the Compensation and Benefits Committee
of the Board.
Hanne M. Merriman, 53 ................................. 1985
Mrs. Merriman is the Principal in Hanne Merriman
Associates (retail business consultants). Previ-
ously, she served as President of Nan Duskin, Inc.
(retailing), President and Chief Executive Officer
of Honeybee, Inc., a division of Spiegel, Inc., and
President of Garfinckel's, a division of Allied
Stores Corporation. Mrs. Merriman is a Director of
CIPSCO, Inc. Central Public Service Company, State
Farm Mutual Automobile Insurance Company, The Rouse
Company, Ann Taylor Stores Corporation and T. Rowe
Price Mutual Funds. She is a member of the Nation-
al Women's Forum and a Trustee of The American-
Scandinavian Foundation. She was a member of the
Board of Directors of the Federal Reserve Bank of
Richmond, Virginia from 1984-1990 and served as
Chairman in 1989-1990. Mrs. Merriman is Chairman
of the Audit Committee and is a member of the
Nominating Committee of the Board.
Charles T. Munger, 71 ................................. 1993
Mr. Munger is Vice Chairman of Berkshire Hathaway
Inc. (insurance, candy, retailing, manufacturing
and publishing) of which he has been an officer and
Director since 1975. He is Chairman of Daily
Journal Corporation and is a Director of Salomon
Inc. and Wesco Financial Corporation. Mr. Munger
147
<PAGE>
is a member of the Audit Committee of the Board.
Frank L. Salizzoni, 56 ................................ 1994
Mr. Salizzoni was elected President and Chief
Operating Officer of the Company and USAir, effec-
tive April 1, 1994, and was elected to the Board on
May 25, 1994. Previously, Mr. Salizzoni was Vice
Chairman and Chief Financial Officer of Trans World
Airlines and Trans World Corporation until 1987,
when he became Vice Chairman and Chief Financial
Officer of TW Services, Inc. (food service). He
was Chairman and Chief Executive Officer of TW
Services from April 1987 until August 1989, just
before that company went private. Mr. Salizzoni
was associated with Mancusco and Co. (investments)
from August 1989 until he was elected Executive
Vice President-Finance of the Company and of USAir
in November 1990. Mr. Salizzoni is a Director of
H&R Block, Inc., and SKF USA, Inc.
Seth E. Schofield, 55 ................................. 1989
Mr. Schofield was elected Chairman of the Board of
the Company and USAir in June 1992. In June 1991
he was elected President and Chief Executive Offi-
cer of the Company and of USAir. In June 1990 he
was elected President and Chief Operating Officer
of USAir. He had served as Executive Vice Presi-
dent-Operations of USAir since 1981. Mr. Schofield
joined USAir in 1957 and has held various corporate
staff positions. Mr. Schofield is a Director of
the Erie Insurance Group, the PNC Bank, N.A., USX
Corp., the Greater Washington Board of Trade, the
Flight Safety Foundation and the Greater Pittsburgh
Council of the Boy Scouts of America. Mr. Scho-
field is Chairman of the Board of Directors of the
Greater Pittsburgh Chamber of Commerce, and a Board
Member of the Pennsylvania Business Roundtable,
Penn's Southwest Association, the Virginia Business
Council and a member of the Desai Capital Manage-
ment Advisory Board. He is also a member of the
Allegheny Conference on Community Development and
the Federal City Council and serves on the Board of
Trustees of the University of Pittsburgh and West-
minster College.
Raymond W. Smith, 57 .................................. 1990
Mr. Smith is Chairman of the Board and Chief Execu-
tive Officer of Bell Atlantic Company, which is
engaged principally in the telecommunications
business and is one of the seven regional companies
formed as a result of the divestiture of the Bell
System. Previously, Mr. Smith had served as Vice
148
<PAGE>
Chairman and President of Bell Atlantic and Chair-
man of The Bell Telephone Company of Pennsylvania.
He is a member of the Board of Directors of Core-
States Financial Company, a trustee of the Univer-
sity of Pittsburgh and is active in many civic and
cultural organizations. He is a member of the
Compensation and Benefits and Nominating Committees
of the Board.
Derek M. Stevens, 56 .................................. 1993
Mr. Stevens has been Chief Financial Officer of and
a Director of BA since 1989. Previously, from
1981, he was Finance Director of TSB Group plc
(financial institution). Mr. Stevens is a member
of the Audit Committee of the Board.
The law firm of Paul, Hastings, Janofsky and Walker, with
which Mr. Colodny is affiliated on an Of Counsel basis, provided
legal services to USAir during 1994 and is expected to provide such
services during 1995.
The following persons are executive officers of the Company.
<TABLE>
<CAPTION>
Executive
Officer
of the
Age as of Company
Name 3/31/95 Position(s) Since
---- --------- ----------- ---------
<S> <C> <C> <C>
Seth E. Schofield 55 Chairman of the Board 1983
and Chief Executive
Officer of the Company;
Chairman of Board and
Chief Executive Officer
of USAir
Frank L. Salizzoni 56 President and Chief Opera- 1990
ting Officer of the
Company; President and
Chief Operating Officer
of USAir
W. Thomas Lagow 53 Executive Vice President- 1992
Marketing of USAir
James T. Lloyd 53 Executive Vice President, 1987
General Counsel and
Secretary of the Company;
Executive Vice President
and General Counsel of
USAir
John R. Long III 46 Executive Vice President- 1983
Customer Services of USAir
149
<PAGE>
Bruce R. Aubin 64 Senior Vice President- 1994
Maintenance Operations
of USAir
Robert L. Fornaro 42 Senior Vice President- 1992
Planning of USAir
John P. Frestel, Jr. 55 Senior Vice President- 1989
Human Resources of USAir
John W. Harper 54 Senior Vice President- 1992
Finance and Chief
Financial Officer of
the Company and Senior
Vice President-Finance
and Chief Financial
Officer of USAir
Nancy Risque Rohrbach 48 Vice President-Public & 1994
Community Relations of
the Company and Senior
Vice President-Public &
Community Relations of
USAir
</TABLE>
For purposes of Rule 405 under the Securities Act of 1933, as
amended, Messrs. Lagow, Long, Aubin, Fornaro, Frestel, Harper and
Ms. Risque Rohrbach are deemed to be executive officers of the
Company.
There are no family relationships among any of the officers
listed above. No officer was selected pursuant to any arrangement
between him or her and any other person. Officers are elected
annually to serve for the following year or until the election and
qualification of their successors. All the executive officers
except Ms. Risque Rohrbach and Messrs. Lagow, Salizzoni, Aubin,
Fornaro and Harper have been actively engaged in the business and
affairs of the Company and USAir during the past five years. The
business experience of the officers listed above since at least
January 1, 1990 is as follows:
Mr. Schofield was elected Executive Vice President of the
Company in July 1989. At that time he was also elected Vice
Chairman of the Board of the Company and of USAir. Mr. Schofield
served as Executive Vice President-Operations of USAir until his
election as President and Chief Operating Officer of USAir in June
1990. Effective on July 1, 1991, Mr. Schofield was elected
President and Chief Executive Officer of both the Company and
USAir. Effective on July 1, 1992, Mr. Schofield was elected
Chairman of the Board of both the Company and USAir.
Mr. Salizzoni was Vice Chairman and Chief Financial Officer of
Trans World Airlines and Trans World Corporation until 1987, when
he became Vice Chairman and Chief Financial Officer of TW Services,
Inc. He was Chairman and Chief Executive Officer of TW Services
150
<PAGE>
from April 1987 until August 1989, just before that company went
private. Mr. Salizzoni was associated with Mancusco and Co. from
August 1989 until he was elected Executive Vice President-Finance
of the Company and of USAir in November 1990. Mr. Salizzoni was
elected President and Chief Operating Officer of the Company and
USAir in 1994.
Mr. Lagow was Senior Vice President-Market Planning of
Northwest Airlines until February 1988, when he became Senior Vice
President-Planning of United Airlines. Mr. Lagow held that
position until he was elected Executive Vice President-Marketing of
USAir in February 1992.
Mr. Lloyd engaged in the private practice of law in Washing-
ton, D.C. from 1967 until his election as Vice President, General
Counsel and Secretary of the Company and as Senior Vice President
and General Counsel of USAir in 1987. He served in those capaci-
ties until his election as Executive Vice President, Secretary and
General Counsel of the Company and Executive Vice President and
General Counsel of USAir in January 1991.
Mr. Long served as Senior Vice President-Administration of
USAir until his election as Senior Vice President-Customer
Operations of USAir in June 1989. He served in that capacity until
his election as Senior Vice President-Customer Services in March
1991. Mr. Long served as Senior Vice President-Customer Services
until his election as Executive Vice President-Customer Services in
May 1992.
Mr. Aubin was Executive Advisor to the Vice Chairman,
President and Chief Executive Officer of Air Canada prior to
joining USAir and, prior to that position, he served as Senior Vice
President Technical Operations and Chief Technical Officer of Air
Canada. He was elected Senior Vice President-Maintenance Opera-
tions of USAir in January 1994.
Mr. Fornaro was Vice President-Research of Jesup & Lamont
Securities until February 1988, when he became Senior Vice
President-Marketing of Braniff, Inc. In August 1988, Mr. Fornaro
became Senior Vice President-Market Planning of Northwest Airlines,
the position he held until February 1992. He was elected Senior
Vice President-Planning of USAir in March 1992.
Mr. Frestel was associated with The Atchison, Topeka & Santa
Fe Railway for 22 years prior to joining USAir, most recently as
Vice President-Personnel and Labor Relations, and was a Director of
that company from June 1988 until his election as Senior Vice
President-Human Resources of USAir in January 1989.
Mr. Harper was Senior Vice President-Marketing and Information
Systems at Axe-Houghton Management (investment management) until
his election as Vice President and Controller of the Company and
USAir in December 1991. He served in that position until his
election as Senior Vice President-Information Systems of USAir in
October 1992. Mr. Harper was elected Senior Vice President -
151
<PAGE>
Finance and Chief Financial Officer of the Company and USAir in
1994.
Ms. Risque Rohrbach served as a member of the White House
legislative liaison team (1981-1986) and as Assistant to the
President and Secretary to the Cabinet (1987-1988). In 1989 and
1990, she was a resident fellow at Harvard University's Institute
of Politics and a consultant to the Department of Energy. She was
Assistant Secretary of Labor for Policy at the U.S. Department of
Labor during 1991-1992 and a public policy and communications
consultant during 1993. Ms. Risque Rohrbach was elected Vice
President-Public and Community Relations of the Company and Senior
Vice President-Public and Community Relations of USAir in January
1994.
Item 11. Executive Compensation
Compensation of Directors
In 1994, each incumbent director, except Messrs. Schofield and
Salizzoni, was paid a retainer fee of $18,000 per year for service
on the Board of the Company and a fee of $600 per Board meeting or
committee meeting attended. Consistent with a comprehensive cost
reduction program at USAir, the retainer fee was reduced by 20% to
$14,400 for an eighteen-month period commencing January 1, 1992 and
ending on June 30, 1993. As of January 1, 1995, the retainer fee
has been reduced to $14,000 per year. Mr. LeBuhn, Chairman of the
Finance and Planning Committee, Mr. DeVito, Chairman of the
Compensation Committee, and Mrs. Merriman, Chairman of the Audit
Committee, each receives an additional fee of $2,000 per year for
serving in those respective capacities. Mr. Medlin, Chairman of
the Nominating Committee, receives an additional fee of $1,000 per
year for serving in that capacity. Each of Messrs. Schofield and
Salizzoni receives a salary in his capacity as an officer of USAir
and receives no additional compensation as a director of the
Company and USAir.
In 1987 the Company established a retirement plan for
directors who are not also employees of the Company and its
subsidiaries. The plan provides that such directors shall be
eligible to receive retirement benefits thereunder if they have
attained seventy years of age and served at least five consecutive
years on the Board or, if they have not attained age seventy, have
served for at least ten consecutive years on the Board. Eligible
directors receive an annual retirement benefit equal to the highest
annual retainer in effect for active directors during the five
years prior to retirement. If the annual retainer for active
directors is increased, the annual retirement benefit paid to
retired directors is increased by an amount equal to 50% of the
increase in retainer paid to active directors. If a director dies
prior to retirement and had served for at least five consecutive
years on the Board, the deceased director's surviving spouse is
eligible under the plan to receive, for a period of five years
following such death, an annual death benefit equal to 50% of the
annual retainer paid to such director at the time of his or her
152
<PAGE>
death. If a retired eligible director dies, the director's
surviving spouse is eligible under the plan to receive, for a
period of five years following such death, 50% of the annual
retirement benefit payable to the director at the time of his or
her death. The plan is administered by the Compensation and
Benefits Committee.
Compensation of Executive Officers
The Summary Compensation Table below sets forth the compensa-
tion paid during the years indicated to each of the Chief Executive
Officers and the four remaining most highly compensated executive
officers of the Company (including its subsidiaries).
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
-------------------------------------------- ------------------
Other Restricted
Name And Annual Stock All Other
Principal Position Year Salary Bonus Compensation Awards(f) Options Compensation(h)
- ---------------------- ---- ------ ----- ------------ --------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Seth E. Schofield...... 1994 $500,000 $ 0 $116,136(e) -- -- $ 74,821
Chairman and Chief 1993 $475,635(c) $ 0 $275,601(e) -- -- $ 64,302
Executive Officer of 1992 $412,981(c) $ 0 $174,792(e) -- 5,569 $ 38,495
the Company and of
USAir
Frank L. Salizzoni(a).. 1994 $385,769 $ 0 $ 11,020(e) -- 100,000(g) $167,160(i)
President and Chief 1993 $317,558(c) $ 0 $ 45,374(e) -- -- $ 52,222
Operating Officer of 1992 $231,249(c) $ 0 $ 26,892(e) -- 2,800 $ 34,382
the Company and of
USAir
W. Thomas Lagow(b)..... 1994 $325,000 $ 0 -- -- -- $286,225(j)
Executive Vice 1993 $310,058(c) $ 0 -- -- -- $282,521(k)
President--Marketing 1992 $234,258(c) $125,000(d) -- -- 153,211 $ 17,617(l)
of USAir
James T. Lloyd......... 1994 $275,000 $ 0 $ 18,705(e) -- -- $ 40,424
Executive Vice 1993 $257,365(c) $ 0 $ 73,215(e) -- -- $ 36,188
President, General 1992 $211,058(c) $ 0 $ 47,974(e) -- 2,492 $ 21,382
Counsel and Secretary
of the Company;
Executive Vice
President and General
Counsel of USAir
John P. Frestel, Jr.... 1994 $275,000 $ 0 $ 30,682(e) -- -- $ 45,866
Senior Vice President 1993 $248,750(c) $ 0 $ 48,805(e) -- -- $ 37,363
Human Resources of 1992 $178,750(c) $ 0 $ 31,717(e) -- 2,000 $ 19,821
USAir
</TABLE>
(a) Mr. Salizzoni was named President and Chief Operating Officer
of the Company and USAir effective April 1, 1994.
(b) Mr. Lagow's employment with USAir commenced on February 7,
1992.
(c) Amounts disclosed reflect reductions in salary during (i) 1993
of $24,365, $12,250, $14,942, $10,904 and $8,750, and (ii)
1992 of $87,019, $43,750, $49,272, $38,942 and $31,250 for
Messrs. Schofield, Salizzoni, Lagow, Lloyd and Frestel,
respectively, which were implemented for all USAir officers
for a fifteen-month period commencing on January 1, 1992 and
ending on March 29, 1993 pursuant to a comprehensive cost
reduction program at USAir.
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(d) Paid to Mr. Lagow in the form of a "sign-on bonus."
(e) Amounts disclosed include for (i) 1994, $108,633, $10,391,
$18,705, and $30,518, (ii) 1993, $271,288, $33,259, $73,215,
and $48,805 and (iii) 1992, $171,410, $22,523, $47,974 and
$31,717, received by Messrs. Schofield, Salizzoni, Lloyd and
Frestel, respectively, to cover incremental tax liability
resulting from income derived from the lapsing of restrictions
on the disposition of Restricted Stock. Restricted Stock is
Common Stock subject to certain restrictions on disposition.
Any amounts disclosed in the column that are in excess of the
amounts disclosed in the preceding sentence represent income
derived from personal travel on USAir.
(f) At December 31, 1994, Messrs. Schofield, Salizzoni, Lloyd and
Frestel owned 10,000, 3,000, 1,000 and 1,000 shares of
Restricted Stock, respectively. At the fair market value of
the Common Stock on that date, these holdings of Restricted
Stock were valued at $42,500, $12,750, $4,250 and $4,250,
respectively. Restricted Stock is eligible to receive divi-
dends; however, the Company has not paid dividends on its
Common Stock since the second quarter of 1990.
(g) Non-qualified stock option grant on April 1, 1994, the date
Mr. Salizzoni was named President and Chief Operating Officer
of the Company and USAir.
(h) Under USAir's split dollar life insurance plan, described
under "Additional Benefits" below, individual life insurance
coverage is available to the named officers. During 1992,
each officer paid the amount of the premium associated with
the term life component of the coverage. In 1993, USAir
commenced paying the premium associated with this coverage. In
1992, 1993 and 1994, USAir paid the remainder of the premium
associated with the whole life component of the coverage. If
all assumptions as to life expectancy and other factors occur
in accordance with projections, USAir expects to recover the
premiums it pays with respect to the whole life component of
the coverage. The following amounts reflect the value of the
benefits accrued during the years indicated, calculated on an
actuarial basis, ascribed to the insurance policies purchased
on the lives of the named officers (plus, with respect to 1993
and 1994, the dollar value of premiums paid by USAir with
respect to term life insurance): 1994--Mr. Schofield--$31,194;
Mr. Salizzoni--$27,722; Mr. Lagow--$10,225; Mr. Lloyd--$18,424
and Mr. Frestel--$21,188; 1993--Mr. Schofield--$29,328, Mr.
Salizzoni--$26,010, Mr. Lagow--$9,716, Mr. Lloyd--$17,291 and
Mr. Frestel--$18,661; 1992--Mr. Schofield--$38,495; Mr.
Salizzoni--$34,382; Mr. Lagow--$12,902; Mr. Lloyd--$21,382 and
Mr. Frestel--$19,821. During 1994 and 1993, USAir made
contributions to the accounts of Messrs. Schofield, Salizzoni,
Lagow, Lloyd and Frestel in certain defined contribution
pension plans in the following amounts: 1994--$43,627,
$38,192, $26,000, $22,000 and $24,678, respectively, and
1993--$34,974, $26,212, $22,805, $18,897 and $18,702, respec-
tively.
(i) Amount disclosed also reflects $101,246 for reimbursement of
relocation expenses.
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<PAGE>
(j) Upon the commencement of his employment, USAir agreed to pay
Mr. Lagow $1 million over four years, which amount was
intended to compensate him for restricted stock and stock
options which he forfeited when he left his former employer.
The amount disclosed includes the second installment,
$250,000, of the total payment.
(k) Amount disclosed includes the first installment, $250,000, of
the total payment referred to in footnote (j).
(l) Amount disclosed also reflects $4,715 for reimbursement of
relocation expenses.
Option/SAR Grants in Last Fiscal Year
The following table provides information on option grants in
fiscal year 1994 to the named executive officers. No option grants
were made to Messrs. Schofield, Lagow, Lloyd or Frestel.
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of Stock
Price Appreciation for Option
Individual Grants Term
- ---------------------------------------------------------------- ------------------------------
Percent of
Total
Options/SARs
Granted to
Options/ Employees Exercise
SARs in Fiscal or Base Expiration
Name Granted Year(b) Price(c) Date 0% 5% 10%
---- -------- ---------- -------- ---------- -- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Frank L. Salizzoni 100,000(a) 31% $7.75 May 1, 2004 $0 $ 492,536 $ 1,251,180
- ---------------------------------------------------------------------------------------------------
All common
stockholders(c)... $277,755,531 $728,452,620
</TABLE>
(a) These options were granted as of April 1, 1994. Twenty-five
percent of these options will vest on the first anniversary of
their grant (April 1, 1995), an additional 25% will vest on
the second anniversary of their grant (April 1, 1996), and the
remaining 50% will vest on the third anniversary of their
grant (April 1, 1997). None of these options is accompanied
by stock appreciation rights.
(b) Based on total grants of options to purchase 321,000 shares of
Common Stock awarded during 1994.
(c) The exercise price and tax withholding obligation related to
exercise may be paid by delivery of previously-owned shares or
by offset of the underlying shares, subject to certain
conditions.
(d) Represents the increase in aggregate market value of all
shares of Common Stock outstanding as of April 1, 1994, from
that date to May 1, 2004 at the assumed rate of stock price
appreciation specified.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal
Year-End Option/SAR Values
The following table provides information on the number of
options held by the named executive officers at fiscal year-end
1994. None of the officers exercised any options during 1994 and
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<PAGE>
none of the unexercised options held by these officers was
in-the-money based on the fair market value of the Common Stock on
December 31, 1994 ($4.25 per share).
<TABLE>
<CAPTION>
Number of Unexercised
Options/SARs at
at Fiscal Year-End
--------------------------
Name Exercisable Unexercisable
---- ----------- -------------
<S> <C> <C>
Seth E. Schofield .................. 395,069 0
Frank L. Salizzoni ................. 152,800 100,000
W. Thomas Lagow .................... 63,211 90,000
James T. Lloyd ..................... 169,742 0
John P. Frestel, Jr................. 102,000 0
</TABLE>
Retirement Benefits
Prior to 1993, USAir's Retirement Plan (the "Retirement Plan")
for its salaried employees was comprised of two qualified plans.
The Retirement Plan was designed so that the two plans, when
aggregated, would provide noncontributory benefits based upon both
years of service and the employee's highest three-year average
annual compensation during the last ten calendar years of service.
The primary plan is a defined benefit plan which provides a benefit
based on the factors mentioned above. The primary plan is
integrated with the Social Security program so that the benefits
provided thereunder are reduced by a portion of the employee's
benefits from Social Security. USAir's contributions to the
primary plan are not allocated to the account of any particular
employee. The primary plan was frozen on December 31, 1991, and
accordingly, retirement benefits payable under the plan were
determinable on that date.
The secondary plan is a target benefit defined contribution
plan. The secondary plan was established in 1983 as a result of
changes to the Internal Revenue Code (the "Code"), which lowered
the maximum benefit payable from a defined benefit plan. In the
event that the benefit produced under the primary plan formula
cannot be accrued for any employee covered by such plan because of
the limit on benefits payable under defined benefit plans,
contributions will be made on behalf of such employee to the
secondary plan. Such contributions will be calculated to provide
the benefit produced under the formula in the primary plan in
excess of such limit, to the extent permitted under the Code's
limitation on the contributions to defined contribution plans.
USAir's contributions to the secondary plan are allocated to
individual employees' accounts. During 1994, no contributions were
made to any executive officer's account. The secondary plan was
also frozen on December 31, 1991.
Under the Retirement Plan, benefits usually begin at the
normal retirement age of 65. The Retirement Plan also provides
benefits for employees electing early retirement from ages 55
through 64. If such an election is made, the benefits may be
reduced to reflect the longer interval over which the benefits will
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<PAGE>
be paid. Executive officers participate in the Retirement Plan on
the same basis as other employees of USAir.
Contributions to and benefits payable under the Retirement
Plan must be in compliance with the applicable guidelines or
maximums established by the Code. USAir has adopted an unfunded
supplemental plan which will provide those benefits which would
otherwise be payable to officers under the Retirement Plan, but
which, under the Code, are not permitted to be funded or paid
through the qualified plans maintained by USAir. Benefit accruals
under the supplemental plan also ceased upon the freezing of the
Retirement Plan on December 31, 1991. Such supplemental plan
provides that any benefits under the unfunded supplemental plan
will be paid in the form of a single, lump sum payment. Such
supplemental plans are specifically provided for under applicable
law and have been adopted by many corporations under similar
circumstances. Messrs. Schofield, Salizzoni, Lloyd and Frestel are
currently entitled to receive retirement benefits in excess of the
limitations established by the Code.
The following table presents the noncontributory benefits
payable per year for life to employees under the Retirement Plan
and the unfunded supplemental plan described above, assuming normal
retirement in the current year. The table also assumes the retiree
would be entitled to the maximum Social Security benefit in
addition to the amounts shown.
<TABLE>
<CAPTION>
Pension Plan Table
Final Earnings
as defined in Noncontributory Pension Based
the Plan on Years of Service
- ----------------------------------------------------------------
10 Yrs 15 Yrs 20 Yrs 25 Yrs 30 Yrs 35 Yrs
------ ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
$100,000.. $ 19,684 $ 29,525 $ 39,367 $ 49,209 $ 54,209 $ 54,209
200,000.. 43,684 65,525 87,367 109,209 119,209 119,209
300,000.. 67,684 101,525 135,367 169,209 184,209 184,209
400,000.. 91,684 137,525 183,367 229,209 249,209 249,209
500,000.. 115,684 173,525 231,367 289,209 314,209 314,209
600,000.. 139,684 209,525 279,367 349,209 379,209 379,209
700,000.. 163,684 245,525 327,367 409,209 444,209 444,209
800,000.. 187,684 281,525 375,367 469,209 509,209 509,209
</TABLE>
The values reflected in the above chart represent the applica-
tion of the Retirement Plan formula to the specified amounts of
compensation and years of service. The compensation covered by the
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<PAGE>
Retirement Plan is salary and bonus, as reported in the Summary
Compensation Table. The credited years of service under the
Retirement Plan for each of the individuals included in the Summary
Compensation Table are as follows: Mr. Schofield-30 years, Mr.
Salizzoni-1 year, Mr. Lagow-none, Mr. Lloyd-5 years and Mr.
Frestel-3 years.
USAir has entered into agreements with Messrs. Lagow,
Salizzoni, Lloyd and Frestel which provide for a supplement to
their retirement benefits under the Retirement Plan. This
supplement is designed to provide such persons with those benefits
they would have received had they been employed by USAir for the
minimum number of years to be entitled to full retirement benefits
under the Retirement Plan.
USAir adopted, effective January 1, 1993, a defined contribu-
tion retirement program for its eligible non-contract employees
(the "Retirement Savings Plan") as a replacement for the Retirement
Plan described above. Under the Retirement Savings Plan, eligible
employees may elect to contribute on a tax-deferred basis up to 13%
of their pre-tax compensation, subject to a maximum annual
contribution of $9,240 in 1994. USAir will also contribute to each
employee's account in the Retirement Savings Plan (i) a matching
contribution equal to 50% of each employee's contribution, subject
to a maximum of 2% of the employee's annual pre-tax compensation;
(ii) a basic contribution which ranges, depending on the employee's
age, from 2% to 8% of the employee's annual pre-tax compensation;
and (iii) if USAir's pre-tax profit margin, as defined, exceeds
certain thresholds, a profit sharing contribution up to a maximum
of 7.5% of an employee's annual pre-tax compensation. USAir made
no contributions under the profit sharing component of the
Retirement Savings Plan in 1994. Pre-tax compensation is defined
for purposes of the Retirement Savings Plan as base pay plus bonus,
plus an employee's tax deferred contributions under such Plan up to
a maximum of $150,000 in 1994. USAir also established a non-qual-
ified supplemental defined contribution plan (the "Supplemental
Savings Plan") in 1993, which credits amounts to accounts of
certain officers who participate in the Retirement Savings Plan but
who are adversely affected by the maximum benefit limitations under
qualified plans imposed by the Code. Amounts obligated to be paid
by USAir under the Supplemental Savings Plan will be deposited in
a trust established for the benefit of the participants. See the
"All Other Compensation" column of the Summary Compensation Table
for the amounts contributed or allocated in 1994 to Messrs.
Schofield, Salizzoni, Lagow, Lloyd and Frestel under the Retirement
Savings Plan and the Supplemental Savings Plan.
Under the Retirement Savings Plan and the Supplemental Savings
Plan, participants may direct the investment of their contributions
and USAir's contributions to their accounts among certain invest-
ment funds. Participants' contributions are fully vested when
made. USAir's contributions vest when the participant has been
employed by USAir for at least two years.
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<PAGE>
Additional Benefits
USAir has in effect an Officers' Supplemental Benefit Plan,
which provides certain benefits to a current or retired officer's
spouse and children under age 19 following the officer's death.
These benefits include: (i) dependent survivors' monthly income
benefit and (ii) dependent survivors' health care insurance.
A dependent survivors' monthly income benefit is payable to
the eligible spouse or children of a deceased officer or retired
officer in an amount equal to 20% of the monthly basic rate of
salary payable to the officer the day prior to death or, in the
case of a deceased retired officer, the day prior to retirement.
Monthly income benefits will be reduced by the amount of any spouse
protection benefit payable from Retirement Plan funds, and are
subject to cessation upon the occurrence of certain specified
events. In no case are monthly income benefits payable for more
than 19 years following the date of death.
The eligible surviving spouse or children of a deceased
officer or retired officer are also entitled to receive dependent
survivors' health care insurance, which provides the medical, major
medical and dental insurance benefits generally available to
dependents of salaried employees of USAir. Eligibility for this
coverage ceases upon the occurrence of certain specified events.
USAir also maintains a split-dollar life insurance plan under
which individual term life insurance is available to its officers
in the amount of three times base salary. The plan also provides
for accrual of a cash value component for each officer who holds a
policy. Under the plan, during 1994, USAir paid the premiums on
the term and whole life insurance components of the policy. The
premium attributable to the term life insurance of the policy is
treated as income to the participant. At death, prior to transfer
of the policy to the participant, the beneficiary receives the
amount of the coverage less any amount necessary to reimburse the
employer for its investment, and the beneficiary is entitled to any
additional proceeds. Upon transfer of the policy to the partici-
pant, the participant is entitled to the cash surrender value of
the policy in excess of the amount payable to the employer for
recovery of its investment. See the "All Other Compensation"
column of the Summary Compensation Table for information concerning
compensation with respect to Messrs. Schofield, Salizzoni, Lagow,
Lloyd and Frestel that was attributable to the split dollar life
insurance plan.
Arrangements Concerning Termination of Employment and Change of
Control
USAir currently has employment contracts (the "Employment
Contracts") with the executive officers (the "Executives") named in
the Summary Compensation Table. The terms of the Employment
Contracts extend until the earlier of the fourth anniversary
thereof or the Executive's normal retirement date and are subject
to automatic one-year annual extensions on each anniversary date
159
<PAGE>
(to the fourth anniversary of such anniversary date) unless advance
written notice is given by USAir. In exchange for each Executive's
commitment to devote his or her full business efforts to USAir, the
agreements provide that each Executive will be re-elected to a
responsible executive position with duties substantially similar to
those in effect during the prior year and will receive (1) an
annual base salary at a rate not less than that in effect during
the previous year; (2) incentive compensation as provided in the
contract; and (3) insurance, disability, medical and other benefits
generally granted to other officers. In the event of a change of
control, as defined in each Employment Contract, the term of each
Employment Contract is automatically extended until the earlier of
the fourth anniversary of the change of control date or the
Executive's normal retirement date. As a result of amendments to
the Employment Contracts entered into in June 1992, the acquisition
of 20% or more of the outstanding securities of the Company under
circumstances in which the acquiror would obtain the power to elect
20% or more of the members of the Board was added to the definition
of a change of control under the Employment Contracts. To the
extent permitted by Foreign Ownership Restrictions and assuming the
consummation of the Second Purchase (the "Second Closing") results
in BA's electing at least 20% of the Board, the Second Closing
would be treated as a change of control and would result in
extension of the term of each Employment Contract until the earlier
of the fourth anniversary of the Second Closing or the Executive's
normal retirement date. On March 7, 1994, BA announced that it
would not make any additional investments in the Company until the
outcome of the measures to reduce the Company's costs and improve
its financial results is known. See Item 1. "Business - British
Airways Announcement Regarding Additional Investments in the
Company; Code Sharing."
The Employment Contracts provide that, should USAir or any
successor fail to re-elect the Executive to his or her position,
assign the Executive to inappropriate duties which result in a
diminution in the Executive's position, authority or responsibili-
ties, fail to compensate the Executive as provided in the Employ-
ment Contract, transfer the Executive in violation of the Employ-
ment Contract, fail to require any successor to USAir to comply
with the Employment Contract or otherwise terminate the Executive's
employment in violation of the Employment Contract, the Executive
may elect to treat such failure as a breach of the Employment
Contract if the Executive then terminates employment. As liquidat-
ed damages as the result of an event not following a change of
control that is deemed to be a breach of the Employment Contracts,
USAir or its successor would be required to pay the Executive an
amount equal to his or her annual base salary for the then
remaining term of the Employment Contract, and to continue granting
certain employee benefits for the then remaining term of the
Executive's Employment Contract. If the breach follows a change of
control, the Executive would be entitled to receive (i) an amount
equal to the product of three times the sum of the Executive's
annual base salary plus an annual bonus; (ii) a lump sum equal to
the actuarial equivalent of the pension benefits which the
Executive would have received had he or she remained employed by
160
<PAGE>
USAir until the end of the term of the Employment Contract, (iii)
medical benefits until such time as the Executive qualifies for
group medical benefits from another employer; (iv) travel benefits
for the Executive's life; (v) reimbursement of reductions in salary
sustained by the Executive as a result of a comprehensive cost
reduction program initiated by USAir in October 1991; and (vi)
continuation of certain other benefits during the remainder of the
term of the Employment Contract. In addition, except under the
circumstances described in the immediately following paragraph,
during the 30-day period immediately following the first anniversa-
ry of a change of control any Executive could elect to terminate
his or her Employment Contract for any reason and receive the
liquidated damages described in the immediately preceding sentence.
Each Employment Contract provides that if USAir breaches the
Employment Contract, as described above, each Executive shall be
entitled to recover from USAir reasonable attorney's fees in
connection with enforcement of such Executive's rights under the
Employment Contract. Each Employment Contract also provides that
any payments the Executive receives in the event of a termination
shall be increased, if necessary, such that, after taking into
account all taxes he or she would incur as a result of such
payments, the Executive would receive the same after-tax amount he
or she would have received had no excise tax been imposed under
Section 4999 of the Code.
In order to facilitate consummation of the acts and transac-
tions contemplated by the Investment Agreement, the Executives
agreed in January 1993 to an amendment to their Employment
Contracts that will become effective upon the Second Closing (i) to
eliminate their right to elect to terminate their Employment
Contracts without any reason during the 30-day period immediately
following the first anniversary of the Second Closing; (ii) that
USAir may transfer the Executive's employment to any location that
meets certain criteria in the Employment Contracts without such
relocation constituting a breach of the Employment Contracts; (iii)
that consummation of the Second Closing would be treated as the
only change of control with respect to BA; and (iv) that following
the Second Closing, USAir may make certain changes in benefit plans
affecting the Executives that are not material, as that term is
defined in the Employment Contracts, provided that the changes
apply to all eligible officers of USAir and are approved by a
majority of the directors of the Company not elected by BA. As
discussed above, BA announced on March 7, 1994 that it will not
make any additional investments in the Company under current
circumstances.
Currently, under the Company's 1984 Stock Option and Stock
Appreciation Rights Plan (the "1984 Plan") and 1988 Stock Incentive
Plan (the "1988 Plan," and together with the 1984 Plan, the
"Plans"), pursuant to which employees of the Company and its
subsidiaries have been awarded stock options and stock appreciation
rights with respect to Common Stock and, in the case of the 1988
Plan, shares of Restricted Stock, occurrence of a change of
control, as defined, would make all granted options immediately
exercisable without regard to the vesting provisions thereof. In
161
<PAGE>
addition, grantees would be able, during the 60-day period
immediately following a change of control, to surrender all
unexercised stock options not issued in tandem with stock apprecia-
tion rights under the Plans to the Company for a cash payment equal
to the excess, if any, of the fair market value of the Common Stock
over the exercise prices of such stock options or the positive
value of any stock appreciation rights. As described above, in
June 1992, the Company amended the definition of a change of
control in the Plans with the result that, to the extent permitted
by Foreign Ownership Restrictions and assuming the Second Closing
results in BA's electing at least 20% of the Board, the Second
Closing would be treated as a change of control thereunder. As of
March 1, 1995, there were unexercised stock options to purchase
473,795 shares of Common Stock (of which 73,400 had tandem stock
appreciation rights) under the 1984 Plan and unexercised stock
options to purchase 3,396,500 shares of Common Stock (none of which
had tandem stock appreciation rights) under the 1988 Plan. (As of
March 1, 1995, 2,980,500 of the 3,396,500 options outstanding under
the 1988 Plan and 315,795 of the 473,795 options outstanding under
the 1984 Plan were exercisable pursuant to their normal vesting
schedule.) As of March 1, 1995, the weighted average exercise
price of all these outstanding stock options was approximately
$22.06. On March 1, 1995, the closing price of a share of Common
Stock on the NYSE was $6.00. See the "Aggregated Option/SAR
Exercises in Last Fiscal Year and Fiscal Year-End Option/SAR
Values" table for information regarding stock options held by the
Executives named in that table.
Currently, 15,000 shares of Restricted Stock previously
granted to the Executives may (i) become free of transfer restric-
tions upon their normal vesting schedule or (ii) be subject to
accelerated vesting upon a termination of employment which triggers
the payment of liquidated damages under the Employment Contracts,
as discussed above, regardless of whether the termination occurred
following a change of control as defined in the Employment
Contracts. See "Beneficial Security Ownership" for information
regarding Restricted Stock owned by the Executives.
With respect to Mr. Lagow, in order to induce him to accept
its offer of employment in 1992, USAir agreed, among other things,
to pay Mr. Lagow $1 million in four equal installments, each
installment being due and payable on the first four anniversaries
of the commencement of his employment by USAir, provided Mr. Lagow
remains employed by USAir. This payment was intended to compensate
Mr. Lagow for stock options and restricted stock which he forfeited
when he left his former employer. In the event of a change of
control under his Employment Contract or wrongful termination
thereunder, USAir has also agreed to pay Mr. Lagow in a lump sum
any unpaid balance of this obligation.
Notwithstanding anything to the contrary set forth in any of
the Company's or USAir's filings under the Securities Act of 1933,
as amended, or the Securities Exchange Act of 1934, as amended,
that incorporates by reference this Annual Report, in whole or in
162
<PAGE>
part, the following Report and Performance Graph shall not be
incorporated by reference into any such filings.
Report of the Compensation and Benefits Committee of the Board of
Directors
The policies of the Compensation and Benefits Committee of the
Board (the "Compensation Committee") with respect to compensation
of the Company's executive officers are to:
* attract and retain talented and experienced senior management
by offering compensation that is competitive with respect to
other major U.S. airlines and other U.S. companies of compara-
ble size; and
* motivate senior management to provide a high-quality product
to consumers with the ultimate goal of maximizing profitabili-
ty and stockholder returns by offering incentive and long-term
compensation that is linked to return on sales and the market
value of the Common Stock.
The compensation package for executive officers of the Company
is comprised of three elements - base salary, annual cash incentive
compensation, and long-term incentive compensation. The Compensa-
tion Committee plays an active role in the oversight and review of
all compensation paid to executive officers of the Company.
Ordinarily, the Compensation Committee and the full Board, in
consultation with the Senior Vice President-Human Resources of
USAir and, if warranted, an independent compensation consultant,
annually review the total compensation package of the Company's
executive officers, including the Chairman and Chief Executive
Officer and the four other officers named in the Summary Compensa-
tion Table. This review did not occur during the last fiscal year.
Because of the Company's continued financial losses, no salary
increases were contemplated for executive officers in 1994 and
hence a competitive salary review was deemed unnecessary. In past
years when a salary review was undertaken, the Compensation
Committee reviewed the market rate for peer-level positions of the
other major domestic passenger airlines, including, but not limited
to, Delta, United and American. Delta, United and American (or
their parent companies) are included in the S&P Airline Index,
which has been used in prior years' Performance Graphs. Based
primarily on this comparison, the Compensation Committee estab-
lished the base salary for the Chief Executive Officer and other
executive officers.
While the Compensation Committee reviews the salaries of the
other major airlines to establish a market rate, the Committee does
not necessarily "target" any specific range, such as the lower end,
median or upper end of the comparison range, when setting the Chief
Executive Officer's base salary. As discussed below, in 1992,
after an independent compensation consultant conducted a study of
comparable airline officers' salaries, the Compensation Committee
recommended an increase in the Chief Executive Officer's base
salary to the median level of the comparison range reflected in the
163
<PAGE>
study, but Mr. Schofield declined to accept an increase. According
to publicly available information, the current base salary of the
Company's Chief Executive Officer is lower than the base salaries
for the chief executive officers of Delta, United, American and
Southwest. Mr. Schofield does not participate in Compensation
Committee or Board deliberations or decision-making regarding any
aspect of his compensation.
The Chief Executive Officer has an employment agreement with
the Company which guarantees a certain level of base salary. Mr.
Schofield's employment agreement provides that he will receive base
salary at least equal to the highest base salary paid during the
preceding twelve-month period. In the event that the Company
violates this provision of the agreement, Mr. Schofield may
terminate his employment for "good reason" under the agreement and
receive a payout of compensation and benefits for the remainder of
the four-year employment period protected by the agreement. The
four other executive officers named in the Summary Compensation
Table have similar employment agreements which also guarantee a
certain level of base salary.
The principal elements of the Company's compensation paid to
the executive officers in the last completed fiscal year are
discussed below.
Base Salary. As reported by the Compensation Committee in
prior reports, the Compensation Committee had reduced the salaries
of the executive and other officers for a fifteen-month period
commencing on January 1, 1992 and ending on March 29, 1993. This
salary reduction was part of a comprehensive Company-wide salary
reduction program. Each of the executive officers of the Company
agreed to the reductions in salary, waiving the base salary
guarantees in their employment agreements, where applicable.
Historically, the Compensation Committee has awarded merit
increases based on measuring individual performance against
objectives. However, due to the Company's poor financial perfor-
mance since 1989, the Compensation Committee had not awarded merit
increases in executive officer base salaries since 1989. From 1989
to 1993, salaries were increased only as a result of a promotion or
an increase in responsibilities.
In 1992, after the commencement of the salary reduction
program, the Company commissioned an independent compensation
consultant to conduct a comprehensive study of the salaries of
comparable airline officers. The study disclosed that the base
salaries of the Company's executive officers (prior to reduction
under the salary reduction program) were substantially below those
salaries for analogous positions at major competitors. After
reviewing the results of the study and considering its desire to
motivate and retain the Company's key executive officers, and the
officers' individual performance and experience, the Compensation
Committee established new base salaries for executive officers
(other than the Chief Executive Officer) at the conclusion of the
salary reduction period in 1993, targeting the median of the
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<PAGE>
comparative range reflected in the study. Based on the salary
review, the Compensation Committee proposed a new base salary for
the Chief Executive Officer of $590,000. However, because of the
Company's poor financial performance, Mr. Schofield declined to
accept an increase in base salary and his salary was restored to
its pre-reduction level of $500,000. The new base salaries for the
other four executive officers named in the Summary Compensation
Table became effective in April 1993. As stated above, as a result
of the Company's continuing financial losses, no salary increases
were considered by the Compensation Committee during 1994. Except
as set forth below, the base salaries established by the Compensa-
tion Committee in 1993 remained effective throughout 1994 and
remain in effect today.
On April 1, 1994, Mr. Salizzoni was promoted from Executive
Vice President-Finance to the position of President and Chief
Operating Officer. At the time of his promotion, the Compensation
Committee approved an increase in his base salary commensurate with
his increased responsibilities.
Commencing in March 1994, the Company has been engaged in
negotiations with its labor unions to effectuate a comprehensive
expense reduction program which includes a proposal to permanently
reduce employee salaries. This expense reduction program is
designed to return the Company to profitability. In light of this
initiative, Messrs. Schofield and Salizzoni requested a reduction
in their base salaries as a demonstration of leadership. In
November 1994, the Compensation Committee approved a reduction in
the base salaries of the Chief Executive Officer and the President
and Chief Operating Officer. Effective in December 1994, their
base salaries were reduced in accordance with the following
schedule:
* 10% of the amount of salary between $5,000 and $20,000;
* 15% of the amount of salary between $20,000 and $50,000;
* 20% of the amount of salary between $50,000 and $100,000; and
* 25% of the amount of salary over $100,000.
Both executive officers signed waivers of the applicable provisions
of their employment agreements guaranteeing a higher level of base
salary.
Annual Cash Incentive Compensation. The Compensation Committee
adopted the Executive Incentive Compensation Plan effective on
January 1, 1988. The plan is administered by the Compensation
Committee. All officers, including the executive officers, of the
Company are eligible to participate in the plan.
The Compensation Committee is authorized to grant awards under
this plan only if the Company achieves a two percent or greater
return on sales ("ROS") for a fiscal year. The target level of
performance is four percent ROS. The maximum level of performance
recognized under the plan is a six percent ROS. Additionally, for
each officer of the Company, the Compensation Committee has
previously set an incentive compensation target percentage and a
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<PAGE>
maximum percentage. If the Company achieves the target performance
of four percent ROS, the full target percentage set by the
Committee for the individual officer is applied to the individual's
base salary for the year to determine the cash bonus award (the
"Target Award") for the individual. Target Awards for executive
officers range from 30% to 50% of base salary.
The Compensation Committee is authorized to approve awards
under the plan for performance which is less than or greater than
the target performance of four percent ROS. If the Company
achieves the minimum performance level of two percent ROS, the
executive would be paid only half of the Target Award. For
performance levels greater than two percent ROS but less than four
percent ROS, a proportionate percentage of the Target Award would
be paid. In the event that the Company's performance level exceeds
the target performance of four percent ROS, the Company would pay
amounts greater than the Target Award. If the Company achieves the
maximum target performance of six percent ROS, the executive would
receive the maximum percentage which is twice the Target Award.
The maximum awards for executive officers, set by the Compensation
Committee pursuant to the plan, range from 60% to 100% of base
salary. For performance levels greater than four percent ROS but
less than six percent ROS, a proportionate percentage of the Target
Award would be paid. The plan also provides that the Compensation
Committee may adjust awards to executive officers based on
individual performance; however, in no event may the award exceed
250% of the Target Award for such individual. The Compensation
Committee has never made any such adjustments.
The Compensation Committee last approved payments to executive
officers under this plan for the fiscal year ended December 31,
1988. The Company has failed to achieve the minimum two percent
ROS performance level in any fiscal year since 1988 and, therefore,
the Compensation Committee has not made any awards under the plan
since then. The Compensation Committee will continue to review the
effectiveness of the plan and, if the Compensation Committee deems
appropriate, could recommend changes to the plan in the future.
Long Term Incentive Programs
Stock Options. The executive officers of the Company partici-
pate in the Company's 1984 Stock Option and Stock Appreciation
Rights Plan (the "1984 Plan") and the 1988 Stock Incentive Plan
(the "1988 Plan"). Both the 1984 Plan and the 1988 Plan are
administered by the Compensation Committee. The Compensation
Committee is authorized to grant options under these plans only at
an exercise price equal to the fair market value of a share of
Common Stock on the effective date of the grant.
The Compensation Committee determines the size of any option
grant under the plans based upon (i) the Compensation Committee's
perceived value of the grant to motivate and retain the individual
executive; (ii) a comparison of long-term incentive practices
within the commercial airline industry; (iii) a comparison of
awards provided to peer executives within the Company; and (iv) the
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<PAGE>
number of outstanding options held by the grantee and the exercise
prices of these options. Although the Compensation Committee
supports and encourages stock ownership in the Company by its
executive officers, it has not promulgated any standards regarding
levels of ownership by executive officers.
During 1994, the only executive officers to be granted options
were newly hired executive officers and executive officers who
received promotions. As stated above, on April 1, 1994, Mr.
Salizzoni was promoted to the position of President and Chief
Operating Officer. At the time of his promotion, the Compensation
Committee awarded Mr. Salizzoni the option to purchase 100,000
shares of Common Stock, under the terms of the 1988 Plan. The
stock option awards made in 1994 were non-qualified options and
were subject to a vesting schedule under which 25% of the options
vested on the first anniversary of the award, 25% of the options
will vest on the second anniversary of the award, and the remaining
50% of the options will vest on the third anniversary of the award.
In connection with the company-wide salary reduction program
in 1992 and 1993, the Company established the 1992 Stock Option
Plan (the "1992 Plan"). The 1992 Plan is also administered by the
Compensation Committee. Under the 1992 Plan, the Compensation
Committee granted every employee of the Company who participated in
the salary reduction program non-qualified options to purchase 50
shares of Common Stock at $15 per share for each $1,000 of salary
foregone during the reduction period. The Compensation Committee
granted executive officers options under the 1992 Plan in accord-
ance with the same formula applicable to all other employees of the
Company.
Restricted Stock. Under the terms of the 1988 Plan, the
Compensation Committee is authorized to grant awards of Restricted
Stock. From 1988-1990, the Compensation Committee granted
Restricted Stock to a total of nine executive officers, some of
whom are no longer employed by USAir. These awards were all
subject to a five year vesting schedule, with restrictions lapsing
on a percentage of the award on each anniversary of the award. No
awards of Restricted Stock have been granted by the Compensation
Committee since 1990.
During 1994, the restrictions expired on a total of 20,000
shares of Restricted Stock held by the Chief Executive Officer,
which shares were originally granted in 1989 and 1990. Restric-
tions also expired during 1994 on 10,000 shares of Restricted Stock
held by Messrs. Salizzoni, Lloyd and Frestel, which shares were
originally granted in 1989 and 1990.
The Omnibus Budget Reconciliation Act of 1993 added Section
162(m) to the Internal Revenue Code. Section 162(m) provides that
companies will not be entitled to a tax deduction for certain
compensation paid to any executive officer to the extent that the
compensation exceeds $1 million in a taxable year. In December
1994, the Securities and Exchange Commission issued amendments to
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<PAGE>
the proposed regulations under Section 162(m). The Compensation
Committee is studying Section 162(m) and the proposed regulations
thereunder and is in the process of determining whether to
recommend that the Company take the necessary measures to conform
its compensation to Section 162(m).
The Compensation Committee will continue to review all
executive compensation and benefits matters presented to it and
will act based on the best information available in the best
interests of the Company, its shareholders and employees.
Mathias J. DeVito, Chairman
George J. W. Goodman
John W. Harris
Roger P. Maynard
John G. Medlin, Jr.
Raymond W. Smith
Performance Graph
<TABLE>
<CAPTION>
As of December 31,
----------------------------------------
1/1/90 1990 1991 1992 1993 1994
------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
S&P 500 Index $100 $93.44 $118.02 $123.29 $131.99 $129.96
Peer Issuer Index 100 76.21 97.07 91.41 104.19 75.63
S&P Airline Index 100 69.51 89.01 77.75 84.78 73.15
USAir Group, Inc. 100 47.19 36.33 38.20 38.58 12.73
</TABLE>
168
<PAGE>
The above graph compares the performance of the Company's
Common Stock during the period January 1, 1990 to December 31, 1994
with the S&P 500 Index and a peer issuer index (the "Peer Issuer
Index"). It also depicts the S&P Airline Index during the relevant
time period, which was the index used in previous performance
graphs of the Company. The graph depicts the results of investing
$100 in the Company's Common Stock, the S&P 500 Index and the Peer
Issuer Index, as well as the S&P Airline Index, at closing prices
on December 29, 1989. The stock price performance shown on the
graph above is not necessarily indicative of future price perfor-
mance. The Peer Issuer Index consists of AMR Corporation, Delta,
Southwest and the Company. The S&P Airline Index consists of AMR
Corporation, Delta, UAL Corporation and the Company.
The Company has selected the Peer Issuer Index for use in the
above and future performance graphs in lieu of the S&P Airline
Index because one of the companies in the S&P Airline Index, UAL
Corporation, underwent a complex recapitalization in 1994 which
makes it difficult to compare the return over time on an initial
investment in UAL Corporation to the return on similar investments
in the other corporations contained in that index. This is due in
part to the fact that holders of common stock of UAL Corporation
prior to the recapitalization received a combination of cash and
various securities in exchange for their common stock pursuant to
the recapitalization. To determine the December 31, 1994 value of
the UAL Corporation component of the S&P Airline Index, the Company
used its good faith efforts to value at December 31, 1994 each
element of the combination of cash and securities received by
common stockholders of UAL Corporation in 1994 as a result of the
recapitalization. The replacement index, the Peer Issuer Index, is
identical to the S&P Airline Index except for the deletion of UAL
Corporation and the addition of Southwest Airlines, Inc. The
Company believes that the substitution of Southwest Airlines, Inc.
makes the Peer Issuer Index a more accurate benchmark against which
to compare the stock price performance of the Company over time.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
The following information pertains to Common Stock, Series A
Preferred Stock, Series F Preferred Stock, Series T Preferred Stock
and Depositary Shares ("Depositary Shares"), each representing
1/100 of a share of Series B Preferred Stock, beneficially owned by
all directors and executive officers of the Company as of March 1,
1995. Unless indicated otherwise, the information refers to
ownership of Common Stock. Unless indicated otherwise by footnote,
the owner exercises sole voting and investment power over the
securities (other than unissued securities, the ownership of which
has been imputed to such owner).
(continued on next page)
169
<PAGE>
<TABLE>
<CAPTION>
Number of Percent of
Owner Shares (1) Class (2)
----- --------- ---------
<S> <C> <C>
Directors
- ---------
Warren E. Buffett........ - (3) (3)
Edwin I. Colodny......... 127,512 (4)
Mathias J. DeVito........ 700
George J. W. Goodman..... 200 Depositary Shares (5)
John W. Harris........... 1,000
Edward A. Horrigan, Jr... 500
Robert LeBuhn............ 8,000
Sir Colin Marshall....... (6) (6)
Roger P. Maynard......... - (6) (6)
John G. Medlin, Jr....... 2,000
Hanne M. Merriman........ 1,500
Charles T. Munger........ - (3) (3)
Frank L. Salizzoni....... 192,800 (7)
Seth E. Schofield........ 511,789 (8)
74,400 Depositary Shares (9)
Raymond W. Smith......... 500
Derek M. Stevens......... - (6) (6)
Executive Officers
- ------------------
Seth E. Schofield........ See listing under "Directors" above
Frank L. Salizzoni....... See listing under "Directors" above
W. Thomas Lagow.......... 153,211 (10)
James T. Lloyd........... 164,992 (11)
John P. Frestel, Jr...... 115,000 (12)
24 directors and execu-
tive officers of the
Company as a group.... 1,754,530.5 (13) 2.8%
</TABLE>
(1) The persons listed also own a number of Preferred Share
Purchase Rights (the "Rights") equal to their Common Stock
holdings, or, in the case of the Series A Preferred Stock,
Series F Preferred Stock and Series T Preferred Stock, Common
Stock receivable upon conversion. In addition, such Rights are
issuable on a one-for-one basis with respect to shares of
Common Stock receivable upon exercise of stock options or
conversion of Depositary Shares.
(2) Percentages are shown only where they exceed one percent of
the number of shares outstanding and, in the case of Common
Stock holdings are based on shares of Common Stock outstanding
on March 1, 1995.
(3) Various affiliates of Berkshire Hathaway Inc. ("Berkshire")
are recordholders of 358,000 or 100% of the outstanding shares
of Series A Preferred Stock. Messrs. Buffett and Munger are
Chairman and Chief Executive Officer and Vice Chairman,
respectively, of Berkshire and may be deemed to control that
company. Messrs. Buffett and Munger each disclaims beneficial
ownership of Series A Preferred Stock. Series A Preferred
Stock is currently convertible into 9,239,944 shares of Common
Stock, which represent approximately 10.2% of the total voting
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<PAGE>
interest represented by Common Stock, Series F Preferred
Stock, Series T Preferred Stock and Series A Preferred Stock
at March 1, 1995.
(4) The listing of Mr. Colodny's holding includes 58,000 shares of
Common Stock issuable within 60 days of March 1, 1995 upon
exercise of stock options.
(5) Mr. Goodman's holdings of Depositary Shares are convertible
into 498.5 shares of Common Stock.
(6) A wholly-owned subsidiary of BA is recordholder of 30,000 or
100% of the outstanding shares of Series F Preferred Stock,
152.1 or 100% of the outstanding shares of the Series T-1
Preferred Stock and 9,919.8 or 100% of the outstanding shares
of the Series T-2 Preferred Stock pursuant to the Investment
Agreement. Messrs. Marshall, Maynard and Stevens are Chair-
man, Director of Corporate Strategy and Chief Financial Offic-
er, respectively, of BA and have been designated by BA to act
as directors of the Company pursuant to the Investment
Agreement. Messrs. Marshall, Maynard and Stevens each dis-
claims beneficial ownership of Series F Preferred Stock and
Series T Preferred Stock.
(7) The listing of Mr. Salizzoni's holding includes 177,800 shares
of Common Stock issuable within 60 days of March 1, 1995 upon
exercise of stock options and 3,000 shares of Restricted
Stock.
(8) The listing of Mr. Schofield's holding includes 395,069 shares
of Common Stock issuable within 60 days of March 1, 1995 upon
exercise of stock options, and 10,000 shares of Restricted
Stock.
(9) Mr. Schofield's holding of Depositary Shares is convertible
into 185,442 shares of Common Stock.
(10) The listing of Mr. Lagow's holding reflects shares of Common
Stock issuable within 60 days of March 1, 1995 upon exercise
of stock options.
(11) The listing of Mr. Lloyd's holding includes 163,992 shares of
Common Stock issuable within 60 days of March 1, 1995 upon
exercise of stock options and 1,000 shares of Restricted
Stock.
(12) The listing of Mr. Frestel's holding includes 102,000 shares
of Common Stock issuable within 60 days of March 1, 1995 upon
exercise of stock options and 1,000 shares of Restricted
Stock.
(13) The listing of all directors' and officers' holdings includes,
in the case of Depositary Shares, the number of shares of
Common Stock into which the Depositary Shares are convertible,
and also includes 1,312,591 shares of Common Stock issuable
within 60 days of March 1, 1995 upon exercise of stock options
and 15,800 shares of Restricted Stock.
The only persons known to the Company (from Company records
and reports on Schedules 13D and 13G filed with the Securities and
Exchange Commission) which owned, as of March 1, 1995, more than 5%
of its Common Stock, Series A Preferred Stock, Series F Preferred
Stock and Series T Preferred Stock are listed below:
171
<PAGE>
<TABLE>
<CAPTION>
Amount and
Name and address nature of Percent
of beneficial beneficial of
Title of Class owner ownership Class(1)
- -------------- --------------- ---------- --------
<S> <C> <C> <C>
Preferred Stock
- ---------------
Series A Berkshire Hathaway Inc. 358,000 (2) 100% (3)
1440 Kiewit Plaza
Omaha, Nebraska 68131
Series F BritAir Acquisition 30,000 (4) 100% (5)
Corp. Inc.
75-20 Astoria Blvd.
Jackson Heights,
New York 11370
Series T BritAir Acquisition (6) 100% (5)
Corp. Inc. (6)
75-20 Astoria Blvd.
Jackson Heights,
New York 11370
Common Stock Franklin Resources, Inc. 4,852,165 (7) 8%
777 Mariners Island Blvd.
San Mateo,
California 94404
Common Stock State Street Bank and 3,108,375 (8) 5%
Trust Company, Trustee
225 Franklin Street
Boston,
Massachusetts 02110
</TABLE>
(1) Represents percent of class of stock outstanding on March 1,
1995.
(2) Number of shares as to which such person has shared voting
power-358,000; shared dispositive power-358,000.
(3) These shares of Series A Preferred Stock are owned directly by
affiliates of Berkshire, are convertible, under certain
circumstances and subject to certain antidilution adjustments,
into 9,239,944 shares of Common Stock and represent approxi-
mately 10.2% of the combined voting power of the outstanding
Common Stock, Series A Preferred Stock, Series F Preferred
Stock and Series T Preferred Stock, voting as a single class,
at March 1, 1995. A number of Rights, equal to the number of
shares of Common Stock into which the Series A Preferred Stock
is convertible, is also owned by this person. As disclosed
above, two directors of the Company, Messrs. Buffett and
Munger, may be deemed to control Berkshire and disclaim
beneficial ownership of Series A Preferred Stock.
(4) Number of shares as to which BA has sole voting power and sole
dispositive power-30,000.
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<PAGE>
(5) BritAir Acquisition Corp. Inc. is a wholly-owned subsidiary of
BA and owns Series F Preferred Stock and Series T Preferred
Stock pursuant to the Investment Agreement. Series F Preferred
Stock and Series T Preferred Stock are convertible, under
certain circumstances on or after January 21, 1997 and subject
to certain antidilution adjustments and Foreign Ownership
Restrictions, into a total of 15,458,851 and 3,831,695 shares
of Common Stock, respectively. Together, the Series F Pre-
ferred Stock and Series T Preferred Stock represent approxi-
mately 21.3% of the combined voting power of the outstanding
Common Stock, Series A Preferred Stock, Series F Preferred
Stock and Series T Preferred Stock, voting as a single class,
at March 1, 1995. A number of Rights, equal to the number of
shares of Common Stock into which the Series F Preferred Stock
and Series T Preferred Stock are convertible, is owned by this
person. As disclosed above, three directors of the Company,
Messrs. Marshall, Maynard and Stevens, have been designated by
BA to act as directors of the Company pursuant to the Invest-
ment Agreement and disclaim beneficial ownership of Series F
Preferred Stock and Series T Preferred Stock.
(6) Reflects 152.1 or 100% of the outstanding shares of Series T-1
Preferred Stock and 9,919.8 or 100% of the outstanding shares
of Series T-2 Preferred Stock. BA has sole voting power and
sole dispositive power as to all these outstanding shares of
Series T Preferred Stock.
(7) The Schedule 13G dated February 8, 1995 disclosing this
ownership declares that the filing of the Schedule 13G should
not be construed as an admission that Franklin Resources, Inc.
is the beneficial owner of any securities covered by the
Schedule 13G. Franklin Resources, Inc. is an investment
company registered under Section 8 of the Investment Company
Act of 1940 and an investment adviser registered under Section
203 of the Investment Advisers Act of 1940. Its Schedule 13G
states that it was making the filing on a voluntary basis as
if all the shares were beneficially owned by Franklin Resourc-
es, Inc., its subsidiaries, and investment companies advised
by those subsidiaries with respect to the exercise of invest-
ment discretion. Number of shares as to which reporting
person has sole voting power - 4,830,665 shares; shared voting
power: 21,500 shares; shared dispositive power: 4,852,165
shares.
(8) Of these shares, 2,166,414 are held by such person under the
USAir, Inc. Employee Stock Ownership Plan (shared voting power
and shared dispositive power - 2,166,414 shares), 941,923 are
held by such person as trustee under various collective
investment funds for employee benefit plans and other index
accounts (sole voting power - 327,177 shares and sole disposi-
tive power - 941,923 shares) and 38 are held by such person as
trustee/co-trustee under various personal trust accounts
(shared voting power - 38 shares).
Item 13. Certain Relationships and Related Transactions
None
173
<PAGE>
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a) The following documents are filed as part of this report:
1. Financial Statements
(i) The following consolidated financial statements of
USAir Group are included in Part II, Item 8A of this
report:
- Consolidated Statements of Operations for each of
the Three Years Ended December 31, 1994
- Consolidated Balance Sheets at December 31, 1994
and 1993
- Consolidated Statements of Cash Flows for each of
the Three Years Ended December 31, 1994
- Consolidated Statements of Changes in Stockholders'
Equity (Deficit) for each of the Three Years Ended
December 31, 1994
- Notes to Consolidated Financial Statements
(ii) The following consolidated financial statements of
USAir are included in Part II, Item 8B of this report:
- Consolidated Statements of Operations for each of
the Three Years Ended December 31, 1994
- Consolidated Balance Sheets at December 31, 1994
and 1993
- Consolidated Statements of Cash Flows for each of
the Three Years Ended December 31, 1994
- Consolidated Statements of Changes in Stockholder's
Equity (Deficit) for each of the Three Years Ended
December 31, 1994
- Notes to Consolidated Financial Statements
2. Financial Statement Schedules
(i) Independent Auditors' Report on the Consolidated
Financial Statement Schedule of USAir Group.
- Consolidated Financial Statement Schedule - Three
Years Ended December 31, 1994:
VIII - Valuation and Qualifying Accounts and Re-
serves
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<PAGE>
(ii) Independent Auditors' Report on the Consolidated
Financial Statement Schedule of USAir.
- Consolidated Financial Statement Schedule - Three
Years Ended December 31, 1994:
VIII - Valuation and Qualifying Accounts and Re-
serves
All other schedules are omitted because they are not appli-
cable or not required, or because the required information is
either incorporated herein by reference or included in the
financial statements or notes thereto included in this report.
(b) Reports on Form 8-K
During the quarter ended December 31, 1994, the Company and
USAir filed a Current Report dated November 18 on Form 8-K
regarding USAir's plans to use the net proceeds of any sales of
assets to repurchase, defease or redeem its outstanding debt. The
Company and USAir filed a Current Report dated January 27, 1995 on
Form 8-K regarding the press release dated January 27, 1995 of
USAir Group, Inc. and USAir, Inc., with unaudited consolidated
statements of operations for each company.
3. Exhibits
Designation Description
3.1 Restated Certificate of Incorporation of USAir Group
(incorporated by reference to Exhibit 3.1 to USAir
Group's Registration Statement on Form 8-B dated
January 27, 1983), including the Certificate of Amend-
ment dated May 13, 1987 (incorporated by reference to
Exhibit 3.1 to USAir Group's and USAir's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1987), the Certificate of Increase dated June 30, 1987
(incorporated by reference to Exhibit 3 to USAir
Group's and USAir's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1987), the Certificate of
Increase dated October 16, 1987 (incorporated by
reference to Exhibit 3.1 to USAir Group's and USAir's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1987), the Certificate of Increase dated
August 7, 1989 (incorporated by reference to Exhibit
3.1 to USAir Group's Annual Report on Form 10-K for the
year ended December 31, 1989), the Certificate of
Increase dated April 9, 1992 (incorporated by reference
to Exhibit 3.1 to USAir Group's and USAir's Annual
Report on Form 10-K for the year ended December 31,
1992), the Certificate of Increase dated January 21,
1993 (incorporated by reference to USAir Group's and
175
<PAGE>
USAir's Annual Report on Form 10-K for the year ended
December 31, 1992), and the Certificate of Amendment
dated May 26, 1993 (incorporated by reference to
Appendix II to USAir Group's Proxy Statement dated
April 26, 1993).
3.2 By-Laws of USAir Group.
3.3 Rights Agreement, dated as of July 29, 1989, as amended
and restated as of January 21, 1993, between USAir
Group and Chemical Bank, as Rights Agent (incorporated
by reference to Exhibit 28.4 to USAir Group's Current
Report on Form 8-K dated January 21, 1993).
3.4 Restated Certificate of Incorporation of USAir (in-
corporated by reference to Exhibit 3.1 to USAir's
Registration Statement on Form 8-B dated January 27,
1983).
3.5 By-Laws of USAir.
4.1 Amended Certificate of Designation, Preferences, and
Rights of the Series D of Junior Preferred Stock of
USAir Group (incorporated by reference to Exhibit 4(c)
to USAir Group's Current Report on Form 8-K dated
August 11, 1989).
4.2 Certificate of Designation of Series A Cumulative
Convertible Preferred Stock of USAir Group (incorpo-
rated by reference to Exhibit 4(b) to USAir Group's
Current Report on Form 8-K dated August 11, 1989).
4.3 Certificate of Designation of Series B Cumulative
Convertible Preferred Stock of USAir Group (incorpo-
rated by reference to Exhibit 3.3 to Amendment No. 4 to
USAir Group's Registration Statement on Form S-3
(Registration No. 33-39540) dated May 17, 1991).
4.4 Agreement between USAir Group and Berkshire Hathaway
Inc. dated August 7, 1989 (incorporated by reference to
Exhibit 4(a) to USAir Group's Current Report on Form 8-
K dated August 11, 1989).
4.5 Certificate of Designation of Series F Cumulative
Convertible Senior Preferred Stock of USAir Group
(incorporated by reference to Exhibit 28.2 to USAir
Group's Current Report on Form 8-K dated January 21,
1993).
4.6 Form of Certificate of Designation of Series T-_
Cumulative Exchangeable Convertible Senior Preferred
Stock of USAir Group (incorporated by reference to
Appendix VII to USAir Group's Proxy Statement dated
April 26, 1993). Neither USAir Group nor USAir is
176
<PAGE>
filing any instrument (with the exception of holders of
exhibits 10.1(a-c)) defining the rights of holders of
long-term debt because the total amount of securities
authorized under each such instrument does not exceed
ten percent of the total assets of USAir. Copies of
such instruments will be furnished to the Securities
and Exchange Commission upon request.
10.1(a) Supplemental Agreement No. 16, dated July 19, 1990, to
Purchase Agreement No. 1102 between USAir and The
Boeing Company (incorporated by reference to Exhibit
10.2(a) to USAir Group's Annual Report on Form 10-K for
the year ended December 31, 1990).
10.1(b) Supplemental Agreement No. 17, dated November 28, 1990,
to Purchase Agreement No. 1102 between USAir and The
Boeing Company (incorporated by reference to Exhibit
10.2(b) to USAir Group's Annual Report on Form 10-K for
the year ended December 31, 1990).
10.1(c) Supplemental Agreement No. 18, dated December 23, 1991,
to Purchase Agreement No. 1102 between USAir and The
Boeing Company (incorporated by reference to Exhibit
10.2(c) to USAir Group's Annual Report on Form 10-K for
the year ended December 31, 1991).
10.2 Purchase Agreement No. 1725 dated December 23, 1991
between USAir and The Boeing Company (incorporated by
reference to Exhibit 10.3 to USAir Group's and USAir's
Annual Report on Form 10-K for the year ended Decem-
ber 31, 1991).
10.3 USAir, Inc. Executive Incentive Compensation Plan
(incorporated by reference to Exhibit 10.3 to USAir
Group's Annual Report on Form 10-K for the year ended
December 31, 1989).
10.4 USAir, Inc. Officers' Supplemental Benefit Plan (incor-
porated by reference to Exhibit 10.5 to USAir's Annual
Report on Form 10-K for the year ended December 31,
1980).
10.5 USAir, Inc. Supplementary Retirement Benefit Plan
(incorporated by reference to Exhibit 10.5 to USAir
Group's Annual Report on Form 10-K for the year ended
December 31, 1989).
10.6 USAir, Inc. Supplemental Executive Defined Contribution
Plan.
10.7 USAir Group's 1984 Stock Option and Stock Appreciation
Rights Plan (incorporated by reference to Exhibit A to
USAir Group's Proxy Statement dated March 30, 1984).
177
<PAGE>
10.8 USAir Group's 1988 Stock Incentive Plan (incorporated
by reference to Exhibit 10.15 to USAir Group's Annual
Report on Form 10-K for the year ended December 31,
1987).
10.9 USAir Group's 1992 Stock Option Plan (incorporated by
reference to Exhibit A to USAir Group's Proxy Statement
dated March 30, 1992).
10.10 Employment Agreement between USAir and its Chief
Executive Officer.
10.11 Employment Agreement between USAir and its President
and Chief Operating Officer.
10.12 Employment Agreement between USAir and its Executive
Vice President-Marketing.
10.13 Employment Agreement between USAir and its Executive
Vice President and General Counsel.
10.14 Employment Agreement between USAir and its Senior Vice
President-Human Resources.
10.15(a) Agreement between USAir and its President and Chief
Operating Officer providing supplemental retirement
benefits.
10.15(b) Agreement between USAir and its Executive Vice Presi-
dent-Marketing providing supplemental retirement
benefits.
10.15(c) Agreement between USAir and its Executive Vice Presi-
dent and General Counsel providing supplemental retire-
ment benefits.
10.15(d) Agreement between USAir and its Senior Vice President-
Human Resources providing supplemental retirement
benefits.
10.16(a) Trust Agreement dated as of August 1, 1989 between
USAir Group and Wachovia Bank and Trust Company, N.A.,
as Trustee (incorporated by reference to Exhibit
10.10(a) to USAir Group's Annual Report on Form 10-K
for the year ended December 31, 1989).
10.16(b) Trust Agreement dated as of August 1, 1989 between
USAir and Wachovia Bank and Trust Company, N.A., as
Trustee (incorporated by reference to Exhibit 10.10(b)
to USAir Group's Annual Report on Form 10-K for the
year ended December 31, 1989).
10.17 Investment Agreement dated as of January 21, 1993
between USAir Group and British Airways Plc (incor-
porated by reference to Exhibit 28.1 to USAir Group's
178
<PAGE>
and USAir's Current Report on Form 8-K filed on Janu-
ary 28, 1993, as amended by Amendment No. 1 on Form 8
filed on April 13, 1993).
10.17(a) Amendment dated as of February 21, 1994 to the Invest-
ment Agreement dated as of January 21, 1993 between
USAir Group and British Airways Plc (incorporated by
reference to Exhibit 10.13(a) to USAir Group's Annual
Report on Form 10-K for the year ended December 31,
1993).
11 Computation of primary and fully diluted earnings per
share of USAir Group for the five years ended Decem-
ber 31, 1994.
21 Subsidiaries of USAir Group and USAir.
23.1 Consent of the Auditors of USAir Group to the incorpo-
ration of their report concerning certain financial
statements contained in this report in certain regis-
tration statements.
23.2 Consent of the Auditors of USAir to the incorporation
of their report concerning certain financial statements
contained in this report in certain registration
statements.
24.1 Powers of Attorney signed by the directors of USAir
Group, authorizing their signatures on this report.
24.2 Powers of Attorney signed by the directors of USAir,
authorizing their signatures on this report.
27 Financial Data Schedule
(this space intentionally left blank)
179
<PAGE>
Signatures
Pursuant to the requirements of Section 13 of 15(d) of the
Securities Exchange Act of 1934, USAir Group, Inc. has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
USAir Group, Inc.
By: /s/Seth E. Schofield
---------------------------------
Seth E. Schofield
Chairman and Chief
Executive Officer
(Principal Executive Officer)
Date: April 12, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of USAir Group, Inc. and in the capacities and on the dates
indicated.
April 12, 1995 By: /s/Seth E. Schofield
---------------------------------
Seth E. Schofield
Chairman and Chief
Executive Officer
(Principal Executive Officer)
April 12, 1995 By: /s/John W. Harper
---------------------------------
John W. Harper
Senior Vice President-Finance
(Principal Financial Officer)
April 12, 1995 By: /s/Ann Greer-Rector
---------------------------------
Ann Greer-Rector
Vice President & Controller
(Principal Accounting Officer)
April 12, 1995 By: *
--------------------------------
Warren E. Buffett
Director
180
<PAGE>
April 12, 1995 By: *
---------------------------------
Edwin I. Colodny
Director
April 12, 1995 By: *
--------------------------------
Mathias J. DeVito
Director
April 12, 1995 By: *
--------------------------------
George J. W. Goodman
Director
April 12, 1995 By: *
---------------------------------
John W. Harris
Director
April 12, 1995 By: *
---------------------------------
Edward A. Horrigan, Jr.
Director
April 12, 1995 By: *
---------------------------------
Robert LeBuhn
Director
April 12, 1995 By: *
---------------------------------
Sir Colin Marshall
Director
April 12, 1995 By: *
---------------------------------
Roger P. Maynard
Director
181
<PAGE>
April 12, 1995 By: *
---------------------------------
John G. Medlin, Jr.
Director
April 12, 1995 By: *
---------------------------------
Hanne M. Merriman
Director
April 12, 1995 By: *
--------------------------------
Charles T. Munger
Director
April 12, 1995 By: *
---------------------------------
Frank L. Salizzoni
Director
April 12, 1995 By: *
---------------------------------
Raymond W. Smith
Director
April 12, 1995 By: *
--------------------------------
Derek M. Stevens
Director
By: /s/John W. Harper
------------------------------
John W. Harper
Attorney-In-Fact
182
<PAGE>
Signatures
Pursuant to the requirements of Section 13 of 15(d) of the
Securities Exchange Act of 1934, USAir, Inc. has duly caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
USAir, Inc.
By: /s/Seth E. Schofield
---------------------------------
Seth E. Schofield
Chairman and Chief
Executive Officer
(Principal Executive Officer)
Date: April 12, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of USAir, Inc. and in the capacities and on the dates
indicated.
April 12, 1995 By: /s/Seth E. Schofield
---------------------------------
Seth E. Schofield
Chairman and Chief
Executive Officer
(Principal Executive Officer)
April 12, 1995 By: /s/John W. Harper
---------------------------------
John W. Harper
Senior Vice President-Finance
(Principal Financial Officer)
April 12, 1995 By: /s/Ann Greer-Rector
---------------------------------
Ann Greer-Rector
Vice President & Controller
(Principal Accounting Officer)
April 12, 1995 By: *
--------------------------------
Warren E. Buffett
Director
183
<PAGE>
April 12, 1995 By: *
---------------------------------
Edwin I. Colodny
Director
April 12, 1995 By: *
--------------------------------
Mathias J. DeVito
Director
April 12, 1995 By: *
--------------------------------
George J. W. Goodman
Director
April 12, 1995 By: *
---------------------------------
John W. Harris
Director
April 12, 1995 By: *
---------------------------------
Edward A. Horrigan, Jr.
Director
April 12, 1995 By: *
---------------------------------
Robert LeBuhn
Director
April 12, 1995 By: *
---------------------------------
Sir Colin Marshall
Director
April 12, 1995 By: *
---------------------------------
Roger P. Maynard
Director
April 12, 1995 By: *
---------------------------------
John G. Medlin, Jr.
Director
184
<PAGE>
April 12, 1995 By: *
---------------------------------
Hanne M. Merriman
Director
April 12, 1995 By: *
--------------------------------
Charles T. Munger
Director
April 12, 1995 By: *
---------------------------------
Frank L. Salizzoni
Director
April 12, 1995 By: *
---------------------------------
Raymond W. Smith
Director
April 12, 1995 By: *
--------------------------------
Derek M. Stevens
Director
By: /s/John W. Harper
------------------------------
John W. Harper
Attorney-In-Fact
185
<PAGE>
Independent Auditors' Report
On Consolidated Financial Statement Schedule - USAir Group, Inc.
The Stockholders and Board of Directors
USAir Group, Inc.
Under date of February 22, 1995, except as to notes 4(a) and 4(c)
which are as of April 10, 1995, we reported on the consolidated
balance sheets of USAir Group, Inc. and subsidiaries ("Group") as
of December 31, 1994 and 1993, and the related consolidated
statements of operations, cash flows, and changes in stockholders'
equity (deficit) for each of the years in the three-year period
ended December 31, 1994, included in Item 14(a)1(i) in this annual
report on Form 10-K for the year 1994. In connection with our
audits of the aforementioned consolidated financial statements, we
also audited the consolidated financial statement schedule as
listed in Item 14(a)2(i). This consolidated financial statement
schedule is the responsibility of Group's management. Our responsi-
bility is to express an opinion on the consolidated financial
statement schedule based on our audits.
In our opinion, this consolidated financial statement schedule,
when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
The audit report on the consolidated financial statements of USAir
Group, Inc. and subsidiaries referred to above contains an
explanatory paragraph that states that Group's recurring losses
from operations and net capital deficiency raise substantial doubt
about its ability to continue as a going concern. The consolidated
financial statement schedule in Item 14(a)2(i) in this annual
report on Form 10-K for the year does not include any adjustments
that might result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Washington, D. C.
February 22, 1995, except as to notes 4(a) and 4(c) of the consoli-
dated financial statements which are as of April 10, 1995
186
<PAGE>
USAir Group, Inc.
Schedule VIII
Valuation and Qualifying Accounts and Reserves
(in thousands)
<TABLE>
<CAPTION>
Allowance For
Uncollectible Inventory
Accounts Obsolescence
------------- ------------
<S> <C> <C>
Balance December 31, 1991 $ 11,467 $ 77,934
Additions charged to income 9,927 16,693
Amounts charged to reserve (8,065) (6,197)
Other (1) (1,661) (2,752)
------- -------
Balance December 31, 1992 11,668 85,678
Additions charged to income 12,064 12,136
Amounts charged to reserve (12,914) (2,643)
------- -------
Balance December 31, 1993 10,818 95,171
Additions charged to income (2) 11,763 86,775
Amounts charged to reserve (13,110) (9,155)
------- -------
Balance December 31, 1994 $ 9,471 $172,791
======= =======
(1) Represents the reserve balances of Air Services, Inc.,
Aviation Supply Corporation and Piedmont Aviation Services,
Inc. which were sold in July 1992.
(2) 1994 additions to inventory obsolescence include charges of
$75 million to reflect market value of parts related to
certain aircraft which have been or will be withdrawn from
service and inventory parts which have been identified for
sale.
187
<PAGE>
Independent Auditors' Report
On Consolidated Financial Statement Schedule - USAir, Inc.
The Stockholder and Board of Directors
USAir, Inc.
Under date of February 22, 1995, except as to notes 4(a) and 4(c)
which are as of April 10, 1995, we reported on the consolidated
balance sheets of USAir, Inc. and subsidiary ("USAir") as of
December 31, 1994 and 1993, and the related consolidated statements
of operations, cash flows, and changes in stockholder's equity
(deficit) for each of the years in the three-year period ended
December 31, 1994, included in Item 14(a)1(ii) in this annual
report on Form 10-K for the year 1994. In connection with our
audits of the aforementioned consolidated financial statements, we
also audited the consolidated financial statement schedule as
listed in Item 14(a)2(ii). This consolidated financial statement
schedule is the responsibility of USAir's management. Our responsi-
bility is to express an opinion on the consolidated financial
statement schedule based on our audits.
In our opinion, this consolidated financial statement schedule,
when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
The audit report on the consolidated financial statements of USAir,
Inc. and subsidiary referred to above contains an explanatory
paragraph that states that USAir's recurring losses from operations
and net capital deficiency raise substantial doubt about its
ability to continue as a going concern. The consolidated financial
statement schedule in Item 14(a)2(ii) in this annual report on Form
10-K for the year does not include any adjustments that might
result from the outcome of this uncertainty.
KPMG Peat Marwick LLP
Washington, D. C.
February 22, 1995, except as to notes 4(a) and 4(c) of the consoli-
dated financial statements which are as of April 10, 1995
188
<PAGE>
USAir, Inc.
Schedule VIII
Valuation and Qualifying Accounts and Reserves
(in thousands)
</TABLE>
<TABLE>
<CAPTION>
Allowance for
Uncollectible Inventory
Accounts Obsolescence
------------- ------------
<S> <C> <C>
Balance December 31, 1991 $ 9,739 $ 73,174
Additions charged to income 9,200 12,949
Amounts charged to reserve (7,531) (2,548)
------- -------
Balance December 31, 1992 11,408 83,575
Additions charged to income 11,990 11,103
Amounts charged to reserve (12,803) (2,086)
------- -------
Balance December 31, 1993 10,595 92,592
Additions charged to income (1) 11,600 85,633
Amounts charged to reserve (12,973) (8,398)
------- -------
Balance December 31, 1994 $ 9,222 $169,827
======= =======
(1) 1994 additions to inventory obsolescence include charges of
$75 million to reflect market value of parts related to
certain aircraft which have been or will be withdrawn from
service and inventory parts which have been identified for
sale.
189
</TABLE>
<PAGE>
EXHIBIT 3.2
BY-LAWS
USAIR GROUP, INC.
July 27, 1994
* * * * * * * * * * *
ARTICLE I
OFFICES
The registered office of the Corporation shall be in the City
of Wilmington, County of New Castle, Delaware. The Corporation may
have offices within and without the State of Delaware.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Annual Meetings. The annual meeting of
stockholders for the election of Directors shall be held on the
fourth Wednesday in May, or if that be a legal holiday, on the next
succeeding day not a legal holiday, at nine- thirty o'clock in the
morning, or in any year at such other date and time as may be
designated by the Board of Directors, at which meeting the
stockholders shall elect by ballot, by plurality vote, a Board of
Directors and may transact such other business as may come before
the meeting.
Section 2. Special Meetings. Special meetings of the
stockholders, except those regulated by statue, may be called at
any time by the Chairman or President, and shall, be called by the
President or Secretary on the request, in writing, or by vote, of
a majority of Directors, and by no other person or persons. No
business may be transacted at a special meeting of the stockholders
except as set forth in the notice of such meeting.
Section 3. Location of Meetings. All meetings of the
stockholders for any purpose may be held, within or without the
State of Delaware, at such time and place as shall be stated in the
notice of the meeting or a duly executed waiver of notice, and by
no other person or persons. No business may be transacted at a
special meeting of the stockholder except as set forth in the
notice of such meeting.
Section 4. List of Stockholders. The Secretary shall cause
to be prepared a complete list of stockholders entitled to vote at
any meeting, arranged in alphabetical order and showing the address
of each stockholder and number of shares registered in the name of
each stockholder. The list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during
ordinary business hours for at least ten days prior to the meeting
either at a place within the city where the meeting is to be held
<PAGE>
(which place shall be specified in the notice of meeting) or at the
place where the meeting is to be held. The list shall also be open
for inspection by stockholders during the time and at the place of
the meeting.
Section 5. Voting. Each stockholder entitled to vote shall,
at every meeting of the stockholders, be entitled to one vote in
person or by proxy, signed by him, for each share of voting stock
held by him but no proxy shall be voted on or after three years
from its date, unless it provides for a longer period. Such right
to vote shall be subject to the right of the Board of Directors to
fix a record date for voting stockholders as hereinafter provided.
Section 6. Notice of Stockholder Business. At an annual
meeting of the stockholders held pursuant to Section 1 of this
Article II, only such business shall be conducted as shall have
been brought before the meeting (a) by or at the direction of the
Board of Directors or (b) by any stockholder of the Corporation,
provided such stockholder complies with this Section 6. For
business to be properly brought before an annual meeting by a
stockholder, the stockholder shall give prior written notice
thereof to the Secretary. Such notice shall be received at the
principal executive offices of the Corporation by the Secretary not
less than thirty nor more than sixty days prior to such annual
meeting; provided, however, that in the event that less than forty
days' prior written notice or prior public disclosure of the date
of the meeting is given or made to stockholders, such notice by the
stockholder shall be received by the Secretary not later than the
close of business on the tenth day following the day on which such
notice of the date of the annual meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary
pursuant to this Section 6 shall set forth as to each matter the
stockholder proposes to bring before the annual meeting: (a) a
brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the
annual meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business,
(c) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, and (d) any material
interest of the stockholder in such business. Notwithstanding any
provision in these By-Laws to the contrary, no business shall be
conducted at an annual meeting except in accordance with this
Section 6. The Chairman of an annual meeting shall, if the facts
warrant, determine and declare to the meeting that business was not
properly brought before the meeting in accordance with this Section
6, and if he should so determine, he shall so declare to the
meeting and any such business shall not be transacted.
<PAGE>
Section 7. Notice to Stockholders. Notice of all meetings
shall be mailed by the Secretary to each stockholder of record
entitled to vote, at his or her last known post office address, not
less than ten nor more than sixty days prior to any annual or
special meeting.
Section 8. Quorum. The holders of a majority of the stock
outstanding and entitled to vote shall constitute a quorum but the
holders of a smaller amount may adjourn from time to time without
further notice until a quorum is secured.
Section 9. Stockholder Action by Written Consent. In order
that the Corporation may determine the stockholders entitled to
consent to corporate action in writing without a meeting, the Board
of Directors may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date
is adopted by the Board of Directors, and which date shall not be
more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board of Directors. Any
stockholder of record seeking to have the stockholders authorize or
take corporate action by written consent shall, by written notice
to the Secretary, request the Board of Directors to fix a record
date. The Board of Directors shall promptly, but in all events
within 10 days after the date on which such a request is received,
adopt a resolution fixing the record date. If no record date has
been fixed by the Board of Directors within 10 days of the date on
which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing
without a meeting, 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 is 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 consent to corporate action in writing without a
meeting shall be at the close of business on the date on which the
Board of Directors adopts the resolution taking such prior action.
<PAGE>
ARTICLE III
DIRECTORS
Section 1. Number. The property and business of the
Corporation shall be managed and controlled by its Board of
Directors, consisting of sixteen members. Directors need not be
stockholders.
Section 2. Notice of Stockholder Nominees. Only persons
nominated in accordance with this Section 2 shall be eligible for
election as Directors. Nomination of persons for election to the
Board of Directors of the Corporation may be made at a meeting of
stockholders (a) by or at the direction of the Board of Directors
or (b) by any stockholder of the Corporation entitled to vote for
the election of Directors at the meeting who complies with this
Section 2. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be received at the
principal executive offices of the Corporation by the Secretary not
less than thirty nor more than sixty days prior to the meeting;
provided, however, that in the event less than forty days' prior
written notice or prior public disclosure of the date of the
meeting is given or made to stockholders, such notice by the
stockholder shall be received by the Secretary not later than the
close of business on the tenth day following the day on which such
notice of the date of meeting was mailed or such public disclosure
was made. Such stockholder's notice shall set forth: (a) as to
each person whom the stockholder proposes to nominate for election
or re-election as a Director, all information relating to such
person as is required to be disclosed in solicitation of proxies
for election of Directors, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including such person's written consent to being
named in the proxy statement as a nominee and to serving as a
Director if elected), and (b) as to the stockholder giving the
notice (i) the name and address, as they appear on the
Corporation's books, of such stockholder and (ii) the class and
number of shares of the Corporation which are beneficially owned by
such stockholder. At the request of the Board of Directors any
person nominated by the Board of Directors for election as a
Director shall furnish to the Secretary that information required
by this Section 2 to be set forth in a stockholder's notice of
nomination which pertains to the nominee. No person shall be
eligible for election as a Director of the Corporation unless
nominated in accordance with these By-Laws. The Chairman of the
stockholders' meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance
with these By-Laws, and if he should so determine, he shall so
declare to such meeting and the defective nomination shall be
disregarded.
<PAGE>
Section 3. Election, Term, Vacancies. The Directors shall
hold office until the next annual election and until their
successors are elected and qualified. They shall be elected by the
stockholders, except that if there be a vacancy in the Board by
reason of death, resignation or otherwise, such vacancy shall be
filled for the unexpired term by the remaining Directors, though
less than a quorum, by a majority vote.
Section 4. Powers of Directors. The business of the
Corporation shall be managed by or under the direction of its Board
of Directors which may exercise all such powers of the Corporation
and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these By-Laws directed or
required to be exercised or done by the stockholders.
Section 5. Directors Emeriti. For the purpose of conserving,
for the benefit of the Corporation, the knowledge, experience and
good will generated by a long period of service in formulating and
implementing the basic policies of the Corporation or predecessor
or affiliated corporations, the Board of Directors shall have the
power in its discretion to appoint one or more Directors Emeriti.
Any person who has served for a period of not less than ten years
on the Board of Directors of the Corporation or of any predecessor
or affiliate of the Corporation, may be appointed a Director
Emeritus by the Board of Directors for an annual term and shall be
eligible for reappointment annually at the discretion of the Board.
The duties of a Director Emeritus shall consist of being available
to the Chairman and President of the Corporation for consultation
and advice on any matters pertaining to the Corporation which the
Chairman or President may refer to him from time to time.
Directors Emeriti shall be notified of and be invited to attend the
annual meeting of the Board of Directors and such other meetings as
determined by the Chairman or President of the Corporation and be
entitled to be heard at such meetings on matters pending before the
Board of Directors. They shall not be members of the Board nor be
entitled to vote as such nor be counted as constituting part of a
quorum.
Section 6. Compensation. Directors, members of committees
and Directors Emeriti shall receive such compensation as the Board
shall from time to time prescribe.
<PAGE>
ARTICLE IV
MEETINGS OF DIRECTORS
Section 1. Annual Meeting. After each annual election of
Directors, the newly elected Directors may meet for the purpose of
organization, the election of Officers, and the transaction of
other business, at such place and time as shall be fixed by the
stockholders at the annual meeting, and, if a majority of the
Directors be present at such place and time, no prior notice of
such meeting shall be required to be given to the Directors. The
place and time of such meeting may also be fixed by written consent
of the Directors.
Section 2. Regular Meetings. Bi-monthly meetings of the
Board of Directors shall be held in January, March, May, July,
September and November in each year, on the date and at a time and
place designated from time to time by the Board of Directors. The
Secretary shall forward to each Director, at least five days before
any such meeting, a notice of the time and place of the meeting.
Section 3. Special Meetings. Special meetings of the
Directors may be called by the Chairman or President on two days'
notice in writing, or on one day's notice by telegraph to each
Director, and shall be called by the President in like manner on
the written request of two or more Directors.
Section 4. Location. Meetings of the Directors may be held
within or without the State of Delaware at such place as is
indicated in the notice of waiver of notice thereof.
Section 5. Quorum. A majority of the Directors shall
constitute a quorum, but a smaller number may adjourn from time to
time, without further notice, until a quorum is secured.
ARTICLE V
COMMITTEES
Section 1. Creation. The Board of Directors may, by
resolution or resolutions passed by a majority of the Board,
designate one or more committees each to consist of three or more
Directors of the Corporation. Each such Committee shall have and
may exercise such powers and duties as shall be delegated to it by
the Board of Directors except that no such Committee shall have
power to (a) elect Directors; (b) alter, amend or repeal these By-
Laws or any resolution or resolutions of the Board of Directors
relating to such Committee; (c) declare any dividend or make any
other distribution to the stockholders of the Corporation; (d)
appoint any member of such Committee; or (e) take any other action
which may lawfully be taken only by the Board.
<PAGE>
Section 2. Committee Procedure. Each such Committee
established by the Board shall meet at stated times or on notice to
all members by any member of such Committee. Each such Committee
shall establish its own rules of procedure. Each such Committee
shall keep regular minutes of its proceedings and report the same
to the Board of Directors.
ARTICLE VI
INDEMNIFICATION
The Corporation shall indemnify its Directors, Officers and
employees, and shall have the power to indemnify its other agents,
to the full extent permitted by the General Corporation Law of the
State of Delaware, as amended from time to time (but, in the case
of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights
than such law permitted the Corporation to provide on June 29,
1989). Expenses (including attorneys' fees) incurred by an
Officer, Director or employee in defending any civil, criminal,
administrative, or investigative action, suit or proceeding shall
to the fullest extent permitted by law 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 such
Director, Officer or employee to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified
by the Corporation as authorized hereunder. The right to
indemnification and the payment of expenses incurred in defending
a proceeding in advance of its final disposition conferred in this
Article shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, provision of the
Restated Certificate of Incorporation, by-laws, agreement, vote of
stockholders or disinterested directors or otherwise.
ARTICLE VII
OFFICERS
Section 1. General. The Officers of the Corporation shall be
a Chairman of the Board, a Chief Executive Officer, a President,
one or more Vice Presidents, a Secretary, a Treasurer, a Controller
and such other Officers as may from time to time be chosen by the
Board of Directors. The Chief Executive Officer shall be empowered
to appoint and remove from office, at his discretion, Assistant
Vice Presidents and Assistant Secretaries. Any number of offices
may be held by the same person, unless the certificate of
incorporation or these By-Laws otherwise provide.
<PAGE>
Section 2. Term. The Officers of the Corporation shall hold
office until their successors are chosen and qualified. Any
Officer chosen or appointed by the Board of Directors may be
removed either with or without cause at any time by the affirmative
vote of a majority of the whole Board of Directors. If the office
of any Officer other than an assistant officer becomes vacant for
any reason, the vacancy shall be filled by the affirmative vote of
a majority of the whole Board of Directors.
Section 3. Chairman of the Board. A Chairman of the Board
shall be chosen from among the Directors. The Chairman of the
Board shall preside at all meetings of the stockholders and
Directors and shall perform such other duties as may be prescribed
by the Board of Directors.
Section 4. Chief Executive Officer. The Chief Executive
Officer shall have responsibility for the general and active
management of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried
into effect.
Section 5. President. The President shall be the Chief
Operating Officer of the Corporation. The President shall have
such responsibilities and authority as determined by the Chief
Executive Officer of the Corporation.
Section 6. Vice President. The Vice President or Vice
Presidents, in the order designated by the Board of Directors,
shall be vested with all the powers and required to perform all the
duties of the President in his absence or disability and shall
perform such other duties as may be prescribed by the Board of
Directors.
Section 7. Secretary. The Secretary shall perform all the
duties commonly incident to his office, and keep accurate minutes
of all meetings of the stockholders, the Board of Directors and the
Committees of the Board of Directors, recording all the proceedings
of such meetings in a book kept for that purpose. He shall give
proper notice of meetings of stockholders and Directors and perform
such other duties as the Board of Directors shall designate.
Section 8. Treasurer. The Treasurer shall have custody of
the funds and securities of the Corporation and shall keep full and
accurate accounts of disbursements and shall deposit all monies and
other valuable effects in the name and to the credit of the
<PAGE>
Corporation in such depositories as may be designated by the Board
of Directors. He shall disburse the funds of the Corporation as
may be ordered by the Board or President, taking proper vouchers
for such disbursements, and shall render to the President and
Directors, whenever they may require it, an account of all his
transactions as Treasurer and of the financial condition of the
Corporation. Until such time as a Controller is elected, the
Treasurer shall also maintain adequate records of all assets,
liabilities and transactions of the Corporation and shall see that
adequate audits thereof are currently and regularly made. He shall
cause to be prepared, compiled and filed such reports, statements,
statistics and other data as may be required by law or prescribed
by the President. The Treasurer shall perform such other duties as
the Board of Directors may from time to time prescribe.
ARTICLE VIII
STOCK
Section 1. Certificates. Certificates of stock of the
Corporation shall be signed by, or in the name of, the Corporation
by the President or a Vice President and the Secretary or an
Assistant Secretary, certifying the number of shares of the holder
thereof. The Board of Directors may appoint one or more transfer
agents and registrars of transfers, which may be the same agency or
agencies, and may require all certificates to bear the signatures
of one of such transfer agents and one of such registrars of
transfers, or as the Board of Directors may otherwise direct.
Where any such certificate is signed by a transfer agent or
transfer clerk and by a registrar, the signatures of any such
President, Vice President, Secretary or Assistant Secretary may be
facsimiles engraved or printed. The certificates shall bear the
seal of the Corporation or a predecessor corporation or shall bear
a facsimile of such seal engraved or printed.
In case any Officer or Officers who have signed, or whose
facsimile signature or signatures have been used on, any
certificate or certificates of stock, has ceased to be an Officer
or Officers of the Corporation, whether because of death,
resignation or otherwise, before such certificate or certificates
have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and be
issued and delivered as though the person or persons who signed
such certificate or certificates or whose facsimile signature or
signatures have been used thereon, had not ceased to be such
Officer or Officers of the Corporation.
<PAGE>
Section 2. Lost Certificates. If a certificate of stock is
lost or destroyed, another may be issued in its stead upon proof of
loss or destruction and the giving of a satisfactory bond of
indemnity, in an amount sufficient to indemnify the Corporation
against any claim. A certificate may be issued without requiring
bond when, in the judgment of the Directors, it is proper to do so.
Section 3. Transfers. All transfers of stock of the
Corporation shall be made upon its books by the holder of the
shares in person or by his lawfully constituted representative,
upon surrender of certificates of stock for cancellation.
Section 4. Fixing Record Date. The Board of Directors may
fix in advance a record date in order to 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 record date shall not be more than sixty nor
less than ten days before the date of any meeting of stockholders
nor more than sixty days prior to any other action.
Section 5. Stockholders of Record. The Corporation shall be
entitled to treat the holder of record of any share or shares of
stock as the holder in fact thereof, and accordingly shall not be
bound to recognize any equitable or other claim to or interest in
such share on the part of any other person whether or not it shall
have express or other notice thereof, except as expressly provided
by the laws of the State of Delaware.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation
shall begin the first day of January and end on the 31st day of
December of each year.
Section 2. Dividends. Dividends upon the capital stock may
be declared by the Board of Directors at any regular or special
meeting and may be paid in cash or in property or in shares of the
capital stock. Before paying any dividend or making any
distribution of profits, the Directors may set apart out of any of
the funds of the Corporation available for dividends a reserve or
reserves for any proper purpose and may alter or abolish any such
reserve or reserves.
<PAGE>
Section 3. Checks. All checks, drafts or orders for the
payment of money shall be signed by the Treasurer or by such other
Officer, Officers, employee or employees as the Board of Directors
may from time to time designate.
Section 4. Corporate Seal. The Corporate Seal shall have
inscribed thereon the name of the Corporation, the year of its
incorporation, and the words "Incorporated Delaware."
ARTICLE X
AMENDMENT TO BY-LAWS
Subject to the provisions of any resolution of Directors
creating any series of preferred stock, the Board of Directors
shall have the power from time to time to make, alter or repeal By-
Laws, but any By-Laws 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
the notice of such proposed alteration, amendment or repeal is
included in the notice of such special meeting.
ARTICLE XI
RESTATED CERTIFICATE OF INCORPORATION TO GOVERN
Notwithstanding anything to the contrary herein, in the event
any provision contained herein is inconsistent with or conflicts
with a provision of the Corporation's Restated Certificate of
Incorporation, as the same may be from time to time amended or
supplemented (the "Restated Certificate of Incorporation"), such
provision herein shall be superseded by the inconsistent provision
in the Restated Certificate of Incorporation, to the extent
necessary to give effect to such provision in the Restated
Certificate of Incorporation.
<PAGE>
EXHIBIT 3.5
BY-LAWS
USAIR, INC.
July 27, 1994
* * * * * * * * * * *
ARTICLE I
OFFICES
The registered office of the Corporation shall be in the City
of Wilmington, County of New Castle, Delaware. The Corporation may
have offices within and without the State of Delaware.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Annual Meetings. The annual meeting of
stockholders for the election of Directors shall be held on the
fourth Wednesday in May, or if that be a legal holiday, on the next
succeeding day not a legal holiday, at nine- thirty o'clock in the
morning, or in any year at such other date and time as may be
designated by the Board of Directors, at which meeting the
stockholders shall elect by ballot, by plurality vote, a Board of
Directors and may transact such other business as may come before
the meeting.
Section 2. Special Meetings. Special meetings of the
stockholders may be called at any time by the Chairman or
President, and shall be called by the President or Secretary on the
request, in writing, or by vote, of a majority of Directors, or at
the request, in writing, of stockholders of record owning a
majority in amount of the capital stock outstanding and entitled to
vote.
Section 3. Location of Meetings. All meetings of the
stockholders for any purpose may be held, within or without the
State of Delaware, at such time and place as shall be stated in the
notice of the meeting or a duly executed waiver of notice.
Section 4. List of Stockholders. The Secretary shall cause
to be prepared a complete list of stockholders entitled to vote at
any meeting, arranged in alphabetical order and showing the address
of each stockholder and number of shares registered in the name of
each stockholder. The list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during
ordinary business hours for at least ten days prior to the meeting
either at a place within the city where the meeting is to be held
<PAGE>
(which place shall be specified in the notice of meeting) or at the
place where the meeting is to be held. The list shall also be open
for inspection by stockholders during the time and at the place of
the meeting.
Section 5. Voting. Each stockholder entitled to vote shall,
at every meeting of the stockholders, be entitled to one vote in
person or by proxy, signed by him, for each share of voting stock
held by him but no proxy shall be voted on or after three years
from its date, unless it provides for a longer period. Such right
to vote shall be subject to the right of the Board of Directors to
fix a record date for voting stockholders as hereinafter provided.
Section 6. Notice to Stockholders. Notice of all meetings
shall be mailed by the Secretary to each stockholder of record
entitled to vote, at his or her last known post office address, not
less than ten nor more than sixty days prior to any annual or
special meeting.
Section 7. Quorum. The holders of a majority of the stock
outstanding and entitled to vote shall constitute a quorum but the
holders of a smaller amount may adjourn from time to time without
further notice until a quorum is secured.
ARTICLE III
DIRECTORS
Section 1. Number. The property and business of the
Corporation shall be managed and controlled by its Board of
Directors, consisting of sixteen members. Directors need not be
stockholders.
Section 2. Election, Term, Vacancies. The Directors shall
hold office until the next annual election and until their
successors are elected and qualified. They shall be elected by the
stockholders, except that if there be a vacancy in the Board by
reason of death, resignation or otherwise, such vacancy shall be
filled for the unexpired term by the remaining Directors, though
less than a quorum, by a majority vote.
Section 3. Powers of Directors. The business of the
Corporation shall be managed by or under the direction of its Board
of Directors which may exercise all such powers of the Corporation
and do all such lawful acts and things as are not by statute or by
the certificate of incorporation or by these by- laws directed or
required to be exercised or done by the stockholders.
<PAGE>
Section 4. Directors Emeriti. For the purpose of conserving,
for the benefit of the Corporation, the knowledge, experience and
good will generated by a long period of service in formulating and
implementing the basic policies of the Corporation or corporations
merged into the corporation, the Board of Directors shall have the
power in its discretion to appoint one or more Directors Emeriti.
Any person who has served for a period of not less than ten years
on the Board of Directors of the Corporation or of any predecessor
or affiliate of the Corporation, may be appointed a Director
Emeritus by the Board of Directors for an annual term and shall be
eligible for reappointment annually at the discretion of the Board.
The duties of a Director Emeritus shall consist of being available
to the Chairman and President of the Corporation for consultation
and advice on any matters pertaining to the Corporation which the
Chairman or President may refer to him from time to time.
Directors Emeriti shall be notified of and be invited to attend the
annual meeting of the Board of Directors and such other meetings as
determined by the Chairman or President of the Corporation and be
entitled to be heard at such meetings on matters pending before the
Board of Directors. They shall not be members of the Board nor be
entitled to vote as such nor be counted as constituting part of a
quorum.
Section 5. Compensation. Directors, members of committees
and Directors Emeriti shall receive such compensation as the Board
shall from time to time prescribe.
ARTICLE IV
MEETINGS OF DIRECTORS
Section 1. Annual Meeting. After each annual election of
Directors, the newly elected Directors may meet for the purpose of
organization, the election of Officers, and the transaction of
other business, at such place and time as shall be fixed by the
stockholders at the annual meeting, and, if a majority of the
Directors be present at such place and time, no prior notice of
such meeting shall be required to be given to the Directors. The
place and time of such meeting may also be fixed by written consent
of the Directors.
Section 2. Regular Meetings. Bi-monthly meetings of the
Board of Directors shall be held in January, March, May, July,
September and November in each year, on the date and at a time and
place designated from time to time by the Board of Directors. The
Secretary shall forward to each Director, at least five days before
any such meeting, a notice of the time and place of the meeting.
<PAGE>
Section 3. Special Meetings. Special meetings of the
Directors may be called by the Chairman or President on two days'
notice in writing, or on one day's notice by telegraph to each
Director, and shall be called by the President in like manner on
the written request of two or more Directors.
Section 4. Location. Meetings of the Directors may be held
within or without the State of Delaware at such place as is
indicated in the notice of waiver of notice thereof.
Section 5. Quorum. A majority of the Directors shall
constitute a quorum, but a smaller number may adjourn from time to
time, without further notice, until a quorum is secured.
ARTICLE V
COMMITTEES
Section 1. Creation. The Board of Directors may, by
resolution or resolutions passed by a majority of the Board,
designate one or more committees each to consist of three or more
Directors of the Corporation. Each such Committee shall have and
may exercise such powers and duties as shall be delegated to it by
the Board of Directors except that no such Committee shall have
power to (a) elect Directors; (b) alter, amend or repeal these By-
Laws or any resolution or resolutions of the Board of Directors
relating to such Committee; (c) declare any dividend or make any
other distribution to the stockholders of the Corporation; (d)
appoint any member of such Committee; or (e) take any other action
which may lawfully be taken only by the Board.
Section 2. Committee Procedure. Each such Committee
established by the Board shall meet at stated times or on notice to
all members by any member of such Committee. Each such Committee
shall establish its own rules of procedure. Each such Committee
shall keep regular minutes of its proceedings and report the same
to the Board of Directors.
ARTICLE VI
INDEMNIFICATION
The Corporation shall indemnify its Directors, Officers and
employees, and shall have the power to indemnify its other agents,
to the full extent permitted by the General Corporation Law of the
State of Delaware, as amended from time to time, (but, in the case
of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights
<PAGE>
than such law permitted the Corporation to provide on June 29,
1989). Expenses (including attorneys' fees) incurred by an
Officer, Director or employee in defending any civil, criminal,
administrative, or investigative action, suit or proceeding shall
to the fullest extent permitted by law 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 such
Director, Officer or employee to repay such amount if it shall
ultimately be determined that he is not entitled to be indemnified
by the Corporation as authorized hereunder. The right to
indemnification and the payment of expenses incurred in defending
a proceeding in advance of its final disposition conferred in this
Article shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, provision of the
Restated Certificate of Incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
ARTICLE VII
OFFICERS
Section 1. General. The Officers of the Corporation shall be
a Chairman of the Board, a Chief Executive Officer, a President,
one or more Vice Presidents, a Secretary, a Treasurer, a Controller
and such other Officers as may from time to time be chosen by the
Board of Directors. The Chief Executive Officer shall be empowered
to appoint and remove from office, at his discretion, Assistant
Vice Presidents and Assistant Secretaries. Any number of offices
may be held by the same person, unless the certificate of
incorporation or these By-laws otherwise provide.
Section 2. Term. The Officers of the Corporation shall hold
office until their successors are chosen and qualified. Any
Officer chosen or appointed by the Board of Directors may be
removed either with or without cause at any time by the affirmative
vote of a majority of the whole Board of Directors. If the office
of any Officer other than an assistant officer becomes vacant for
any reason, the vacancy shall be filled by the affirmative vote of
a majority of the whole Board of Directors.
Section 3. Chairman of the Board. A Chairman of the Board
shall be chosen from among the Directors. The Chairman of the
Board shall preside at all meetings of the stockholders and
Directors and shall perform such other duties as may be prescribed
by the Board of Directors.
<PAGE>
Section 4. Chief Executive Officer. The Chief Executive
Officer shall have responsibility for the general and active
management of the business of the Corporation and shall see that
all orders and resolutions of the Board of Directors are carried
into effect.
Section 5. President. The President shall be the Chief
Operating Officer of the Corporation. The President shall have
such responsibilities and authority as determined by the Chief
Executive Officer of the Corporation.
Section 6. Vice President. The Vice President or Vice
Presidents, in the order designated by the Board of Directors,
shall be vested with all the powers and required to perform all the
duties of the President in his absence or disability and shall
perform such other duties as may be prescribed by the Board of
Directors.
Section 7. Secretary. The Secretary shall perform all the
duties commonly incident to his office, and keep accurate minutes
of all meetings of the stockholders, the Board of Directors and the
Committees of the Board of Directors, recording all the proceedings
of such meetings in a book kept for that purpose. He shall give
proper notice of meetings of stockholders and Directors and perform
such other duties as the Board of Directors shall designate.
Section 8. Treasurer. The Treasurer shall have custody of
the funds and securities of the Corporation and shall keep full and
accurate accounts of disbursements and shall deposit 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. He shall disburse the funds of the Corporation as
may be ordered by the Board or President, taking proper vouchers
for such disbursements, and shall render to the President and
Directors, whenever they may require it, an account of all his
transactions as Treasurer and of the financial condition of the
Corporation. The Treasurer shall perform such other duties as the
Board of Directors may from time to time prescribe.
Section 9. Controller. The Controller shall maintain
adequate records of all assets, liabilities and transactions of the
Corporation and shall see that adequate audits thereof are
currently and regularly made. He shall cause to be prepared,
compiled and filed such reports, statements, statistics and other
data as may be required by law or prescribed by the President and
shall perform such other duties as may be prescribed by the Board
of Directors.
<PAGE>
ARTICLE VIII
STOCK
Section 1. Certificates. Certificates of stock of the
Corporation shall be signed by, or in the name of, the Corporation
by the President or a Vice President, and the Treasurer or an
Assistant Treasurer, or the Secretary or an Assistant Secretary,
certifying the number of shares of the holder thereof. The Board
of Directors may appoint a transfer agent, and a registrar of
transfers, which may be the same agency, and may require all
certificates to bear the signatures of such transfer agent and such
registrar of transfers, or as the Board of Directors may otherwise
direct. Where any such certificate is signed by a transfer agent
or transfer clerk and by a registrar, the signatures of any such
President, Vice President, Treasurer, Assistant Treasurer,
Secretary or Assistant Secretary may be facsimiles engraved or
printed. The certificates shall bear the seal of the Corporation
or shall bear a facsimile of such seal engraved or printed.
In case any Officer or Officers who have signed, or whose
facsimile signature or signatures have been used on, any
certificate or certificates of stock, has ceased to be an Officer
or Officers of the Corporation, whether because of death,
resignation or otherwise, before such certificate or certificates
have been delivered by the Corporation, such certificate or
certificates may nevertheless be adopted by the Corporation and be
issued and delivered as though the person or persons who signed
such certificate or certificates or whose facsimile signature or
signatures have been used thereon, had not ceased to be such
Officer or Officers of the Corporation.
Section 2. Lost Certificates. If a certificate of stock is
lost or destroyed, another may be issued in its stead upon proof of
loss or destruction and the giving of a satisfactory bond of
indemnity, in an amount sufficient to indemnify the Corporation
against any claim. A certificate may be issued without requiring
bond when, in the judgment of the Directors, it is proper to do so.
Section 3. Transfers. All transfers of stock of the
Corporation shall be made upon its books by the holder of the
shares in person or by his lawfully constituted representative,
upon surrender of certificates of stock for cancellation.
Section 4. Fixing Record Date. The Board of Directors may
fix in advance a record date in order to 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
<PAGE>
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 record date shall not be more than sixty nor
less than ten days before the date of any meeting of stockholders
nor more than sixty days prior to any other action.
Section 5. Stockholders of Record. The Corporation shall be
entitled to treat the holder of record of any share or shares of
stock as the holder in fact thereof, and accordingly shall not be
bound to recognize any equitable or other claim to or interest in
such share on the part of any other person whether or not it shall
have express or other notice thereof, except as expressly provided
by the laws of Delaware.
ARTICLE IX
GENERAL PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation
shall begin the first day of January and end on the 31st day of
December of each year.
Section 2. Dividends. Dividends upon the capital stock may
be declared by the Board of Directors at any regular or special
meeting and may be paid in cash or in property or in shares of the
capital stock. Before paying any dividend or making any
distribution of profits, the Directors may set apart out of any of
the funds of the Corporation available for dividends a reserve or
reserves for any proper purpose and may alter or abolish any such
reserve or reserves.
Section 3. Checks. All checks, drafts or orders for the
payment of money shall be signed by the Treasurer or by such other
Officer, Officers, employee or employees as the Board of Directors
may from time to time designate.
Section 4. Corporate Seal. The Corporate Seal shall have
inscribed thereon the name of the Corporation, the year of its
incorporation, and the words "Incorporated Delaware."
<PAGE>
ARTICLE X
AMENDMENT OF BY-LAWS
Subject to the provisions of any resolution of Directors
creating any series of preferred stock, the Board of Directors
shall have the power from time to time to make, alter or repeal by-
laws, but any by-laws 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
the notice of such proposed alteration, amendment or repeal is
included in the notice of such special meeting.
<PAGE>
EXHIBIT 10.6
USAIR, INC.
SUPPLEMENTAL EXECUTIVE DEFINED CONTRIBUTION PLAN
TABLE OF CONTENTS
Heading Page
ARTICLE I - PURPOSE
Section 1.1: Purpose and Intent . . . . . . . . 4
ARTICLE II - DEFINITIONS
Section 2.1: Definitions . . . . . . . . . . 4
Section 2.2: Interpretation. . . . . . . . . . 6
Section 2.3: Other Definitions . . . . . . . . 6
ARTICLE III - ELIGIBILITY
Section 3.1: Individuals Eligible to Receive Benefits . 6
ARTICLE IV - CONTRIBUTIONS
Section 4.1: Amount of Employer Contributions . . . 6
Section 4.2: Pension Plan Supplement . . . . . . 6
Section 4.3: Savings Plan Supplement . . . . . . 7
Section 4.4: Payment of Employer Contributions . . . 7
Section 4.5: Participant Contributions . . . . . . 7
Section 4.6: Vesting of Employer Contributions . . . 7
Section 4.7: Forfeitures of Nonvested Contributions . 8
ARTICLE V - FUNDING AND INVESTMENT OF CONTRIBUTIONS
Section 5.1: Contributions from General Assets . . . 8
Section 5.2: Investment Funds . . . . . . . . . 8
Section 5.3: Income on Trust . . . . . . . . . 9
Section 5.4: Separate Accounts . . . . . . . . 9
Section 5.5: Investment of Employer Contributions . . 9
Section 5.6: Crediting and Valuing Separate Accounts . 9
ARTICLE VI - DISTRIBUTION OF PARTICIPANT ACCOUNTS
Section 6.1: Payment of Benefits . . . . . . . . 9
Section 6.2: Payment of Benefit Upon Death of Participant 10
Section 6.3: No In-Service Withdrawals . . . . . . 10
<PAGE>
ARTICLE VII - ADMINISTRATION, AMENDMENT AND TERMINATION
Section 7.1: Administration . . . . . . . . . 10
Section 7.2: Amendment and Termination . . . . . . 10
Section 7.3: Change of Control . . . . . . . . 11
Section 7.4: Indemnification . . . . . . . . . 11
ARTICLE VIII - MISCELLANEOUS PROVISIONS
Section 8.1: Restrictions on Alienation . . . . . 11
Section 8.2: Rights Against Company . . . . . . . 12
Section 8.3: No Guarantee of Employment . . . . . 12
Section 8.4: No Guarantee on Investments . . . . . 12
Section 8.5: Expenses . . . . . . . . . . . 12
Section 8.6: Governing Law . . . . . . . . . . 12
Section 8.7: Severability . . . . . . . . . . 12
Section 8.8: Taxes and Withholding . . . . . . . 12
<PAGE>
USAIR, INC.
SUPPLEMENTAL EXECUTIVE DEFINED CONTRIBUTION PLAN
ARTICLE I
PURPOSE
Section 1.1: Purpose and Intent
USAir, Inc. hereby establishes the USAir, Inc. Supplemental
Executive Defined Contribution Plan (hereinafter the "Supplemental
DC Plan"), effective July 1, 1993, pursuant to action by its Board
of Directors. The Supplemental DC Plan was adopted by USAir, Inc.
with the intention of providing equitable levels of retirement
income to the officers of USAir, Inc. who are participating in
USAir, Inc.'s tax-qualified defined contribution retirement
program. Pursuant to the provisions of the Internal Revenue Code,
contributions by USAir, Inc. on behalf of certain highly-paid
participants are limited under the USAir, Inc. Employee Savings
Plan and the USAir, Inc. Employee Pension Plan. The purpose of the
Supplemental DC Plan is to provide such highly-paid participants
who are officers of the Company, with the same level of employer
contributions they would otherwise receive under the tax-qualified
pension plans, but for the limitations of the Internal Revenue
Code. This Supplemental DC Plan is intended to be a non-qualified
unfunded deferred compensation program provided for a select group
of management or highly compensated employees.
ARTICLE II
DEFINITIONS
Section 2.1: Definitions
"Account" means the account maintained by the Trustee in the name
of a Participant in the Supplemental DC Plan that reflects his
interest in the Trust and any sub-accounts established thereunder,
as provided in Article V.
"Administrator" means the Senior Vice President-Human Resources.
"Board" means the Board of Directors of USAir, Inc.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time. Reference to a section of the Code includes such
section and any comparable section or sections of any future
legislation that amends, supplements or supersedes such section.
"Committee" means the Compensation and Benefits Committee of the
Board.
<PAGE>
"Company" means USAir, Inc.
"Effective Date" means July 1, 1993.
"Employer" means USAir, Inc.
"Employer Contribution" means any contribution accrued or made by
the Company on behalf of a Participant pursuant to Article IV.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time. Reference to a section of ERISA
includes such section and any comparable section or sections of any
future legislation that amends, supplements or supersedes such
section.
"Officer" means any employee of the Company who has been elected by
the Board or appointed by the Chief Executive Officer as a
corporate officer or as a staff officer of the Company and holds
the title of Chief Executive Officer, President, Chief Operating
Officer, Chief Financial Officer, Executive Vice President, Senior
Vice President, Vice President, Controller, Secretary, Treasurer,
Assistant Vice President, Assistant Controller, Assistant Secretary
or Assistant Treasurer.
"Participant" means any Officer of USAir, Inc.
"Pension Plan" means the USAir, Inc. Employee Pension Plan.
"Pension Plan Supplement" means the contribution made by the
Company under this Supplemental DC Plan as described in Section 4.2
"Plan Year" means the calendar year, commencing with the period
from July 1, 1993 through December 31, 1993 and each 12 consecutive
month period thereafter.
"Savings Plan" means the USAir, Inc. Employee Savings Plan.
"Savings Plan Supplement" means the contribution made by the
Company under this Supplemental DC Plan as described in Section
4.3.
"Supplemental DC Plan" means the USAir, Inc. Supplemental Executive
Defined Contribution Plan.
"Trust" means the trust maintained by the Trustee to hold and
invest the assets of the Supplemental DC Plan.
"Trustee" means the trustee or any successor trustee which is
acting pursuant to an agreement with the Company to hold and invest
the assets of the Trust.
<PAGE>
2.2: Interpretation
Wherever used herein, the masculine pronoun shall include the
feminine, the singular shall include the plural, and the plural
shall include the singular.
2.3: Other Definitions
Unless otherwise defined in the Supplemental DC Plan, terms
used in the Supplemental DC Plan shall have the same definition as
set forth in the Pension Plan and the Savings Plan, as appropriate.
ARTICLE III
ELIGIBILITY
3.1: Individuals Eligible to Receive Benefits
Every Participant who qualifies for an Employer Contribution
under the Pension Plan or a "matching" or "profit-sharing" Employer
Contribution under the Savings Plan and whose Employer
Contributions under the aforementioned plans are reduced by reason
of Section 401(a)(17), 402(g) or 415 of the Code shall be eligible
to receive contributions under the Supplemental DC Plan.
ARTICLE IV
CONTRIBUTIONS
4.1: Amount of Employer Contributions
For each Contribution Period under the Pension Plan and the
Savings Plan, a Participant in the Supplemental DC Plan shall
accrue a Pension Plan Supplement and/or a Savings Plan Supplement
in such amount(s) as determined in accordance with Sections 4.2 and
4.3.
4.2: Pension Plan Supplement
For each Contribution Period under the Pension Plan, the
Company shall make a contribution on behalf of each eligible
Participant under the Supplemental DC Plan in an amount equal to
the difference, if any, between (a) and (b) below:
(a) the Employer Contribution to which the Participant would
be entitled under Section 4.4 of the Pension Plan determined
without regard to limitations on the Employer Contribution
under Sections 401(a)(17) or Section 415 of the Code;
LESS
(b) the Employer Contribution which the Participant actually
receives under Section 4.4 of the Pension Plan after
application of the limitations on the Employer Contribution
under Section 401(a)(17) and Section 415 of the Code.
<PAGE>
4.3: Savings Plan Supplement
The Savings Plan Supplement shall be comprised of a "matching"
contribution supplement and a "profit-sharing" contribution
supplement as set forth in subparagraphs (1) and (2) below.
(1) For each Contribution Period under the Savings Plan with
respect to "matching" contributions, the Company shall make a
contribution on behalf of each eligible Participant under the
Supplemental DC Plan in an amount equal to the difference, if any,
between (a) and (b) below:
(a) the "matching" Employer Contribution to which the
Participant would be entitled under Section 6.4 of the Savings
Plan determined without regard to limitations on the Employer
Contribution under Sections 401(a)(17), Section 402(g) or
Section 415 of the Code;
LESS
(b) the "matching" Employer Contribution which the
Participant actually receives under Section 6.4 of the Savings
Plan after application of the limitations on the Employer
Contribution under Section 401(a)(17), Section 402(g) and
Section 415 of the Code.
(2) For each Employer Contribution Period under the Savings
Plan with respect to "profit-sharing" contributions, the Company
shall make a contribution on behalf of each eligible Participant
under the Supplemental DC Plan in an amount equal to the
difference, if any, between (a) and (b) below:
(a) the "profit-sharing" Employer Contribution to which the
Participant would be entitled under Section 6.3 of the Savings
Plan determined without regard to limitations on the Employer
Contribution under Sections 401(a)(17) or Section 415 of the
Code;
LESS
(b) the "profit-sharing" Employer Contribution which the
Participant actually receives under Section 6.3 of the Savings
Plan after application of the limitations on the Employer
Contribution under Section 401(a)(17) and Section 415 of the
Code.
<PAGE>
4.4: Payment of Employer Contributions
Any Employer Contributions which accrue on behalf of a
Participant under the Supplemental DC Plan shall be paid in cash to
the Trustee by the last day of the month following the month in
which the Employer Contribution accrues.
4.5: Participant Contributions
No Participant contributions shall be required or accepted
under the Supplemental DC Plan.
4.6: Vesting of Employer Contributions
A Participant's vested interest in his Account in the
Supplemental DC Plan shall be zero percent until the Participant
has completed two years of "Vesting Service" (as defined in the
Pension Plan) at which time his vested interest in his Account in
the Supplemental DC Plan shall be 100 percent.
4.7: Forfeitures of Nonvested Contributions
In the event that a Participant terminates employment with the
Company prior to becoming vested in the Employer Contributions in
his Account in the Supplemental DC Plan, the Participant shall
forfeit the contributions effective on the date of termination and
shall have no right or further interest in the assets held in his
Account. In the event that a Participant whose Account balance has
been forfeited returns to employment with the Company, his Account
balance shall not be reinstated and shall remain forfeited.
Forfeited Employer Contributions shall revert to the Company but
remain in the Trust to be used by the Company to offset future
Employer Contributions and shall be reallocated to other
Participant Accounts at the direction of the Administrator.
<PAGE>
ARTICLE V
FUNDING AND INVESTMENT OF CONTRIBUTIONS
5.1: Contributions from General Assets
The Company shall establish a Trust or Trusts to set aside and
accumulate the assets necessary to satisfy its contractual
obligations under the Supplemental DC Plan. The Trust shall be an
irrevocable "grantor trust" as that term is defined in Section 671
of the Code. The assets of the Trust shall not be returned to the
Company or used for any purpose other than providing retirement
benefits under the Supplemental DC Plan and defraying the
reasonable expenses of administering the Supplemental DC Plan,
provided, however, that the assets of the Trust shall at all times
be subject to the claims of creditors of the Company as provided
for in the Trust agreement, and provided further, that after all
benefit obligations under the Supplemental DC Plan have been
satisfied, assets remaining in the Trust shall be returned to the
Company. Any benefits not paid from the Trust shall be paid from
the Company's general assets.
5.2: Investment Funds
As provided in the Trust agreement, the Company may appoint
one or more investment managers (as defined in Section 3(38) of
ERISA) with respect to any portion of the Trust fund. The Company
shall determine the number and type of investment funds to which
assets of the Trust may be allocated and separately invested. The
Company shall determine the number and type of investment funds.
5.3: Income on Trust
Any dividends, interest, distributions, or other income
received by the Trustee with respect to the Trust or any individual
investment fund shall be allocated by the Trustee to the Trust for
which the income was received.
5.4: Separate Accounts
As of the first date that an Employer Contribution is made on
behalf of a Participant, there shall be established a separate
Account in the Participant's name reflecting his interest in the
Trust. A Participant's Account shall be divided into such sub-
accounts as are necessary or appropriate to reflect his interest in
the Trust.
<PAGE>
5.5: Investment of Employer Contributions
Employer Contributions in the Supplemental DC Plan shall be
invested at the direction of the Participant to whose Account such
contributions are allocated. Any Employer Contributions made on
behalf of a Participant under the Supplemental DC Plan shall be
invested in the same manner as Employer Contributions are invested
on behalf of the Participant in the Pension Plan; provided,
however, that in the event that an investment fund maintained by
the Pension Plan and selected by the Participant will not accept
assets of the Supplemental DC Plan for investment, the
Administrator shall request an alternative investment election from
the Participant for such portion of his Supplemental DC Plan
Account. All investment elections, changes to such elections,
transfer requests, and other investment-related instructions given
by the Participant under the Pension Plan shall be effective for
the Participant's Accounts in the Supplemental DC Plan.
5.6: Crediting and Valuing Separate Accounts
The crediting and valuation of Accounts in the Supplemental DC
Plan shall be accomplished in the same manner as set forth as
provided for in the Pension Plan.
ARTICLE VI
DISTRIBUTION OF PARTICIPANT ACCOUNTS
6.1: Payment of Benefits
Distribution of a Participant's Account shall be made as soon
as practicable following the Participant's retirement or other
termination of employment and shall be made in the form of a
single, lump sum cash payment.
6.2: Payment of Benefit Upon Death of Participant
In the event that a Participant who has a vested interest in
his Account dies prior to receiving a complete distribution of his
Account, his Account shall be paid, in a single lump sum cash
payment, to the beneficiary or beneficiaries payable under the
terms of the Pension Plan.
6.3: No In-Service Withdrawals
There shall be no loans or other in-service withdrawals made
to Participants from the Supplemental DC Plan.
<PAGE>
ARTICLE VII
ADMINISTRATION, AMENDMENT AND TERMINATION
7.1: Administration
The Supplemental DC Plan shall be administered and interpreted
by the Administrator. Any and all claims for benefits under the
Supplemental DC Plan shall be filed with the Administrator and the
Administrator's determination shall be final and binding on all
parties. The Administrator may delegate any administrative
responsibilities under the Supplemental DC Plan to a third party.
7.2: Amendment and Termination
Except as set forth in Section 7.3 below, the Company shall
have the right to amend the Supplemental DC Plan at any time and
from time to time, including a retroactive amendment. Any such
amendment shall be approved by resolution adopted by the Committee
and shall be reflected by a written instrument signed by the
Administrator. Any such amendment shall become effective upon the
date stated in the resolution. While the Company has established
the Supplemental DC Plan with the intention and expectation that it
will be continued in effect, the Company retains the right to
terminate the Supplemental DC Plan at any time, except as set forth
in Section 7.3 below. The termination shall be approved by
resolution adopted by the Committee and shall be reflected by a
written instrument signed by the Administrator. The effective date
of such termination shall be as set forth in the Committee
resolution.
7.3: Change of Control
Notwithstanding the Company's right to amend or terminate the
Supplemental DC Plan as set forth in Section 7.2 above, no
amendment or termination of the Supplemental DC Plan shall become
effective after the occurrence of a "change of control" to the
extent that such amendment or termination has an adverse impact on
the existing or future rights or benefits of any Participant. For
the purposes of this Section 7.3, the term "change of control"
shall be defined as set forth in the employment/severance
agreements in effect between the Officer and the Company.
<PAGE>
7.4: Indemnification
In addition to whatever rights of indemnification the members
of the Board or any Officer or employee of the Company may be
entitled under the articles of incorporation or by-laws of the
Company, under any provision of law, or under any other agreement,
the Company shall satisfy any liability actually and reasonably
incurred by any such person or persons, including expenses,
attorneys' fees, judgments, fines, and amounts paid in settlement
(other than amounts paid in settlement not approved by the
Company), in connection with any threatened, pending or completed
action, suit, or proceeding which is related to the exercise or
failure to exercise by such person or persons any of the powers,
authority, responsibilities, or discretion provided under the
Supplemental DC Plan, and any action taken by such person or
persons in connection with administering the Supplemental DC Plan,
unless it is determined that such person or persons is guilty of
gross negligence or willful misconduct.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
8.1: Restrictions on Alienation
Payment of benefits under the Supplemental DC Plan shall be
made only to the Participant or his beneficiary, as applicable. No
Participant or beneficiary shall have any present interest in any
benefit to be paid in the future, nor shall the expectation of such
benefit be assignable by a Participant or beneficiary. No Account
under the Plan shall be subject in any manner to anticipation,
alienation, assignment, encumbrance, garnishment, levy, execution,
or other legal or equitable process and no Participant shall have
the power to alienate, assign or otherwise encumber his benefits
under the Supplemental DC Plan and any attempt to do so shall be
void. A Participant's Account under the Supplemental DC Plan shall
not be subject to attachment under any domestic relations order.
8.2: Rights Against Company
The establishment of the Supplemental DC Plan shall not be
construed as giving any Participant or Officer or any other person,
any legal, equitable or other rights against the Company or its
officers, directors, agents or shareholder, or as giving to any
Participant or their beneficiary any equity or other interest in
the assets, business or shares of the Company or its parent or
affiliated corporations. The rights of a Participant or
beneficiary shall be solely those of an unsecured general creditor
of the Company.
<PAGE>
8.3: No Guarantee of Employment
The establishment of the Supplemental DC Plan shall not be
construed as giving any Participant any right to remain employed by
the Company. Participants shall be subject to discharge to the
same extent they would have been if this Supplemental DC Plan had
never been adopted.
8.4: No Guarantee on Investments
The Company, the Administrator and the Trustee do not
guarantee the Trust from loss or depreciation, nor do they
guarantee the payment of any amount which may become due to any
person hereunder.
8.5: Expenses
The cost of the Supplemental DC Plan and the expenses of
administering the Supplemental DC Plan shall be borne by the
Company.
8.6: Governing Law
The validity and effect of the Supplemental DC Plan and the
rights and obligations of all persons affected hereby shall be
construed and determined in accordance with the laws of the
Commonwealth of Virginia, unless superseded by federal law.
8.7: Severability
In the event that any provision of the Supplemental DC Plan
shall be declared illegal or invalid for any reason, said
illegality or invalidity shall not affect the remaining provisions
of the Supplemental DC Plan but shall be fully severable.
8.8: Taxes and Withholding
All amounts payable under the Supplemental DC Plan shall be
reduced by any and all federal, state and local income taxes and
other payroll deductions which are required to be withheld by law
and the Participants and beneficiaries, and not the Company, are
liable for any taxes applicable to payments hereunder.
* * * *
IN WITNESS WHEREOF, USAir, Inc. has caused the Supplemental DC
Plan to be executed this 27th day of August, 1993, by its duly
authorized officers and its corporate seal to be affixed.
<PAGE>
USAIR, INC.
By: /s/John P. Frestel, Jr.
_____________________________
John P. Frestel, Jr.
Senior Vice President-Human
Resources
ATTEST:
/s/Michelle V. Bryan
__________________________
Michelle V. Bryan
Secretary
{Seal}
<PAGE>
EXHIBIT 10.10
EMPLOYMENT AGREEMENT
Agreement dated as of June 29, 1989, between USAir, Inc., a
Delaware corporation, having a place of business at Crystal Park
Four, 2345 Crystal Drive, Arlington, VA 22227 (the "Company") and
Seth E. Schofield, residing at 1801 Crystal Drive, Apartment 709,
Arlington, VA 22202 (the "Executive").
WITNESSETH
WHEREAS, the Executive has assumed duties of a responsible
nature to the benefit of the Company and to the satisfaction of its
Board of Directors (the "Board");
WHEREAS, the Board believes it to be in the best interests of
the Company to enter into this Agreement to assure Executive's
continuing services to the Company including, but not limited to,
under circumstances in which there is a possible, threatened or
actual Change of Control (as defined below) of the Company; and
WHEREAS, the Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change
of Control and to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change
of Control which ensure that the compensation and benefits
expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order
to accomplish all the above objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the Company and the Executive hereby agree as follows:
1. Certain Definitions. (a) The "Effective Date" shall
mean the date hereof.
(b) The "Change of Control Date" shall mean the first date
during the Employment Period (as defined in Section 1(c)) on which
a Change of Control (as defined in Section 2) occurs. Anything in
this Agreement to the contrary notwithstanding, if a Change of
Control occurs and if the Executive's employment with the Company
is terminated or the Executive ceases to be an officer of the
Company prior to the date on which the Change of Control occurs,
and if it is reasonably demonstrated by the Executive that such
<PAGE>
termination of employment or cessation of status as an officer (i)
was at the request of a third party who has taken steps reasonably
calculated to effect the Change of Control or (ii) otherwise arose
in connection with or anticipation of the Change of Control, then
for all purposes of this Agreement the "Change of Control Date"
shall mean the date immediately prior to the date of such
termination of employment or cessation of status as an officer.
(c) The "Employment Period" shall mean the period
commencing on the Effective Date and ending on the earlier to occur
of (i) the fourth anniversary of such date or (ii) the first day of
the month next following the Executive's 65th birthday ("Normal
Retirement Date"); provided, however, that commencing on the date
one year after the Effective Date, and on each annual anniversary
of such date (such date and each annual anniversary thereof shall
be hereinafter referred to as the "Renewal Date"), the Employment
Period shall be automatically extended so as to terminate on the
earlier of (x) four years from such Renewal Date or (y) the
Executive's Normal Retirement Date, unless at least 30 days prior
to the Renewal Date the Company shall give notice to the Executive
that the Employment Period shall not be so extended; and provided,
further, that upon the occurrence of a Change of Control Date, the
Employment Period shall automatically be extended so as to
terminate on the earlier to occur of (1) the fourth anniversary of
such date or (2) the Executive's Normal Retirement Date.
2. Change of Control. For the purpose of this
Agreement, a "Change in Control" shall mean:
(a) The acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the
Company's parent, USAir Group, Inc. ("Group") (the
"Outstanding Group Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of Group
entitled to vote generally in the election of directors (the
"Outstanding Group Voting Securities"); provided, however,
that the following acquisitions shall not constitute a Change
of Control: (w) any acquisition directly from Group, (x) any
acquisition by Group or any of its subsidiaries, (y) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by Group or any of its subsidiaries or
(z) any acquisition by any corporation with respect to which,
following such acquisition, more than 85% of, respectively,
<PAGE>
the then outstanding shares of common stock of such
corporation and the combined voting power of the then
outstanding voting power of the then outstanding voting
securities of such corporation entitled to vote generally in
the election of directors, is then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals and entities who were beneficial owners,
respectively of the Outstanding Group Common Stock and
Outstanding Group Voting Securities in substantially the same
proportions as their ownership, immediately prior to such
acquisition, of the Outstanding Group Common Stock and
Outstanding Group Voting Securities, as the case may be; or
(b) Individuals who, as of the date hereof,
constitute Group's Board of Directors (the "Incumbent Board")
cease for any reason to constitute at least a majority of the
Group Board of Directors; provided, however, that any
individual becoming a director subsequent to the date hereof
whose election, or nomination for election by Group'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 either an actual or threatened election contest (as
such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act) or other actual or
threatened solicitation of proxies or consents; or
(c) Approval by the shareholders of Group of a
reorganization, merger or consolidation, in each case, with
respect to which all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of
the Outstanding Group Common Stock and Outstanding Group
Voting Securities immediately prior to such reorganization,
merger or consolidation, beneficially own, directly or
indirectly, more than 85% 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 reorganization,
merger or consolidation in substantially the same proportions
as their ownership, immediately prior to such reorganization,
merger or consolidation of the Outstanding Group Common Stock
and the Outstanding Group Voting Securities, as the case may
be; or
<PAGE>
(d) Approval by the shareholders of Group of (i) a
complete liquidation or dissolution of Group or (ii) the sale
or other disposition of all or substantially all of the assets
of Group, other than to a corporation, with respect to which
following such sale or other disposition, more than 85% of,
respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Group
Common Stock and Outstanding Group Voting Securities
immediately prior to such sale or other disposition in
substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the
Outstanding Group Common Stock and Outstanding Group Voting
Securities, as the case may be.
3. Employment Period. The Company hereby agrees to
continue the Executive in its employ, and the Executive hereby
agrees to remain in the employ of the Company, during the
Employment Period under the terms and conditions provided herein.
4. Terms of Employment. (a) Position and Duties. (i)
During the Employment Period and prior to a Change of Control Date,
(A) if the Board determines that the Executive has been performing
his duties in accordance with Section 4(a)(iii) hereof, it shall
re-elect the Executive to a responsible executive position with
substantially similar duties to the position held by the Executive
on the Effective Date, (B) the Executive's services shall be
performed at the Executive's location on the Effective Date, the
Company's headquarters, or a location where a substantial activity
for which the Executive has responsibility is located.
(ii) During the Employment Period and on and following a
Change of Control Date, (A) the Executive's position (including
status, offices, titles and reporting relationships), authority,
duties and responsibilities shall be at least commensurate in all
material respects with the most significant of those held,
exercised and assigned at any time during the 90-day period
immediately preceding the Change of Control Date and (B) the
Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Change of Control
Date or any office or location less than thirty-five (35) miles
from such location.
<PAGE>
(iii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company
and, to the extent necessary to discharge the responsibilities
assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a
violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational
institutions and (C) manage personal investments, so long as such
activities do not significantly interfere with the performance of
the Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is also expressly understood
and agreed that to the extent that such activities have been
conducted by the Executive prior to the Effective Date, the
continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the
performance of the Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the
Employment Period, the Company shall pay the Executive a base
salary (x) for the first 12 months of the term hereof at a rate not
less than his base salary in effect on the Effective Date of this
Agreement, and (y) during each succeeding 12 months of the term
hereof at a rate not less than his base salary in effect on the
last day of the preceding 12-month period. During the Employment
Period, base salary shall be reviewed at least annually and shall
be increased at any time and from time to time as shall be
substantially consistent with increases in base salary awarded in
the ordinary course of business to other key employees of the
Company and its subsidiaries. Any increase in base salary shall
not serve to limit or reduce any other obligation to the Executive
under this Agreement. Base salary shall not be reduced after any
such increase. Base salary under Section 4(b)(i) shall hereinafter
be referred to as the "Base Salary".
(ii) Annual Bonus. In addition to Base Salary, the
Executive shall be awarded, for each fiscal year during the
Employment Period, an annual bonus as shall be determined by the
Board or its Compensation and Benefits Committee in accordance with
the executive incentive compensation plan of Group approved on
September 28, 1988 by the Group Board of Directors ("Incentive
Plan") or otherwise. For each fiscal year beginning or ending
after the Change of Control Date during the Employment Period, the
<PAGE>
annual bonus shall be at least equal to the bonus that would have
been payable to the Executive from the Company as if Group had
achieved the "target level of performance" under the Incentive Plan
set at the level for the fiscal year immediately preceding the
Change of Control Date and assuming that the Executive's "target
percentage" under the Incentive Plan at least equals such target
percentage assigned to the Executive immediately preceding the
Change of Control Date. The annual bonus under Section 4(b)(ii)
shall hereinafter be referred to as the "Annual Bonus".
(iii) Incentive, Savings and Retirement Plans. In addition to
Base Salary and Annual Bonus payable as hereinabove provided, the
Employee shall be entitled to participate during the Employment
Period in all incentive, savings and retirement plans, practices,
policies and programs applicable on or after the Effective Date to
other key employees of the Company and its subsidiaries (including
but not limited to the employee benefit plans listed on Exhibit A
hereto), in each case providing benefits which are the economic
equivalent to those in effect on the Effective Date or as
subsequently amended.
(iv) Welfare Benefit Plans. During the Employment Period,
the Executive and/or the Executive's family, as the case may be,
shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its subsidiaries (including,
without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and
travel accident insurance plans and programs) applicable on or
after the Effective Date to other key employees of the Company and
its subsidiaries, in each case providing benefits which are the
economic equivalent to those in effect on the Effective Date or as
subsequently amended.
(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with
the most favorable policies, practices and procedures of the
Company and its subsidiaries applicable at any time on or after the
Effective Date to other key employees of the Company and its
subsidiaries.
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including but not
limited to pass privileges for non-revenue transportation, in
accordance with the most favorable plans, practices, programs and
policies of the Company and its subsidiaries applicable at any time
on or after the Effective Date to other key employees of the
Company and its subsidiaries.
<PAGE>
(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an appropriate office or offices
of a size and with furnishings and other appointments, and to
secretarial and other assistance, as provided to other key
employees of the Company and its subsidiaries.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company
and its subsidiaries as in effect on or after the Effective Date
with respect to other key employees of the Company and its
subsidiaries.
5. Termination. (a) Mutual Agreement. During the
Employment Period, the Executive's employment hereunder may be
terminated at any time by mutual agreement on terms to be
negotiated at the time of such termination.
(b) Death or Disability. This Agreement shall terminate
automatically upon the Executive's death. If the Company
determines in good faith that the Disability of the Executive has
occurred (pursuant to the definition of "Disability" set forth
below), it may give to the Executive written notice of its
intention to terminate the Executive's employment. In such event,
the Executive's employment with the Company shall terminate
effective on the 90th day after receipt by the Executive of such
notice given at any time after a period of six consecutive months
of Disability and while such Disability is continuing (the
"Disability Effective Date"), provided that, within the 90 days
after such receipt, the Executive shall not have returned to full-
time performance of the Executive's duties. For purposes of this
Agreement, "Disability" means disability which, at least six months
after its commencement, is determined to be total and permanent by
a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably).
During such six month period and until the Disability Effective
Date, Executive shall be entitled to all compensation provided for
under Section 4 hereof.
(c) Cause. During the Employment Period, the Company may
terminate the Executive's employment for "Cause." For purposes of
this Agreement, "Cause" means (i) an act or acts of personal
dishonesty taken by the Executive and intended to result in
substantial personal enrichment of the Executive at the expense of
the Company, (ii) repeated violations by the Executive of the
Executive's obligations under Section 4(a) of this Agreement which
are demonstrably willful and deliberate on the Executive's part and
which are not remedied in a reasonable period of time after receipt
of written notice from the Company or (iii) the conviction of the
Executive of a felony.
<PAGE>
(d) Good Reason. During the Employment Period, the
Executive's employment hereunder may be terminated by the Executive
for Good Reason. For purposes of this Agreement, "Good Reason"
means
(i) the assignment to the Executive of any duties
inconsistent in any respect with Executive's position (including
status, offices, titles and reporting relationships), authority,
duties or responsibilities as contemplated by Section 4(a)(i) or
(ii) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) (x) any failure by the Company to comply with any of
the provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive or (y) after the
Change of Control Date, any failure of the Company to pay Base
Salary or Annual Bonus in accordance with Sections 4(b)(i) and
(ii), respectively, and any failure by the Company to maintain or
provide the plans, programs, policies and practices, and benefits
described in Sections 4(b)(iii) - (viii) on the most favorable
basis such plans programs, policies and practices were maintained
and benefits provided during the 90-day period immediately
preceding the Change of Control Date, or if more favorable to the
Executive and/or the Executive's family, as in effect at any time
thereafter with respect to other key employees of the Company and
its subsidiaries;
(iii) the Company's requiring the Executive to be based at
any office or location other than that described in Sections
4(a)(i)(B) or 4(a)(ii) (B) hereof, except for travel reasonably
required in the performance of the Executive's responsibilities;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by
this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(d), any good faith
determination of "Good Reason" made by the Executive on or after
the Change of Control Date shall be conclusive. Anything in this
<PAGE>
Agreement to the contrary notwithstanding, a termination by the
Executive for any reason during the 30-day period immediately
following the first anniversary of the Change of Control Date shall
be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(e) Notice of Termination. Any termination by the Company
for Cause or by the Executive for Good Reason shall be communicated
by Notice of Termination to the other party hereto given in
accordance with Section 12(b) of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other that
the date of receipt of such notice, specifies the termination date
(which date shall be not more than fifteen (15) days after the
giving of such notice). The failure by the Executive to set forth
in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason shall not waive any right
of the Executive hereunder or preclude the Executive from asserting
such fact or circumstance in enforcing his rights hereunder.
(f) Date of Termination. "Date of Termination" means the
date of receipt of the Notice of Termination or any later date
specified therein, as the case may be; provided, however, that (i)
if the Executive's employment is terminated by the Company other
than for Cause or Disability, the Date of Termination shall be the
date on which the Company notifies the Executive of such
termination and (ii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the
date of death of the Executive or the Disability Effective Date, as
the case may be.
6. Obligations of the Company upon Termination. (a)
Death. If the Executive's employment is terminated by reason of
the Executive's death, this Agreement shall terminate without
further obligations to the Executive's legal representatives under
this Agreement, other than those obligations accrued or earned and
vested (if applicable) by the Executive as of the Date of
Termination, including, for this purpose (i) the Executive's full
Base Salary through the Date of Termination at the rate in effect
on the Date of Termination, disregarding any reduction in Base
Salary in violation of this Agreement (the "Highest Base Salary"),
(ii) the product of the Annual Bonus paid to the Executive for the
last full fiscal year and a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
<PAGE>
Termination, and the denominator of which is 365 and (iii) any
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 (such amounts
specified in clauses (i), (ii) and (iii) are hereinafter referred
to as "Accrued Obligations"). All such Accrued Obligations shall
be paid to the Executive's estate or beneficiary, as applicable, in
a lump sum in cash within 30 days of the Date of Termination.
Anything in this Agreement to the contrary notwithstanding, the
Executive's family shall be entitled to receive benefits at least
equal to the most favorable benefits provided by the Company and
any of its subsidiaries to surviving families of employees of the
Company and such subsidiaries under such plans, programs, practices
and policies relating to family death benefits, if any, in
accordance with the most favorable plans, programs, practices and
policies of the Company and its subsidiaries in effect on or after
the Effective Date or, if more favorable to the Executive and/or
the Executive's family, as in effect on the date of the Executive's
death with respect to other key employees of the Company and its
subsidiaries and their families.
(b) Disability. If the Executive's employment is
terminated by reason of the Executive's Disability, this Agreement
shall terminate without further obligations to the Executive, other
than those obligations accrued or earned and vested (if applicable)
by the Executive as of the Date of Termination, including for this
purpose, all Accrued Obligations. All such Accrued Obligations
shall be paid to the Employee in a lump sum in cash within 30 days
of the Date of Termination. Anything in this Agreement to the
contrary notwithstanding, the Employee shall be entitled after the
Disability Effective Date to receive disability and other benefits
at least equal to the most favorable of those provided by the
Company and its subsidiaries to disabled employees and/or their
families in accordance with such plans, programs, practices and
policies relating to disability, if any, in accordance with the
most favorable plans, programs, practices and policies of the
Company and its subsidiaries in effect on or after the Effective
Date or, if more favorable to the Executive and /or the Executive's
family, as in effect at any time thereafter with respect to other
key employees of the Company and its subsidiaries and their
families.
(c) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause, this Agreement shall
terminate without further obligations to the Executive (other than
the obligation to pay to the Executive the Highest Base Salary
through the Date of Termination plus the amount of any accrued
vacation pay not yet paid by the Company and any compensation
previously deferred by the Executive (together with accrued
interest thereon). If the Executive terminates employment other
<PAGE>
than for Good Reason, this Agreement shall terminate without
further obligations to the Executive, other than those obligations
accrued or earned and vested (if applicable) by the Executive
through the Date of Termination, including for this purpose, all
Accrued Obligations and any obligations provided for in an
agreement, if any, between the Company and the Executive pursuant
to Section 5(a). All such Accrued Obligations shall be paid to
paid to the Executive in a lump sum in cash within 30 days of the
Date of Termination.
(d) Good Reason; Other Than for Cause or Disability.
(1) If, during the Employment Period and prior to a Change of
Control, the Company shall terminate the Executive's employment
other than for Cause, Disability or death or if the Executive shall
terminate his employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of
the following amounts:
A. to the extent not theretofore paid, the Executive's
Highest Base Salary through the Date of Termination; and
B. basic salary at the rate of the Highest Base Salary for
the period from the Date of Termination until the end of the
Employment Period; and
C. in the case of compensation previously deferred by the
Executive, all amounts previously deferred (together with any
accrued interest thereon) and not yet paid by the Company, and any
accrued vacation pay not yet paid by the Company; and
(ii) for the remainder of the Employment Period, or such
longer period as any plan, program, practice or policy may provide,
the Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices
and policies described in Section 4(b)(iv) and (vi) of this
Agreement if the Executive's employment had not been terminated,
including health insurance and life insurance, in accordance with
the most favorable plans, practices, programs or policies of the
Company and its subsidiaries in effect on or after the Effective
Date, or if more favorable to the Executive, as in effect at any
time thereafter with respect to other key employees and their
families.
<PAGE>
(2) If, during the Employment Period and on and after a
Change of Control Date, the Company shall terminate the Employee's
employment other than for Cause, Disability, or death or if the
Executive shall terminate his employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of
the following amounts:
A. to the extent not theretofore paid, the Executive's
Highest Base Salary through the Date of Termination; and
B. the product of (x) the Annual Bonus paid to the Executive
for the last full fiscal year (if any) ending during the Employment
Period or, if higher, the Annual Bonus paid to the Executive during
the last full fiscal year (if any) immediately preceding the Change
of Control Date (the higher of either amount under this (x) shall
hereinafter be called the "Recent Bonus") and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination and the denominator of which is
365; and
C. the product of (x) three and (y) the sum of (i) the
Highest Base Salary and (ii) the Recent Bonus (If by reason of the
Executive's date of hire or promotion, he has not served for a full
fiscal year in his position, then for purposes of the calculations
in subsection B above and this subsection C, Annual Bonus shall be
calculated as provided in the second sentence of Section 4(b)(ii)
hereof.); and
D. in the case of compensation previously deferred by the
Executive, all amounts previously deferred (together with any
accrued interest thereon) and not yet paid by the Company, and any
accrued vacation pay not yet paid by the Company; and
E. the Executive shall be entitled to receive a lump-sum
retirement benefit equal to the difference between (a) the
actuarial equivalent of the benefit under the Retirement Plan and
any supplemental and/or excess retirement plan the Executive would
receive if he remained employed by the Company at the compensation
level provided for in Sections 4(b)(i) and (ii) of this Agreement
for the remainder of the Employment Period and (b) the
actuarial equivalent of this benefit, if any, under the
Retirement Plan and any supplemental and/or excess retirement
plan; and
<PAGE>
(ii) for the remainder of the Employment Period or such
longer period as any plan, program, practice or policy may provide,
the Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices
and policies described in Sections 4(b)(iii)(with respect to any
retirement plans), (iv) and (vi) of this Agreement if the
Executive's employment had not been terminated, including health
insurance and life insurance, in accordance with the most favorable
plans, practices, programs or policies of the Company and its
subsidiaries in effect on or after the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter
with respect to other key employees and their families and for
purposes of eligibility for retiree benefits pursuant to such
plans, practices, programs and policies, the Executive shall be
considered to have remained employed until the end of the
Employment Period and to have retired on the last day of such
period.
7. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plans,
programs, policies or practices, provided by Group, the Company or
any of its subsidiaries and for which the Executive may qualify,
nor shall anything herein limit or otherwise affect such rights as
the Executive may have under any stock option, restricted stock or
other agreements with Group, the Company of any of its
subsidiaries. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy,
practice or program of Group, the Company or any of its
subsidiaries at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy practice or program.
8. Full Settlement. The Company's obligation to make
the payments provided for in this Agreement and otherwise to
perform its obligations hereunder shall not be affected by any set-
off, counterclaim, recoupment, defence or other claim, right or
action which the Company may have against the Executive or others.
In no event shall the Executive be obligated to seek other
employment or take any other action by way of mitigation of the
amounts payable to the Executive under any of the provisions of
this Agreement. The Company agrees to pay, to the full extent
permitted by law, all legal fees and expenses, as incurred by the
Company, the Executive and others, which the Executive may
reasonably incur as a result of any contest (regardless of the
outcome thereof) by the Company or others of the validity or
enforceability of, or liability under, any provision of this
<PAGE>
Agreement or any guarantee of performance thereof (including as a
result of any contest by the Executive about the amount of any
payment pursuant of Section 9 of this Agreement), plus in each case
interest at the applicable Federal rate provided for in Section
7872(f)(2) of the Internal Revenue Code of 1986, as amended (the
"Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution by the Company 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, but
determined without regard to any additional payments required under
this Section 9) (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred
to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including
any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest
and penalties imposed with respect thereto) and Excise Tax, imposed
upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon Payments.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including
whether a Gross-Up Payment is required and the amount of such
Gross-Up Payment, shall be made by the firm of independent public
accountants selected by Group to audit its financial statements
(the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that
there has been a Payment, or such earlier time as is requested by
the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall then
be referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid to the Executive within 5 days of the
receipt of the Accounting Firm's determination. If the Accounting
Firm determines that no Excise Tax is payable by the Executive, it
<PAGE>
shall furnish the Executive with a written opinion that failure to
report the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence or a
similar penalty. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and
the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the
Executive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later
than ten business days after the Executive knows of such claim and
shall apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the thirty-day period
following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes
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 Employee shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time
to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney reasonably
selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim,
<PAGE>
(iv) permit the Company to participate in any proceedings
relating to such claim; provided, however, that the Company shall
bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest
and shall indemnify and hold the Executive harmless, on an after-
tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 9(c), the
Company shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole
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 such claim 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 Excise Tax or income tax,
including interest or penalties with respect thereto, imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest 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.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive
becomes entitled to receive any refund with respect to such claim,
the Executive shall (subject to the Company's complying with the
requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to
Section 9(c), 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 of refund prior to the expiration of thirty
days after such determination, then such advance shall be forgiven
and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
<PAGE>
10. Confidential Information. The Executive shall hold in
a fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to Group, the
Company or any of their subsidiaries, and their respective
businesses, which shall have been obtained by the Executive's
employment by the Company or any of its subsidiaries and which
shall not be or become public knowledge (other than by acts by
Executive or his representatives in violation of this Agreement).
After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the
Company, communicate or divulge any such information, knowledge or
data to anyone other than the Company and those designated by it.
In no event shall an asserted violation of the provisions of this
Section 10 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
11. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company
shall not be assignable by the Executive otherwise than by will or
the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Executive's legal
representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will 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
to assume expressly 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. 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
assumes and agrees to perform this Agreement by operation of law,
or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed
by and construed in accordance with the laws of the State of
Delaware, without reference to principles of conflict of laws. The
captions of this Agreement are not part of the provisions hereof
and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed
by the parties hereto or their respective successors and legal
representatives.
<PAGE>
(b) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
1801 Crystal Drive, Apartment 709
Arlington, VA 22202
If to the Company:
USAir, Inc.
Crystal Park Four
2345 Crystal Drive
Arlington, VA 22227
Attention: General Counsel
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's failure to insist upon strict compliance
with any provision hereof shall not be deemed to be a waiver of
such provision or any other provision thereof.
(f) Words or terms used in this Agreement which connote the
masculine gender are deemed to apply equally to female executives.
(g) This Agreement supersedes any prior employment agreement
between the Company and the Executive and contains the entire
understanding of the Company and the Executive with respect to the
subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in its name on its
behalf, all as of the day and year first above written.
EXECUTIVE
/s/Seth E. Schofield
__________________________
Seth E. Schofield
Executive Vice President-
Operations
USAIR, INC.
By: /s/Edwin I. Colodny
_______________________
Edwin I. Colodny
Chairman and President
Attest: /s/ Michelle V. Bryan
________________________________
Secretary
<PAGE>
Exhibit A
Retirement Plan for Certain Employees of USAir, Inc.
Target Benefit Plan for Employees of USAir, Inc.
USAir, Inc. Supplementary Retirement Benefit Plan
Officers' Supplemental Benefit Plan
1988 Stock Incentive Plan of USAir Group, Inc.
1984 Stock Option and Stock Appreciation Rights Plan of USAir
Group, Inc.
1988 Executive Incentive Compensation Plan of USAir Group, Inc.
USAir, Inc. 401(k) Savings Plan
Individual Supplemental Retirement Agreements with senior officers
of USAir, Inc.
Restricted Stock Agreements with certain senior officers of USAir,
Inc.
<PAGE>
AMENDMENT NUMBER ONE TO
EMPLOYMENT AGREEMENT
Amendment Number One, dated as of June 1, 1990, to the
Employment Agreement, dated as of June 29, 1989, between USAir,
Inc., a Delaware corporation having a place of business at Crystal
Park Four, 2345 Crystal Drive, Arlington, VA 22227 (the "Company")
and Seth E. Schofield, residing at 1801 Crystal Drive, Arlington,
VA 22202 (the "Executive").
WHEREAS, the Company has elected Executive to the position of
President and Chief Operating Officer and desires to retain
Executive's services and to have Executive assume greater
responsibilities;
WHEREAS, the Executive has requested certain contractual
commitments by the Company in consideration for his remaining with
the Company and assuming those responsibilities.
NOW, THEREFORE, in consideration of the mutual promises
contained herein, the Company and the Executive hereby agree as
follows:
1. Section 4(a) (i) (A) of the Employment Agreement is
amended to read as follows:
"(A) if the Board determines that the Executive has been
performing his duties in accordance with Section 4(a) (iii)
hereof, it shall re-elect the Executive to the position of
President and Chief Operating Officer with duties
substantially similar to those preformed by the Executive on
the Effective Date and as reflected in the By-Laws of the
Company as amended on May 18, 1990."
2. Section 5(d) of the Employment Agreement is amended to add
a new subsection 5(d) (vi) to read as follows:
"(vi) a failure by the Company to elect Executive to the
position of Chief Executive Officer no later than July 31,
1992."
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in its name on its
behalf, all as of the day and year first above written.
Executive
/s/ Seth E. Schofield
____________________________
Seth E. Schofield
President and Chief Operating
Officer
USAir, Inc.
By: /s/John P. Frestel, Jr.
__________________________
John P. Frestel, Jr.
Sr. Vice President-Human
Resources
Attest:
/s/Michelle V. Bryan
__________________________
Secretary
<PAGE>
AMENDMENT NUMBER TWO TO
EMPLOYMENT AGREEMENT
This Amendment Number Two, dated as of June 11, 1992, to the
Employment Agreement dated as of June 29, 1989, between USAir,
Inc., a Delaware corporation having a place of business at Crystal
Park Four, 2345 Crystal Drive, Arlington, Virginia 22227 (the
"Company") and Seth E. Schofield, residing at 2341 South Queen
Street, Arlington, VA 22202 (the "Executive"), is entered into as
of the date first stated above.
WHEREAS, the Board believes it is important to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened change
of control of the Company and to encourage the Executive's full
attention and dedication to the Company currently and in the event
of any threatened or pending change of control, and to provide the
Executive with compensation and benefits arrangements upon a change
of control which ensure that the compensation and benefits
expectations of the Executive will be satisfied; and
WHEREAS, the Board believes it to be in the best interests of
the Company to amend the existing Employment Agreement with the
Executive to achieve the aforementioned objectives;
NOW, THEREFORE, the following amendments are hereby made to
the Employment Agreement:
1. Section 2 of the Employment Agreement setting forth the
definition of "Change of Control" shall be amended by adding the
word "or" at the end of subparagraph (d) and by adding a new
subparagraph (e) at the end of the definition as follows:
(e) The acquisition by an individual, entity or group of
beneficial ownership of 20% or more of the then outstanding
securities of Group, including both voting and non-voting
securities, provided, however, that such acquisition shall
only constitute a change of control in the event that such
individual, entity or group also obtains the power to elect by
class vote, cumulative voting or otherwise to appoint 20% or
more of the total number of directors to the Board of
Directors of Group.
2. Section 4(b)(ii) of the Employment Agreement concerning
the payment of an annual bonus to the Executive shall be amended by
deleting the second sentence thereof, so that the Section shall
read in its entirety as follows:
<PAGE>
(ii) Annual Bonus. In addition to Base Salary, the Executive
shall be awarded, for each fiscal year during the Employment
Period, an annual bonus as shall be determined by the Board or its
Compensation and Benefits Committee in accordance with the
executive incentive compensation plan of Group approved on
September 28, 1988 by the Group Board of Directors ("Incentive
Plan") or otherwise. The annual bonus under Section 4(b)(ii) shall
hereinafter be referred to as the "Annual Bonus".
3. Section 6(d)(2)(i)(B) of the Employment Agreement
setting forth the compensation and benefits obligations of the
Company upon the termination of the Executive's employment for Good
Reason or other than for Cause, Disability or death following a
Change of Control, shall be amended to read in its entirety as
follows:
B. the product of (x) the Annual Bonus paid to the
Executive for the last full fiscal year ending during the
Employment Period or, if higher, the Annual Bonus paid to the
Executive during the last full fiscal year ending during the
Employment Period or, if higher, a constructive annual bonus
calculated to be equal to the bonus that would have been payable to
the Executive from the Company for the last full fiscal year ending
prior to the Date of Termination (regardless of whether the
Executive was employed in an officer position for all or any part
of such fiscal year) as if Group had achieved the "target level of
performance" under the Incentive Plan set at the level for the
fiscal year immediately preceding the Change of Control Date and
assuming the Executive's "target percentage" under the Incentive
Plan equals such target percentage assigned to the Executive
immediately preceding the Change of Control Date (the highest
Annual Bonus determined under this clause (x) shall hereinafter be
referred to as the "Recent Bonus") and (y) a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination and the denominator of which is
365; and
4. Section 6(d)(2)(i)(C) of the Employment Agreement
setting forth the compensation and benefits obligations of the
Company upon the termination of the Executive's employment for Good
Reason or other than for Cause, Disability or death following a
Change of Control, shall be amended to read in its entirety as
follows:
C. the product of (x) three and (y) the sum of (i) the
Highest Base Salary and (ii) the Recent Bonus; and
<PAGE>
5. Section 6(d)(2)(i) of the Employment Agreement setting
forth the compensation and benefits obligations of the Company upon
the termination of the Executive's employment for Good Reason or
other than for Cause, Disability or death following a Change of
Control, shall be amended to add a new subparagraph F to read in
its entirety as follows:
F. to the extent that the Executive has had his Base
Salary reduced pursuant to the salary reduction program implemented
for officers of the Company effective January 1, 1992, then the
Executive shall be entitled to receive a lump-sum payment of the
amount of salary foregone from January 1, 1992 through the Date of
Termination and the Executive shall not be eligible to receive any
salary reduction payback through the profit sharing plan
established by the Company for such purpose; provided, however,
that if on the Date of Termination, the Executive has already
received payments from such profit sharing plan, any such payments
shall be offset from the lump sum amount calculated under this
subparagraph F; and
6. Section 6(d)(2)(ii) of the Employment Agreement setting
forth the compensation and benefits obligations of the Company upon
the termination of the Executive's employment for Good Reason or
other than for Cause, Disability or death following a Change of
Control, shall be amended to add a new paragraph, the section to
read in its entirety as follows:
(ii) (A) for the remainder of the Employment Period or
such longer period as any plan, program, practice or policy may
provide, the Company shall continue benefits to the Executive
and/or the Executive's family at least equal to those which would
have been provided to them in accordance with the plans, programs,
practices and policies described in Section 4(b)(iii) (with respect
to any retirement plans), (iv) and (vi) of this Agreement if the
Executive's employment had not been terminated, including health
insurance and life insurance, in accordance with the most favorable
plans, practices, programs or policies of the Company and its
subsidiaries in effect on or after the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter
with respect to other key employees and their families and for
purposes of eligibility for retiree benefits pursuant to such
plans, practices, programs and policies, the Executive shall be
considered to have remained employed until the end of the
Employment Period and to have retired on the last day of such
period; and
<PAGE>
(B) at the expiration of the Employment Period, the
Company shall continue to provide the Executive with health
insurance and on-line travel privileges on the same basis such
benefits were provided to the Executive on the last day of the
Employment Period, with such benefits to continue for the life of
the Executive; provided, however, that if the Executive becomes
eligible for health insurance through a subsequent employer, the
Company's provision of such benefits shall be secondary to the
benefit coverage of the subsequent employer.
7. Section 6 of the Employment Agreement setting forth the
compensation and benefits obligations of the Company upon the
termination of the Executive's employment, shall be amended to add
a new subparagraph (e) at the end of the section to read in its
entirety as follows:
(e) Salary Reduction Program. For purposes of determining
the Company's compensation and benefits obligations under any of
the foregoing subparagraphs (a) through (d) of Section 6, any
reduction in the Executive's Base Salary resulting from the officer
salary reduction program implemented on January 1, 1992 shall be
disregarded and the Executive's "salary of record" as in effect on
December 31, 1991 shall be deemed to be in effect for the duration
of the salary reduction program or, if higher, the Executive's
actual annual salary.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization of its Board of Directors, the
Company has caused this Amendment to be executed in its name and on
its behalf, all as of the day and year first written above.
EXECUTIVE
/s/Seth E. Schofield
___________________________
Seth E. Schofield
Chairman of the Board, President
and CEO
USAIR, INC.
/s/John P. Frestel, Jr.
___________________________
John P. Frestel, Jr.
Senior Vice President-Human
Resources
Attest:
/s/Michelle V. Bryan
______________________________
Secretary
<PAGE>
AMENDMENT NUMBER THREE TO
EMPLOYMENT AGREEMENT
This Amendment Number Three, dated as of January 27, 1993, to
the Employment Agreement dated as of June 29, 1989, between USAir,
Inc., a Delaware corporation having a place of business at Crystal
Park Four, 2345 Crystal Drive, Arlington, Virginia 22227 (the
"Company"), and Seth E. Schofield, residing at 1704 23rd Street
South, Arlington, Virginia 22202 (the "Executive"), as subsequently
amended (the "Employment Agreement"), is entered into as of the
date first stated above.
WHEREAS, USAir Group, Inc. ("USAir Group") has authorized,
executed and delivered an investment agreement dated as of January
21, 1993, as subsequently amended, (the "Investment Agreement")
with British Airways, Plc ("BA") pursuant to which BA will acquire
an equity ownership interest in USAir Group and will be entitled to
elect members of the Board of Directors of USAir Group (the "BA
Transaction"); and
WHEREAS, at the "Second Closing" of the BA Transaction as that
term is defined in the Investment Agreement, whereby BA's equity
ownership in USAir Group and representation on the USAir Group
Board of Directors will constitute a "Change of Control" as that
term is defined by the Employment Agreement prior to any
modifications set forth in this Amendment Number Two; and
WHEREAS, the parties have agreed to amend the provisions of
the Employment Agreement in certain respects to become effective
upon the Second Closing of the BA Transaction;
NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties
agree as follows:
1. Section 2 of the Employment Agreement shall be amended in
its entirety to read as follows:
For purposes of this Agreement and with respect to
transactions occurring subsequent to the Second Closing
of the BA Transaction, a "Change of Control" shall mean:
(a) The acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act") of beneficial ownership (within the meaning of Rule 13d-
3 promulgated under the Exchange Act) of 20% or more of either
(i) the then outstanding shares of common stock of the
<PAGE>
Company's parent, USAir Group, Inc. ("Group") (the
"Outstanding Group Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of Group
entitled to vote generally in the election of directors (the
"Outstanding Group Voting Securities"); provided, however,
that the following acquisitions shall not constitute a Change
of Control: (v) any acquisition by British Airways Plc or any
of its affiliates, (w) any acquisition directly from Group,
(x) any acquisition by Group or any of its subsidiaries, (y)
any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by Group or any of its
subsidiaries or (z) any acquisition by any corporation with
respect to which, following such acquisition, more than 85%
of, respectively, the then outstanding shares of common stock
of such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were
beneficial owners, respectively, of the Outstanding Group
Common Stock and Outstanding Group Voting Securities in
substantially the same proportions as their ownership,
immediately prior to such acquisition, of the Outstanding
Group Common Stock and Outstanding Group Voting Securities, as
the case may be; or
(b) Individuals who, as of the date hereof,
constitute Group's Board of Directors (the "Incumbent
Board") cease for any reason to constitute at least a
majority of the Group Board of Directors; provided,
however, that any individual becoming a director
subsequent to the date hereof whose election, or
nomination for election by Group's shareholders, was
approved by British Airways Plc, or any of its
affiliates, or 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; or
(c) Approval by the shareholders of Group of a
reorganization, merger or consolidation, in each case,
with respect to which all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Group Common Stock and
Outstanding Group Voting Securities immediately prior to
such reorganization, merger or consolidation,
beneficially own, directly or indirectly, less than 85%
<PAGE>
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 reorganization, merger or consolidation in
substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or
consolidation, of the Outstanding Group Common Stock and the
Outstanding Group Voting Securities, as the case may be;
provided, however, that a reorganization, merger or
consolidation to which British Airways Plc and/or any of its
affiliates, and Group and/or any of its affiliates, are the
only parties shall not constitute a Change of Control; or
(d) Approval by the shareholders of Group of (i) a
complete liquidation or dissolution of Group or (ii) the
sale or other disposition of all or substantially all of
the assets of Group, other than to British Airways Plc or
any of its affiliates, or to a corporation, with respect
to which following such sale or other disposition, more
than 85% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting
power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or
indirectly, by all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Group Common Stock and
Outstanding Group Voting Securities immediately prior to
such sale or other disposition, in substantially the same
proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Group
Common Stock and Outstanding Group Voting Securities, as
the case may be; or
(e) The acquisition of beneficial ownership of 20%
or more of the then outstanding securities of Group,
including both voting and non-voting securities, by an
individual, entity or group other than British Airways
Plc or any of its affiliates; provided, however, that
such acquisition shall only constitute a change of
control in the event that such individual, entity or
group also obtains the power to elect by class vote,
cumulative voting or otherwise to appoint 20% or more of
the total number of directors to the Board of Directors
of Group.
<PAGE>
2. Section 4(a)(ii)(B) of the Agreement concerning the
Executive's position and duties during the Employment Period
following a Change of Control shall be amended by the addition of
the following sentence:
Notwithstanding the foregoing, the Executive and the Company
agree that following the Change of Control occasioned by the
Second Closing of the BA Transaction, the Company may transfer
the Executive's employment to any location which meets all of
the following criteria without such transfer constituting Good
Reason under Section 5(d)(iii) of the Agreement for the
Executive to terminate his employment:
(1) It is a location of a substantial activity for which the
Executive has responsibility.
(2) The location is either a corporate headquarters or a
major operations hub for the Company, BA or any of their
affiliates or principal business divisions.
(3) In the event the location is outside the United States,
the Company must provide the Executive a cost-of-living
adjustment in compensation so that the Executive is in the
same economic purchasing position that the Executive was in at
his or her location immediately prior to the requested
relocation.
(4) The Executive has not been transferred or relocated
during the prior twelve-month period.
3. Paragraph (d) of Section 5 of the Employment Agreement
setting forth the definition of "Good Reason" shall be amended by
adding after the last sentence of paragraph (d) the following
additional sentence:
Following the Change of Control occasioned by the Second
Closing of the BA Transaction, termination by the
Executive of his or her employment for any reason which
would not otherwise constitute Good Reason during the 30-
day period immediately following the first anniversary of
the Change of Control Date occasioned by the Second
Closing of the BA Transaction shall not be deemed a
termination for Good Reason under the terms of this
Employment Agreement or entitle the Executive to claim
benefits under Section 6(d)(2) of the Employment
Agreement.
<PAGE>
4. Section 5(d)(ii) of the Agreement shall be amended by
the addition of the following sentences:
Following the Change of Control occasioned by the Second
Closing of the BA transaction, notwithstanding the
foregoing, the Executive and the Company agree that any
diminution in the plans, programs, policies and practices
described in Sections 4(b)(iii) - (viii) which is (a)
not, individually or in the aggregate with all other such
changes, a material change, (b) is a change applicable to
all officers of the Company eligible for such benefit,
and (c) is a change approved by a majority of the members
of the Board of Directors of the Company who are not
elected by BA, shall not constitute Good Reason under
Section 5(d)(ii) of the Agreement. For purposes of this
paragraph, a "material change" shall be defined as a
change which decreases the Company's cost or the present
value of the benefit to the Executive, as applicable, as
determined by the Company's actuaries (using for purposes
of determining present value Pension Benefit Guaranty
Corporation actuarial factors) of such plans, programs,
policies or practices, by more than 15% of the aggregate
of the Company's cost for such Executive of such plans,
programs, policies and practices for calendar 1993
(excluding statutorily required plans, programs, policies
and practices); provided, however, that (x) the
Executive's cost for any individual plan, program, policy
or practice may not be increased by more than 15%, and
(y) no individual plan, program, policy or practice
listed on Appendix A attached hereto may be eliminated in
its entirety.
5. The Executive hereby acknowledges that the previously
approved change in the pension benefit program, including the 1991
freeze of accruals under the defined benefit and target benefit
pension plans and the 1993 implementation of the two new defined
contribution pension plans, does not constitute Good Reason for the
Executive to terminate his or her employment under the Agreement
following the Change of Control occasioned by the Second Closing of
the BA Transaction.
6. This Amendment Number Three to the Employment Agreement
shall be effective only upon the occurrence of the Second Closing
of the BA Transaction without the need for further action.
* * * *
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization of its Board of Directors, the
Company has caused this Amendment to be executed in its name and on
its behalf, all as of the day and year first written above.
EXECUTIVE
/s/Seth E. Schofield
____________________________
Seth E. Schofield
Chairman of the Board,
President and CEO
USAIR, INC.
/s/John P. Frestel, Jr.
____________________________
John P. Frestel, Jr.
Senior Vice President-Human
Resources
<PAGE>
Attest:
/s/Michelle V. Bryan
___________________________
Secretary
<PAGE>
APPENDIX A
1. USAir Health Benefit Plan (medical and dental, including
alternative plan such as HMO's)
2. Split dollar life insurance plan
3. Long term disability plan
4. Short term disability plan (unlimited sick leave)
5. Retirement Plan for Certain Employees of USAir, Inc.
6. Target Benefit Plan for Certain Employees of USAir, Inc.
7. USAir, Inc. Supplementary Retirement Benefit Plan
8. Individual supplemental retirement agreements with certain
officers
9. USAir, Inc. 401(k) Savings Plan
10. USAir, Inc. Employee Savings Plan - 1993
11. USAir, Inc. Employee Pension Plan - 1993
12. 1984 Stock Option and Stock Apprecation Rights Plan of USAir
Group, Inc.
13. 1988 Stock Incentive Plan of USAir Group, Inc.
14. Employee travel policy
15. Officer severance policy
16. Post retirement medical and dental
17. Accidental Death & Dismemberment Insurance
18. 125 Premium Conversion Plan
19. Flexible Spending Plan - 1993
20. Management life insurance program
21. Officer's Supplemental Benefit Plan
22. Employee Assistance Program
23. Education Assitance Plan
24. Post retirement death benefit
<PAGE>
AMENDMENT NUMBER FOUR TO
EMPLOYMENT AGREEMENT
This Amendment Number Four, dated as of April 1, 1994, to the
Employment Agreement, dated as of June 29, 1989, between USAir,
Inc., a Delaware corporation having a place of business at Crystal
Park Four, 2345 Crystal Drive, Arlington, Virginia 22227 (the
"Company"), and Seth E. Schofield, residing at 1704 23rd Street
South, Arlington, Virginia 22202 (the "Executive"), as subsequently
amended (the "Employment Agreement"), is entered into as of the
date first stated above.
WHEREAS, the Company has elected Executive to the position of
Chairman of the Board and Chief Executive Officer and desires to
retain Executive's services and to have Executive assume greater
responsibilities;
NOW, THEREFORE, in consideration of the mutual promises
contained herein, the Company and the Executive hereby agree as
follows:
1. Section 4(a)(i)(A) of the Employment Agreement is
amended to read as follows:
4. Terms of Employment. (a) Position and Duties. (i) During
the Employment Period and prior to a Change of Control Date,
(A) if the Board determines that the Executive has been
performing his duties in accordance with Section 4(a)(iii)
hereof, it shall re-elect the Executive to the position of
Chairman and Chief Executive Officer with substantially
similar duties to those performed by the Executive on the date
of this Amendment Number Four,
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization of its Board of Directors, the
Company has caused this Amendment to be executed in its name and on
its behalf, all as of the day and year first written above.
EXECUTIVE
/s/Seth E. Schofield
______________________________
Seth E. Schofield
Chairman and Chief Executive
Officer
<PAGE>
USAIR, INC.
/s/John P. Frestel, Jr.
________________________________
John P. Frestel, Jr.
Senior Vice President-Human
Resources
Attest:
/s/Michelle V. Bryan
_________________________
Secretary
<PAGE>
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
Agreement dated as of November 12, 1991, between USAir, Inc.,
a Delaware corporation, having a place of business at Crystal Park
Four, 2345 Crystal Drive, Arlington, VA 22227 (the "Company") and
Frank L. Salizzoni, residing at 1501 Crystal Drive, Apartment 625,
Arlington, Virginia 22202 (the "Executive").
WITNESSETH
WHEREAS, the Executive has assumed duties of a responsible
nature to the benefit of the Company and to the satisfaction of its
Board of Directors (the "Board");
WHEREAS, the Board believes it to be in the best interests of
the Company to enter into this Agreement to assure Executive's
continuing services to the Company including, but not limited to,
under circumstances in which there is a possible, threatened or
actual Change of Control (as defined below) of the Company; and
WHEREAS, the Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change
of Control and to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change
of Control which ensure that the compensation and benefits
expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order
to accomplish all the above objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the Company and the Executive hereby agree as follows:
1. Certain Definitions. (a) The "Effective Date" shall mean
the date hereof.
(b) The "Change of Control Date" shall mean the first
date during the Employment Period (as defined in Section 1(c))
on which a Change of Control (as defined in Section 2) occurs.
Anything in this Agreement to the contrary notwithstanding,
if a Change of Control occurs and if the Executive's
employment with the Company is terminated or the Executive
ceases to be an officer of the Company prior to the date on
which the Change of Control occurs, and if it is reasonably
<PAGE>
demonstrated by the Executive that such termination of
employment or cessation of status as an officer (i) was at the
request of a third party who has taken steps reasonably
calculated to effect the Change of Control or (ii) otherwise
arose in connection with or anticipation of the Change of
Control, then for all purposes of this Agreement the "Change
of Control Date" shall mean the date immediately prior to the
date of such termination of employment or cessation of status
as an officer.
(c) The "Employment Period" shall mean the period
commencing on the Effective Date and ending on the earlier to
occur of (i) the fourth anniversary of such date or (ii) the
first day of the month next following the Executive's 65th
birthday ("Normal Retirement Date"); provided, however, that
commencing on the date one year after the Effective Date, and
on each annual anniversary of such date (such date and each
annual anniversary thereof shall be hereinafter referred to as
the "Renewal Date"), the Employment Period shall be
automatically extended so as to terminate on the earlier of
(x) four years from such Renewal Date or (y) the Executive's
Normal Retirement Date, unless at least 30 days prior
to the Renewal Date the Company shall give notice to the
Executive that the Employment Period shall not be so extended;
and provided, further, that upon the occurrence of a Change of
Control Date, the Employment Period shall automatically be
extended so as to terminate on the earlier to occur of (1) the
fourth anniversary of such date or (2) the Executive's Normal
Retirement Date.
2. Change of Control. For the purpose of this Agreement, a
"Change in Control" shall mean:
(a) The acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act")) of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of
either (i) the then outstanding shares of common stock of the
Company's parent, USAir Group, Inc. ("Group") (the
"Outstanding Group Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of Group
entitled to vote generally in the election of directors (the
"Outstanding Group Voting Securities"); provided, however,
that the following acquisitions shall not constitute a Change
of Control: (w) any acquisition directly from Group, (x) any
acquisition by Group or any of its subsidiaries, (y) any
<PAGE>
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by Group or any of its subsidiaries or
(z) any acquisition by any corporation with respect to which,
following such acquisition, more than 85% of, respectively,
the then outstanding shares of common stock of such
corporation and the combined voting power of the then
outstanding voting power of the then outstanding voting
securities of such corporation entitled to vote generally in
the election of directors, is then beneficially owned,
directly or indirectly, by all or substantially all of the
individuals and entities who were beneficial owners,
respectively of the Outstanding Group Common Stock and
Outstanding Group Voting Securities in substantially the same
proportions as their ownership, immediately prior to such
acquisition, of the Outstanding Group Common Stock and
Outstanding Group Voting Securities, as the case may be; or
(b) Individuals who, as of the date hereof, constitute
Group's Board of Directors (the "Incumbent Board") cease for
any reason to constitute at least a majority of the Group
Board of Directors; provided, however, that any individual
becoming a director subsequent to the date hereof whose
election, or nomination for election by Group'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 either an
actual or threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act) or other actual or threatened solicitation of
proxies or consents; or
(c) Approval by the shareholders of Group of a
reorganization, merger or consolidation, in each case, with
respect to which all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of
the Outstanding Group Common Stock and Outstanding Group
Voting Securities immediately prior to such reorganization,
merger or consolidation, beneficially own, directly or
indirectly, more than 85% 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
<PAGE>
case may be, of the corporation resulting from such
reorganization, merger or consolidation in substantially the
same proportions as their ownership, immediately prior to such
reorganization, merger or consolidation of the Outstanding
Group Common Stock and the Outstanding Group Voting
Securities, as the case may be; or
(d) Approval by the shareholders of Group of (i) a
complete liquidation or dissolution of Group or (ii) the sale
or other disposition of all or substantially all of the assets
of Group, other than to a corporation, with respect to which
following such sale or other disposition, more than 85% of,
respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Group
Common Stock and Outstanding Group Voting Securities
immediately prior to such sale or other disposition in
substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the
Outstanding Group Common Stock and Outstanding Group Voting
Securities, as the case may be.
3. Employment Period. The Company hereby agrees to continue
the Executive in its employ, and the Executive hereby agrees to
remain in the employ of the Company, during the Employment Period
under the terms and conditions provided herein.
4. Terms of Employment. (a) Position and Duties. (i) During
the Employment Period and prior to a Change of Control Date, (A) if
the Board determines that the Executive has been performing his
duties in accordance with Section 4(a)(iii) hereof, it shall re-
elect the Executive to a responsible executive position with
substantially similar duties to the position held by the Executive
on the Effective Date, (B) the Executive's services shall be
performed at the Executive's location on the Effective Date, the
Company's headquarters, or a location where a substantial activity
for which the Executive has responsibility is located.
(ii) During the Employment Period and on and following a
Change of Control Date, (A) the Executive's position (including
status, offices, titles and reporting relationships), authority,
duties and responsibilities shall be at least commensurate in all
<PAGE>
material respects with the most significant of those held,
exercised and assigned at any time during the 90-day period
immediately preceding the Change of Control Date and (B) the
Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Change of Control
Date or any office or location less than thirty-five (35) miles
from such location.
(iii) During the Employment Period, and excluding any periods
of vacation and sick leave to which the Executive is entitled, the
Executive agrees to devote reasonable attention and time during
normal business hours to the business and affairs of the Company
and, to the extent necessary to discharge the responsibilities
assigned to the Executive hereunder, to use the Executive's
reasonable best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period it shall not be a
violation of this Agreement for the Executive to (A) serve on
corporate, civic or charitable boards or committees, (B) deliver
lectures, fulfill speaking engagements or teach at educational
institutions and (C) manage personal investments, so long as such
activities do not significantly interfere with the performance of
the Executive's responsibilities as an employee of the Company in
accordance with this Agreement. It is also expressly understood
and agreed that to the extent that such activities have been
conducted by the Executive prior to the Effective Date, the
continued conduct of such activities (or the conduct of activities
similar in nature and scope thereto) subsequent to the Effective
Date shall not thereafter be deemed to interfere with the
performance of the Executive's responsibilities to the Company.
(b) Compensation. (i) Base Salary. During the Employment
Period, the Company shall pay the Executive a base salary (x) for
the first 12 months of the term hereof at a rate not less than his
base salary in effect on the Effective Date of this Agreement, and
(y) during each succeeding 12 months of the term hereof at a rate
not less than his base salary in effect on the last day of the
preceding 12-month period. During the Employment Period, base
salary shall be reviewed at least annually and shall be increased
at any time and from time to time as shall be substantially
consistent with increases in base salary awarded in the ordinary
course of business to other key employees of the Company and its
subsidiaries. Any increase in base salary shall not serve to limit
or reduce any other obligation to the Executive under this
Agreement. Base salary shall not be reduced after any such
increase. Base salary under Section 4(b)(i) shall hereinafter be
referred to as the "Base Salary".
<PAGE>
(ii) Annual Bonus. In addition to Base Salary, the Executive
shall be awarded, for each fiscal year during the Employment
Period, an annual bonus as shall be determined by the Board or its
Compensation and Benefits Committee in accordance with the
executive incentive compensation plan of Group approved on
September 28, 1988 by the Group Board of Directors ("Incentive
Plan") or otherwise. For each fiscal year beginning or ending
after the Change of Control Date during the Employment Period, the
annual bonus shall be at least equal to the bonus that would have
been payable to the Executive from the Company as if Group had
achieved the "target level of performance" under the Incentive Plan
set at the level for the fiscal year immediately preceding the
Change of Control Date and assuming that the Executive's "target
percentage" under the Incentive Plan at least equals such target
percentage assigned to the Executive immediately preceding the
Change of Control Date. The annual bonus under Section 4(b)(ii)
shall hereinafter be referred to as the "Annual Bonus".
(iii) Incentive, Savings and Retirement Plans. In addition to
Base Salary and Annual Bonus payable as hereinabove provided, the
Employee shall be entitled to participate during the Employment
Period in all incentive, savings and retirement plans, practices,
policies and programs applicable on or after the Effective Date to
other key employees of the Company and its subsidiaries (including
but not limited to the employee benefit plans listed on Exhibit A
hereto), in each case providing benefits which are the economic
equivalent to those in effect on the Effective Date or as
subsequently amended.
(iv) Welfare Benefit Plans. During the Employment Period, the
Executive and/or the Executive's family, as the case may be, shall
be eligible for participation in and shall receive all benefits
under welfare benefit plans, practices, policies and programs
provided by the Company and its subsidiaries (including, without
limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) applicable on or after the
Effective Date to other key employees of the Company and its
subsidiaries, in each case providing benefits which are the
economic equivalent to those in effect on the Effective Date or as
subsequently amended.
(v) Expenses. During the Employment Period, the Executive
shall be entitled to receive prompt reimbursement for all
reasonable expenses incurred by the Executive in accordance with
the most favorable policies, practices and procedures of the
Company and its subsidiaries applicable at any time on or after the
Effective Date to other key employees of the Company and its
subsidiaries.
<PAGE>
(vi) Fringe Benefits. During the Employment Period, the
Executive shall be entitled to fringe benefits, including but not
limited to pass privileges for non-revenue transportation, in
accordance with the most favorable plans, practices, programs and
policies of the Company and its subsidiaries applicable at any time
on or after the Effective Date to other key employees of the
Company and its subsidiaries.
(vii) Office and Support Staff. During the Employment Period,
the Executive shall be entitled to an appropriate office or offices
of a size and with furnishings and other appointments, and to
secretarial and other assistance, as provided to other key
employees of the Company and its subsidiaries.
(viii) Vacation. During the Employment Period, the Executive
shall be entitled to paid vacation in accordance with the most
favorable plans, policies, programs and practices of the Company
and its subsidiaries as in effect on or after the Effective Date
with respect to other key employees of the Company and its
subsidiaries.
5. Termination. (a) Mutual Agreement. During the Employment
Period, the Executive's employment hereunder may be terminated at
any time by mutual agreement on terms to be negotiated at the time
of such termination.
(b) Death or Disability. This Agreement shall terminate
automatically upon the Executive's death. If the Company
determines in good faith that the Disability of the Executive has
occurred (pursuant to the definition of "Disability" set forth
below), it may give to the Executive written notice of its
intention to terminate the Executive's employment. In such event,
the Executive's employment with the Company shall terminate
effective on the 90th day after receipt by the Executive of such
notice given at any time after a period of six consecutive months
of Disability and while such Disability is continuing (the
"Disability Effective Date"), provided that, within the 90 days
after such receipt, the Executive shall not have returned to full-
time performance of the Executive's duties. For purposes of this
Agreement, "Disability" means disability which, at least six months
after its commencement, is determined to be total and permanent by
a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably).
During such six month period and until the Disability Effective
Date, Executive shall be entitled to all compensation provided for
under Section 4 hereof.
<PAGE>
(c) Cause. During the Employment Period, the Company may
terminate the Executive's employment for "Cause." For purposes of
this Agreement, "Cause" means (i) an act or acts of personal
dishonesty taken by the Executive and intended to result in
substantial personal enrichment of the Executive at the expense of
the Company, (ii) repeated violations by the Executive of the
Executive's obligations under Section 4(a) of this Agreement which
are demonstrably willful and deliberate on the Executive's part and
which are not remedied in a reasonable period of time after receipt
of written notice from the Company or (iii) the conviction of the
Executive of a felony.
(d) Good Reason. During the Employment Period, the
Executive's employment hereunder may be terminated by the Executive
for Good Reason. For purposes of this Agreement, "Good Reason"
means (i) the assignment to the Executive of any duties
inconsistent in any respect with Executive's position (including
status, offices, titles and reporting relationships), authority,
duties or responsibilities as contemplated by Section 4(a)(i) or
(ii) of this Agreement, or any other action by the Company which
results in a diminution in such position, authority, duties or
responsibilities, excluding for this purpose an isolated,
insubstantial and inadvertent action not taken in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) (x) any failure by the Company to comply with any
of the provisions of Section 4(b) of this Agreement,
other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied
by the Company promptly after receipt of notice thereof
given by the Executive or (y) after the Change of Control
Date, any failure of the Company to pay Base Salary or
Annual Bonus in accordance with Sections 4(b)(i) and
(ii), respectively, and any failure by the Company to
maintain or provide the plans, programs, policies and
practices, and benefits described in Sections 4(b)(iii) -
(viii) on the most favorable basis such plans programs,
policies and practices were maintained and benefits
provided during the 90-day period immediately preceding
the Change of Control Date, or if more favorable to the
Executive and/or the Executive's family, as in effect at
any time thereafter with respect to other key employees
of the Company and its subsidiaries;
<PAGE>
(iii) the Company's requiring the Executive to be based at
any office or location other than that described in Sections
4(a)(i)(B) or 4(a)(ii) (B) hereof, except for travel
reasonably required in the performance of the Executive's
responsibilities;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly
permitted by this Agreement; or
(v) any failure by the Company to comply with and satisfy
Section 11(c) of this Agreement.
For purposes of this Section 5(d), any good faith
determination of "Good Reason" made by the Executive on or after
the Change of Control Date shall be conclusive. Anything in this
Agreement to the contrary notwithstanding, a termination by the
Executive for any reason during the 30-day period immediately
following the first anniversary of the Change of Control Date shall
be deemed to be a termination for Good Reason for all purposes of
this Agreement.
(e) Notice of Termination. Any termination by the Company
for Cause or by the Executive for Good Reason shall be communicated
by Notice of Termination to the other party hereto given in
accordance with Section 12(b) of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other that
the date of receipt of such notice, specifies the termination date
(which date shall be not more than fifteen (15) days after the
giving of such notice). The failure by the Executive to set forth
in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason shall not waive any right
of the Executive hereunder or preclude the Executive from asserting
such fact or circumstance in enforcing his rights hereunder.
(f) Date of Termination. "Date of Termination" means the
date of receipt of the Notice of Termination or any later date
specified therein, as the case may be; provided, however, that (i)
if the Executive's employment is terminated by the Company other
than for Cause or Disability, the Date of Termination shall be the
<PAGE>
date on which the Company notifies the Executive of such
termination and (ii) if the Executive's employment is terminated by
reason of death or Disability, the Date of Termination shall be the
date of death of the Executive or the Disability Effective Date, as
the case may be.
6. Obligations of the Company upon Termination. (a) Death.
If the Executive's employment is terminated by reason of the
Executive's death, this Agreement shall terminate without further
obligations to the Executive's legal representatives under this
Agreement, other than those obligations accrued or earned and
vested (if applicable) by the Executive as of the Date of
Termination, including, for this purpose (i) the Executive's full
Base Salary through the Date of Termination at the rate in effect
on the Date of Termination, disregarding any reduction in Base
Salary in violation of this Agreement (the "Highest Base Salary"),
(ii) the product of the Annual Bonus paid to the Executive for the
last full fiscal year and a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination, and the denominator of which is 365 and (iii) any
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 (such amounts
specified in clauses (i), (ii) and (iii) are hereinafter referred
to as "Accrued Obligations"). All such Accrued Obligations shall
be paid to the Executive's estate or beneficiary, as applicable, in
a lump sum in cash within 30 days of the Date of Termination.
Anything in this Agreement to the contrary notwithstanding, the
Executive's family shall be entitled to receive benefits at least
equal to the most favorable benefits provided by the Company and
any of its subsidiaries to surviving families of employees of the
Company and such subsidiaries under such plans, programs, practices
and policies relating to family death benefits, if any, in
accordance with the most favorable plans, programs, practices and
policies of the Company and its subsidiaries in effect on or after
the Effective Date or, if more favorable to the Executive and/or
the Executive's family, as in effect on the date of the Executive's
death with respect to other key employees of the Company and its
subsidiaries and their families.
(b) Disability. If the Executive's employment is terminated
by reason of the Executive's Disability, this Agreement shall
terminate without further obligations to the Executive, other than
those obligations accrued or earned and vested (if applicable) by
the Executive as of the Date of Termination, including for this
purpose, all Accrued Obligations. All such Accrued Obligations
<PAGE>
shall be paid to the Employee in a lump sum in cash within 30 days
of the Date of Termination. Anything in this Agreement to the
contrary notwithstanding, the Employee shall be entitled after the
Disability Effective Date to receive disability and other benefits
at least equal to the most favorable of those provided by the
Company and its subsidiaries to disabled employees and/or their
families in accordance with such plans, programs, practices and
policies relating to disability, if any, in accordance with the
most favorable plans, programs, practices and policies of the
Company and its subsidiaries in effect on or after the Effective
Date or, if more favorable to the Executive and /or the Executive's
family, as in effect at any time thereafter with respect to other
key employees of the Company and its subsidiaries and their
families.
(c) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause, this Agreement shall
terminate without further obligations to the Executive (other than
the obligation to pay to the Executive the Highest Base Salary
through the Date of Termination plus the amount of any accrued
vacation pay not yet paid by the Company and any compensation
previously deferred by the Executive (together with accrued
interest thereon). If the Executive terminates employment other
than for Good Reason, this Agreement shall terminate without
further obligations to the Executive, other than those obligations
accrued or earned and vested (if applicable) by the Executive
through the Date of Termination, including for this purpose, all
Accrued Obligations and any obligations provided for in an
agreement, if any, between the Company and the Executive pursuant
to Section 5(a). All such Accrued Obligations shall be paid to
paid to the Executive in a lump sum in cash within 30 days of the
Date of Termination.
(d) Good Reason; Other Than for Cause or Disability.
(1) If, during the Employment Period and prior to a Change of
Control, the Company shall terminate the Executive's employment
other than for Cause, Disability or death or if the Executive shall
terminate his employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of
the following amounts:
A. to the extent not theretofore paid, the Executive's
Highest Base Salary through the Date of Termination; and
<PAGE>
B. basic salary at the rate of the Highest Base Salary for
the period from the Date of Termination until the end of the
Employment Period; and
C. in the case of compensation previously deferred by the
Executive, all amounts previously deferred (together with any
accrued interest thereon) and not yet paid by the Company, and any
accrued vacation pay not yet paid by the Company; and
(ii) for the remainder of the Employment Period, or such
longer period as any plan, program, practice or policy may provide,
the Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices
and policies described in Section 4(b)(iv) and (vi) of this
Agreement if the Executive's employment had not been terminated,
including health insurance and life insurance, in accordance with
the most favorable plans, practices, programs or policies of the
Company and its subsidiaries in effect on or after the Effective
Date, or if more favorable to the Executive, as in effect at any
time thereafter with respect to other key employees and their
families.
(2) If, during the Employment Period and on and after a
Change of Control Date, the Company shall terminate the Employee's
employment other than for Cause, Disability, or death or if the
Executive shall terminate his employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum in
cash within 30 days after the Date of Termination the aggregate of
the following amounts:
A. to the extent not theretofore paid, the Executive's
Highest Base Salary through the Date of Termination; and
B. the product of (x) the Annual Bonus paid to the Executive
for the last full fiscal year (if any) ending during the Employment
Period or, if higher, the Annual Bonus paid to the Executive
during the last full fiscal year (if any) immediately preceding the
Change of Control Date (the higher of either amount under this (x)
shall hereinafter be called the "Recent Bonus") and (y) a fraction,
the numerator of which is the number of days in the current fiscal
year through the Date of Termination and the denominator of which
is 365; and
<PAGE>
C. the product of (x) three and (y) the sum of (i) the
Highest Base Salary and (ii) the Recent Bonus (If by reason of the
Executive's date of hire or promotion, he has not served for a full
fiscal year in his position, then for purposes of the calculations
in subsection B above and this subsection C, Annual Bonus shall be
calculated as provided in the second sentence of Section 4(b)(ii)
hereof.); and
D. in the case of compensation previously deferred by the
Executive, all amounts previously deferred (together with any
accrued interest thereon) and not yet paid by the Company, and any
accrued vacation pay not yet paid by the Company; and
E. the Executive shall be entitled to receive a lump-sum
retirement benefit equal to the difference between (a) the
actuarial equivalent of the benefit under the Retirement Plan and
any supplemental and/or excess retirement plan the Executive would
receive if he remained employed by the Company at the compensation
level provided for in Sections 4(b)(i) and (ii) of this Agreement
for the remainder of the Employment Period and (b) the
actuarial equivalent of this benefit, if any, under the
Retirement Plan and any supplemental and/or excess retirement plan;
and
(ii) for the remainder of the Employment Period or such
longer period as any plan, program, practice or policy may provide,
the Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices
and policies described in Sections 4(b)(iii)(with respect to any
retirement plans), (iv) and (vi) of this Agreement if the
Executive's employment had not been terminated, including health
insurance and life insurance, in accordance with the most favorable
plans, practices, programs or policies of the Company and its
subsidiaries in effect on or after the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter
with respect to other key employees and their families and for
purposes of eligibility for
retiree benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have remained
employed until the end of the Employment Period and to have retired
on the last day of such period.
<PAGE>
7. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plans,
programs, policies or practices, provided by Group, the Company or
any of its subsidiaries and for which the Executive may qualify,
nor shall anything herein limit or otherwise affect such rights as
the Executive may have under any stock option, restricted stock or
other agreements with Group, the Company of any of its
subsidiaries. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy,
practice or program of Group, the Company or any of its
subsidiaries at or subsequent to the Date of Termination shall be
payable in accordance with such plan, policy practice or program.
8. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform
its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defence or other claim, right or action
which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement.
The Company agrees to pay, to the full extent permitted by law, all
legal fees and expenses, as incurred by the Company, the Executive
and others, which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company or
others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive
about the amount of any payment pursuant of Section 9 of this
Agreement), plus in each case interest at the applicable Federal
rate provided for in Section 7872(f)(2) of the Internal Revenue
Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any
payment or distribution by the Company 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, but
determined without regard to any additional payments required under
this Section 9) (a "Payment"), would be subject to the excise tax
imposed by Section 4999 of the Code or any interest or penalties
with respect to such excise tax (such excise tax, together with any
<PAGE>
such interest and penalties, are hereinafter collectively referred
to as the "Excise Tax"), then the Executive shall be entitled to
receive an additional payment (a "Gross-Up Payment") in an amount
such that after payment by the Executive of all taxes (including
any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest
and penalties imposed with respect thereto) and Excise Tax, imposed
upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon Payments.
(b) Subject to the provisions of Section 9(c), all
determinations required to be made under this Section 9, including
whether a Gross-Up Payment is required and the amount of such
Gross-Up Payment, shall be made by the firm of independent public
accountants selected by Group to audit its financial statements
(the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that
there has been a Payment, or such earlier time as is requested by
the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All fees
and expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid to the Executive within 5 days of the
receipt of the Accounting Firm's determination. If the Accounting
Firm determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion that failure to
report the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence or a
similar penalty. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and
the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the
Executive.
<PAGE>
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later
than ten business days after the Executive knows of such claim and
shall apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the thirty-day period
following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes
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 Employee shall:
(i) give the Company any information reasonably requested by the
Company relating to such claim, (ii) take such action in
connection with contesting such claim as the Company shall
reasonably request in writing from time to time, including, without
limitation, accepting legal representation with respect to such
claim by an attorney reasonably selected by the Company, (iii)
cooperate with the Company in good faith in order effectively to
contest such claim, (iv) permit the Company to participate in any
proceedings relating to such claim; provided, however, that the
Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax or
income tax, including interest and penalties with respect thereto,
imposed as a result of such representation and payment of costs and
expenses. Without limitation on the foregoing provisions of this
Section 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or
forgo any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and
may, at its sole 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 such claim 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 Excise Tax
or income tax, including interest or penalties with respect
<PAGE>
thereto, imposed with respect to such advance or with respect to
any imputed income with respect to such advance; and further
provided that any extension of the statute of limitations relating
to payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the
Company's control of the contest 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.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive
becomes entitled to receive any refund with respect to such claim,
the Executive shall (subject to the Company's complying with the
requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to
Section 9(c), 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 of refund prior to the expiration of thirty
days after such determination, then such advance shall be forgiven
and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
10. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to Group, the
Company or any of their subsidiaries, and their respective
businesses, which shall have been obtained by the Executive's
employment by the Company or any of its subsidiaries and which
shall not be or become public knowledge (other than by acts by
Executive or his representatives in violation of this Agreement).
After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the
Company, communicate or divulge any such information, knowledge or
data to anyone other than the Company and those designated by it.
In no event shall an asserted violation of the provisions of this
Section 10 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
<PAGE>
11. Successors. (a) This Agreement is personal to the
Executive and without the prior written consent of the Company
shall not be assignable by the Executive otherwise than by will or
the laws of descent and distribution. This Agreement shall inure
to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will 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
to assume expressly 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. 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
assumes and agrees to perform this Agreement by operation of law,
or otherwise.
12. Miscellaneous. (a) This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware,
without reference to principles of conflict of laws. The captions
of this Agreement are not part of the provisions hereof and shall
have no force or effect. This Agreement may not be amended or
modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal
representatives.
(b) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
Frank L. Salizzoni
1501 Crystal Drive
Apartment 625
Arlington, VA 22202
If to the Company:
USAir, Inc.
Crystal Park Four
2345 Crystal Drive
Arlington, VA 22227
Attention: General Counsel
<PAGE>
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and
communications shall be effective when actually received by the
addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or
regulation.
(e) The Executive's failure to insist upon strict compliance
with any provision hereof shall not be deemed to be a waiver of
such provision or any other provision thereof.
(f) Words or terms used in this Agreement which connote the
masculine gender are deemed to apply equally to female executives.
(g) This Agreement supersedes any prior employment agreement
between the Company and the Executive and contains the entire
understanding of the Company and the Executive with respect to the
subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in its name on its
behalf, all as of the day and year first above written.
EXECUTIVE
/s/Frank L. Salizzoni
___________________________
USAIR, INC.
By: /s/Seth E. Schofield
___________________________
Seth E. Schofield
President & Chief Executive
Officer
Attest: /s/Michelle V. Bryan
________________________________
Secretary
<PAGE>
Exhibit A
Retirement Plan for Certain Employees of USAir, Inc.
Target Benefit Plan for Employees of USAir, Inc.
USAir, Inc. Supplementary Retirement Benefit Plan
Officers' Supplemental Benefit Plan
1988 Stock Incentive Plan of USAir Group, Inc.
1984 Stock Option and Stock Appreciation Rights Plan of USAir
Group, Inc.
1988 Executive Incentive Compensation Plan of USAir Group, Inc.
USAir, Inc. 401(k) Savings Plan
Individual Supplemental Retirement Agreements with senior officers
of USAir, Inc.
Restricted Stock Agreements with certain senior officers of USAir,
Inc.
<PAGE>
AMENDMENT NUMBER ONE TO
EMPLOYMENT AGREEMENT
This Amendment Number One, dated as of June 11, 1992, to the
Employment Agreement dated as of November 12, 1991, between USAir,
Inc., a Delaware corporation having a place of business at Crystal
Park Four, 2345 Crystal Drive, Arlington, Virginia 22227 (the
"Company") and Frank L. Salizzoni, residing at 1501 Crystal Drive,
Apt. 625, Arlington, Virginia 22202 (the "Executive"), is entered
into as of the date first stated above.
WHEREAS, the Board believes it is important to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened change
of control of the Company and to encourage the Executive's full
attention and dedication to the Company currently and in the event
of any threatened or pending change of control, and to provide the
Executive with compensation and benefits arrangements upon a change
of control which ensure that the compensation and benefits
expectations of the Executive will be satisfied; and
WHEREAS, the Board believes it to be in the best interests of
the Company to amend the existing Employment Agreement with the
Executive to achieve the aforementioned objectives;
NOW, THEREFORE, the following amendments are hereby made to
the Employment Agreement:
1. Section 2 of the Employment Agreement setting forth the
definition of "Change of Control" shall be amended by adding the
word "or" at the end of subparagraph (d) and by adding a new
subparagraph (e) at the end of the definition as follows:
(e) The acquisition by an individual, entity or group of
beneficial ownership of 20% or more of the then outstanding
securities of Group, including both voting and non-voting
securities, provided, however, that such acquisition shall
only constitute a change of control in the event that such
individual, entity or group also obtains the power to elect by
class vote, cumulative voting or otherwise to appoint 20% or
more of the total number of directors to the Board of
Directors of Group.
2. Section 4(b)(ii) of the Employment Agreement concerning
the payment of an annual bonus to the Executive shall be amended by
deleting the second sentence thereof, so that the Section shall
read in its entirety as follows:
<PAGE>
(ii) Annual Bonus. In addition to Base Salary, the Executive
shall be awarded, for each fiscal year during the Employment
Period, an annual bonus as shall be determined by the Board or its
Compensation and Benefits Committee in accordance with the
executive incentive compensation plan of Group approved on
September 28, 1988 by the Group Board of Directors ("Incentive
Plan") or otherwise. The annual bonus under Section 4(b)(ii) shall
hereinafter be referred to as the "Annual Bonus".
3. Section 6(d)(2)(i)(B) of the Employment Agreement
setting forth the compensation and benefits obligations of the
Company upon the termination of the Executive's employment for Good
Reason or other than for Cause, Disability or death following a
Change of Control, shall be amended to read in its entirety as
follows:
B. the product of (x) the Annual Bonus paid to the Executive
for the last full fiscal year ending during the Employment
Period or, if higher, the Annual Bonus paid to the Executive
during the last full fiscal year ending during the Employment
Period or, if higher, a constructive annual bonus calculated
to be equal to the bonus that would have been payable to the
Executive from the Company for the last full fiscal year
ending prior to the Date of Termination (regardless of whether
the Executive was employed in an officer position for all or
any part of such fiscal year) as if Group had achieved the
"target level of performance" under the Incentive Plan set at
the level for the fiscal year immediately preceding the Change
of Control Date and assuming the Executive's "target
percentage" under the Incentive Plan equals such target
percentage assigned to the Executive immediately preceding the
Change of Control Date (the highest Annual Bonus determined
under this clause (x) shall hereinafter be referred to as the
"Recent Bonus") and (y) a fraction, the numerator of which is
the number of days in the current fiscal year through the Date
of Termination and the denominator of which is 365; and
4. Section 6(d)(2)(i)(C) of the Employment Agreement
setting forth the compensation and benefits obligations of the
Company upon the termination of the Executive's employment for Good
Reason or other than for Cause, Disability or death following a
Change of Control, shall be amended to read in its entirety as
follows:
C. the product of (x) three and (y) the sum of (i) the
Highest Base Salary and (ii) the Recent Bonus; and
<PAGE>
5. Section 6(d)(2)(i) of the Employment Agreement setting
forth the compensation and benefits obligations of the Company upon
the termination of the Executive's employment for Good Reason or
other than for Cause, Disability or death following a Change of
Control, shall be amended to add a new subparagraph F to read in
its entirety as follows:
F. to the extent that the Executive has had his Base
Salary reduced pursuant to the salary reduction program
implemented for officers of the Company effective January 1,
1992, then the Executive shall be entitled to receive a lump-
sum payment of the amount of salary foregone from January 1,
1992 through the Date of Termination and the Executive shall
not be eligible to receive any salary reduction payback
through the profit sharing plan established by the Company for
such purpose; provided, however, that if on the Date of
Termination, the Executive has already received payments from
such profit sharing plan, any such payments shall be offset
from the lump sum amount calculated under this subparagraph F;
and
6. Section 6(d)(2)(ii) of the Employment Agreement setting
forth the compensation and benefits obligations of the Company upon
the termination of the Executive's employment for Good Reason or
other than for Cause, Disability or death following a Change of
Control, shall be amended to add a new paragraph, the section to
read in its entirety as follows:
(ii) (A) for the remainder of the Employment Period or such
longer period as any plan, program, practice or policy may provide,
the Company shall continue benefits to the Executive and/or the
Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices
and policies described in Section 4(b)(iii) (with respect to any
retirement plans), (iv) and (vi) of this Agreement if the
Executive's employment had not been terminated, including health
insurance and life insurance, in accordance with the most favorable
plans, practices, programs or policies of the Company and its
subsidiaries in effect on or after the Effective Date or, if more
favorable to the Executive, as in effect at any time thereafter
with respect to other key employees and their families and for
purposes of eligibility for retiree benefits pursuant to such
plans, practices, programs and policies, the Executive shall be
considered to have remained employed until the end of the
Employment Period and to have retired on the last day of such
period; and
<PAGE>
(B) at the expiration of the Employment Period, the
Company shall continue to provide the Executive with
health insurance and on-line travel privileges on the
same basis such benefits were provided to the Executive
on the last day of the Employment Period, with such
benefits to continue for the life of the Executive;
provided, however, that if the Executive becomes eligible
for health insurance through a subsequent employer, the
Company's provision of such benefits shall be secondary
to the benefit coverage of the subsequent employer.
7. Section 6 of the Employment Agreement setting forth the
compensation and benefits obligations of the Company upon the
termination of the Executive's employment, shall be amended to add
a new subparagraph (e) at the end of the section to read in its
entirety as follows:
(e) Salary Reduction Program. For purposes of
determining the Company's compensation and benefits
obligations under any of the foregoing subparagraphs (a)
through (d) of Section 6, any reduction in the
Executive's Base Salary resulting from the officer salary
reduction program implemented on January 1, 1992 shall be
disregarded and the Executive's "salary of record" as in
effect on December 31, 1991 shall be deemed to be in
effect for the duration of the salary reduction program
or, if higher, the Executive's actual annual salary.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization of its Board of Directors, the
Company has caused this Amendment to be executed in its name and on
its behalf, all as of the day and year first written above.
EXECUTIVE
/s/Frank L. Salizzoni
______________________________
Frank L. Salizzoni
USAIR, INC.
/s/Seth E. Schofield
______________________________
Seth E. Schofield.
Chairman of the Board,
President and CEO
Attest:
/s/Michelle V. Bryan
______________________________
Secretary
<PAGE>
AMENDMENT NUMBER TWO TO
EMPLOYMENT AGREEMENT
This Amendment Number Two, dated as of January 27, 1993, to
the Employment Agreement dated as of November 12, 1991, between
USAir, Inc., a Delaware corporation having a place of business at
Crystal Park Four, 2345 Crystal Drive, Arlington, Virginia 22227
(the "Company"), and Frank L. Salizzoni, residing at 1501 Crystal
Drive, Apt. 625, Arlington, Virginia 22202 (the "Executive"), as
subsequently amended (the "Employment Agreement"), is entered into
as of the date first stated above.
WHEREAS, USAir Group, Inc. ("USAir Group") has authorized,
executed and delivered an investment agreement dated as of January
21, 1993, as subsequently amended, (the "Investment Agreement")
with British Airways, Plc ("BA") pursuant to which BA will acquire
an equity ownership interest in USAir Group and will be entitled to
elect members of the Board of Directors of USAir Group (the "BA
Transaction"); and
WHEREAS, at the "Second Closing" of the BA Transaction as that
term is defined in the Investment Agreement, whereby BA's equity
ownership in USAir Group and representation on the USAir Group
Board of Directors will constitute a "Change of Control" as that
term is defined by the Employment Agreement prior to any
modifications set forth in this Amendment Number Two; and
WHEREAS, the parties have agreed to amend the provisions of
the Employment Agreement in certain respects to become effective
upon the Second Closing of the BA Transaction;
NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties
agree as follows:
1. Section 2 of the Employment Agreement shall be amended
in its entirety to read as follows:
For purposes of this Agreement and with respect to
transactions occurring subsequent to the Second Closing
of the BA Transaction, a "Change of Control" shall mean:
(a) The acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the
"Exchange Act") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act)
<PAGE>
of 20% or more of either (i) the then outstanding shares of
common stock of the Company's parent, USAir Group, Inc.
("Group") (the "Outstanding Group Common Stock") or (ii) the
combined voting power of the then outstanding voting
securities of Group entitled to vote generally in the election
of directors (the "Outstanding Group Voting Securities");
provided, however, that the following acquisitions shall not
constitute a Change of Control: (v) any acquisition by
British Airways Plc or any of its affiliates, (w) any
acquisition directly from Group, (x) any acquisition by Group
or any of its subsidiaries, (y) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by Group or any of its subsidiaries or (z) any
acquisition by any corporation with respect to which,
following such acquisition, more than 85% of, respectively,
the then outstanding shares of common stock of such
corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were
beneficial owners, respectively, of the Outstanding Group
Common Stock and Outstanding Group Voting Securities in
substantially the same proportions as their ownership,
immediately prior to such acquisition, of the Outstanding
Group Common Stock and Outstanding Group Voting Securities, as
the case may be; or
(b) Individuals who, as of the date hereof, constitute
Group's Board of Directors (the "Incumbent Board") cease
for any reason to constitute at least a majority of the
Group Board of Directors; provided, however, that any
individual becoming a director subsequent to the date
hereof whose election, or nomination for election by
Group's shareholders, was approved by British Airways
Plc, or any of its affiliates, or 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; or
(c) Approval by the shareholders of Group of a
reorganization, merger or consolidation, in each case,
with respect to which all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Group Common Stock and
Outstanding Group Voting Securities immediately prior to
such reorganization, merger or consolidation,
<PAGE>
beneficially own, directly or indirectly, less than 85% 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 reorganization, merger or consolidation in
substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or
consolidation, of the Outstanding Group Common Stock and the
Outstanding Group Voting Securities, as the case may be;
provided, however, that a reorganization, merger or
consolidation to which British Airways Plc and/or any of its
affiliates, and Group and/or any of its affiliates, are the
only parties shall not constitute a Change of Control; or
(d) Approval by the shareholders of Group of (i) a complete
liquidation or dissolution of Group or (ii) the sale or other
disposition of all or substantially all of the assets of
Group, other than to British Airways Plc or any of its
affiliates, or to a corporation, with respect to which
following such sale or other disposition, more than 85% of,
respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Group
Common Stock and Outstanding Group Voting Securities
immediately prior to such sale or other disposition, in
substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the
Outstanding Group Common Stock and Outstanding Group Voting
Securities, as the case may be; or
(e) The acquisition of beneficial ownership of 20% or
more of the then outstanding securities of Group,
including both voting and non-voting securities, by an
individual, entity or group other than British Airways
Plc or any of its affiliates; provided, however, that
such acquisition shall only constitute a change of
control in the event that such individual, entity or
group also obtains the power to elect by class vote,
cumulative voting or otherwise to appoint 20% or more of
the total number of directors to the Board of Directors
of Group.
<PAGE>
2. Section 4(a)(ii)(B) of the Agreement concerning the
Executive's position and duties during the Employment Period
following a Change of Control shall be amended by the addition of
the following sentence:
Notwithstanding the foregoing, the Executive and the
Company agree that following the Change of Control
occasioned by the Second Closing of the BA Transaction,
the Company may transfer the Executive's employment to
any location which meets all of the following criteria
without such transfer constituting Good Reason under
Section 5(d)(iii) of the Agreement for the Executive to
terminate his employment:
(1) It is a location of a substantial activity for which the
Executive has responsibility.
(2) The location is either a corporate headquarters or a
major operations hub for the Company, BA or any of their
affiliates or principal business divisions.
(3) In the event the location is outside the United
States, the Company must provide the Executive a cost-of-
living adjustment in compensation so that the Executive
is in the same economic purchasing position that the
Executive was in at his or her location immediately prior
to the requested relocation.
(4) The Executive has not been transferred or relocated
during the prior twelve-month period.
3. Paragraph (d) of Section 5 of the Employment Agreement
setting forth the definition of "Good Reason" shall be amended by
adding after the last sentence of paragraph (d) the following
additional sentence:
Following the Change of Control occasioned by the Second
Closing of the BA Transaction, termination by the
Executive of his or her employment for any reason which
would not otherwise constitute Good Reason during the 30-
day period immediately following the first anniversary of
the Change of Control Date occasioned by the Second
Closing of the BA Transaction shall not be deemed a
termination for Good Reason under the terms of this
Employment Agreement or entitle the Executive to claim
benefits under Section 6(d)(2) of the Employment
Agreement.
<PAGE>
4. Section 5(d)(ii) of the Agreement shall be amended by
the addition of the following sentences:
Following the Change of Control occasioned by the Second Closing of
the BA transaction, notwithstanding the foregoing, the Executive
and the Company agree that any diminution in the plans, programs,
policies and practices described in Sections 4(b)(iii) - (viii)
which is (a) not, individually or in the aggregate with all other
such changes, a material change, (b) is a change applicable to all
officers of the Company eligible for such benefit, and (c) is a
change approved by a majority of the members of the Board of
Directors of the Company who are not elected by BA, shall not
constitute Good Reason under Section 5(d)(ii) of the Agreement.
For purposes of this paragraph, a "material change" shall be
defined as a change which decreases the Company's cost or the
present value of the benefit to the Executive, as applicable, as
determined by the Company's actuaries (using for purposes of
determining present value Pension Benefit Guaranty Corporation
actuarial factors) of such plans, programs, policies or practices,
by more than 15% of the aggregate of the Company's cost for such
Executive of such plans, programs, policies and practices for
calendar 1993 (excluding statutorily required plans, programs,
policies and practices); provided, however, that (x) the
Executive's cost for any individual plan, program, policy or
practice may not be increased by more than 15%, and (y) no
individual plan, program, policy or practice listed on Appendix A
attached hereto may be eliminated in its entirety.
5. The Executive hereby acknowledges that the previously
approved change in the pension benefit program, including the 1991
freeze of accruals under the defined benefit and target benefit
pension plans and the 1993 implementation of the two new defined
contribution pension plans, does not constitute Good Reason for the
Executive to terminate his or her employment under the Agreement
following the Change of Control occasioned by the Second Closing of
the BA Transaction.
6. This Amendment Number Two to the Employment Agreement
shall be effective only upon the occurrence of the Second Closing
of the BA Transaction without the need for further action.
* * * *
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization of its Board of Directors, the
Company has caused this Amendment to be executed in its name and on
its behalf, all as of the day and year first written above.
EXECUTIVE
/s/Frank L. Salizzoni
___________________________
Frank L. Salizzoni
USAIR, INC.
/s/Seth E. Schofield
_____________________________
Seth E. Schofield
Chairman of the Board,
President and CEO
Attest:
/s/Michelle V. Bryan
___________________________
Secretary
<PAGE>
APPENDIX A
1. USAir Health Benefit Plan (medical and dental, including
alternative plan such as HMO's)
2. Split dollar life insurance plan
3. Long term disability plan
4. Short term disability plan (unlimited sick leave)
5. Retirement Plan for Certain Employees of USAir, Inc.
6. Target Benefit Plan for Certain Employees of USAir, Inc.
7. USAir, Inc. Supplementary Retirement Benefit Plan
8. Individual supplemental retirement agreements with certain
officers
9. USAir, Inc. 401(k) Savings Plan
10. USAir, Inc. Employee Savings Plan - 1993
11. USAir, Inc. Employee Pension Plan - 1993
12. 1984 Stock Option and Stock Apprecation Rights Plan of USAir
Group, Inc.
13. 1988 Stock Incentive Plan of USAir Group, Inc.
14. Employee travel policy
15. Officer severance policy
16. Post retirement medical and dental
17. Accidental Death & Dismemberment Insurance
18. 125 Premium Conversion Plan
19. Flexible Spending Plan - 1993
20. Management life insurance program
21. Officer's Supplemental Benefit Plan
22. Employee Assistance Program
23. Education Assitance Plan
24. Post retirement death benefit
<PAGE>
AMENDMENT NUMBER THREE TO
EMPLOYMENT AGREEMENT
This Amendment Number Three, dated as of April 1, 1994, to the
Employment Agreement, dated as of November 12, 1991, between USAir,
Inc., a Delaware corporation having a place of business at Crystal
Park Four, 2345 Crystal Drive, Arlington, Virginia 22227 (the
"Company"), and Frank L. Salizzoni, residing at 1505 Crystal Drive,
Apt. 925, Arlington, Virginia 22202 (the "Executive"), as
subsequently amended (the "Employment Agreement"), is entered into
as of the date first stated above.
WHEREAS, the Company has elected Executive to the position of
President and Chief Operating Officer and desires to retain
Executive's services and to have Executive assume greater
responsibilities;
NOW, THEREFORE, in consideration of the mutual promises
contained herein, the Company and the Executive hereby agree as
follows:
1. Section 4(a)(i)(A) of the Employment Agreement is
amended to read as follows:
4. Terms of Employment. (a) Position and Duties. (i) During
the Employment Period and prior to a Change of Control Date,
(A) if the Board determines that the Executive has been
performing his duties in accordance with Section 4(a)(iii)
hereof, it shall re-elect the Executive to the position of
President and Chief Operating Officer with substantially
similar duties to those performed by the Executive on the date
of this Amendment Number Three,
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization of its Board of Directors, the
Company has caused this Amendment to be executed in its name and on
its behalf, all as of the day and year first written above.
EXECUTIVE
/s/Frank L. Salizzoni
_______________________________
Frank L. Salizzoni
President and Chief Operating
Officer
<PAGE>
USAIR, INC.
/s/John P. Frestel, Jr.
_______________________________
John P. Frestel, Jr.
Senior Vice President-Human
Resources
Attest:
/s/Michelle V. Bryan
_________________________
Secretary
<PAGE>
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
Agreement dated as of February 7, 1992, between USAir, Inc.,
a Delaware corporation, having a place of business at Crystal Park
Four, 2345 Crystal Drive, Arlington, VA 22227 (the "Company") and
W. Thomas Lagow, residing at 1501 Crystal Drive, Apt. 1132,
Arlington, Virginia 22202 (the "Executive").
WITNESSETH
WHEREAS, the Executive has assumed duties of a responsible
nature to the benefit of the Company and to the satisfaction of its
Board of Directors (the "Board");
WHEREAS, the Board believes it to be in the best interests of
the Company to enter into this Agreement to assure Executive's
continuing services to the Company including, but not limited to,
under circumstances in which there is a possible, threatened or
actual Change of Control (as defined below) of the Company; and
WHEREAS, the Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change
of Control and to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change
of Control which ensure that the compensation and benefits
expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order
to accomplish all the above objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the Company and the Executive hereby agree as follows:
1. Certain Definitions.
(a) The "Effective Date" shall mean the date hereof.
(b) The "Change of Control Date" shall mean the first date
during the Employment Period (as defined in Section 1(c)) on which
a Change of Control (as defined in Section 2) occurs. Anything in
this Agreement to the contrary notwithstanding, if a Change of
<PAGE>
Control occurs and if the Executive's employment with the Company
is terminated or the Executive ceases to be an officer of the
Company prior to the date on which the Change of Control occurs,
and if it is reasonably demonstrated by the Executive that such
termination of employment or cessation of status as an officer (i)
was at the request of a third party who has taken steps reasonably
calculated to effect the Change of Control or (ii) otherwise arose
in connection with or anticipation of the Change of Control, then
for all purposes of this Agreement the "Change of Control Date"
shall mean the date immediately prior to the date of such termina-
tion of employment or cessation of status as an officer.
(c) The "Employment Period" shall mean the period commencing
on the Effective Date and ending on the earlier to occur of (i) the
fourth anniversary of such date or (ii) the first day of the month
next following the Executive's 65th birthday ("Normal Retirement
Date"); provided, however, that commencing on the date one year
after the Effective Date, and on each annual anniversary of such
date (such date and each annual anniversary thereof shall be
hereinafter referred to as the "Renewal Date"), the Employment
Period shall be automatically extended so as to terminate on the
earlier of (x) four years from such Renewal Date or (y) the
Executive's Normal Retirement Date, unless at least 30 days prior
to the Renewal Date the Company shall give notice to the Executive
that the Employment Period shall not be so extended; and provided,
further, that upon the occurrence of a Change of Control Date, the
Employment Period shall automatically be extended so as to
terminate on the earlier to occur of (1) the fourth anniversary of
such date or (2) the Executive's Normal Retirement Date.
2. Change of Control. For the purpose of this Agreement, a
"Change in Control" shall mean:
(a) The acquisition by an individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of benefi-
cial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (i) the then outstanding
shares of common stock of the Company's parent, USAir Group, Inc.
("Group") (the "Outstanding Group Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of
Group entitled to vote generally in the election of directors (the
"Outstanding Group Voting Securities"); provided, however, that the
following acquisitions shall not constitute a Change of Control:
(w) any acquisition directly from Group, (x) any acquisition by
<PAGE>
Group or any of its subsidiaries, (y) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by
Group or any of its subsidiaries or (z) any acquisition by any
corporation with respect to which, following such acquisition, more
than 85% of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then
outstanding voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors, is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were
beneficial owners, respectively of the Outstanding Group Common
Stock and Outstanding Group Voting Securities in substantially the
same proportions as their ownership, immediately prior to such
acquisition, of the Outstanding Group Common Stock and Outstanding
Group Voting Securities, as the case may be; or
(b) Individuals who, as of the date hereof, constitute
Group's Board of Directors (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Group Board of
Directors; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomina-
tion for election by Group'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 either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) or other actual or threatened solicitation of
proxies or consents; or
(c) Approval by the shareholders of Group of a reorganiza-
tion, merger or consolidation, in each case, with respect to which
all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Group
Common Stock and Outstanding Group Voting Securities immediately
prior to such reorganization, merger or consolidation, beneficially
own, directly or indirectly, more than 85% 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 reorganization, merger or consoli-
dation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation
of the Outstanding Group Common Stock and the Outstanding Group
Voting Securities, as the case may be; or
<PAGE>
(d) Approval by the shareholders of Group of (i) a complete
liquidation or dissolution of Group or (ii) the sale or other
disposition of all or substantially all of the assets of Group,
other than to a corporation, with respect to which following such
sale or other disposition, more than 85% of, respectively, the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Group
Common Stock and Outstanding Group Voting Securities immediately
prior to such sale or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale or
other disposition, of the Outstanding Group Common Stock and
Outstanding Group Voting Securities, as the case may be.
3. Employment Period. The Company hereby agrees to continue
the Executive in its employ, and the Executive hereby agrees to
remain in the employ of the Company, during the Employment Period
under the terms and conditions provided herein.
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period and prior to a Change
of Control Date, (A) if the Board determines that the Execu-
tive has been performing his duties in accordance with Section
4(a)(iii) hereof, it shall re-elect the Executive to a
responsible executive position with substantially similar
duties to the position held by the Executive on the Effective
Date, (B) the Executive's services shall be performed at the
Executive's location on the Effective Date, the Company's
headquarters, or a location where a substantial activity for
which the Executive has responsibility is located.
(ii) During the Employment Period and on and following
a Change of Control Date, (A) the Executive's position
(including status, offices, titles and reporting relation-
ships), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most
significant of those held, exercised and assigned at any time
during the 90-day period immediately preceding the Change of
Control Date and (B) the Executive's services shall be
performed at the location where the Executive was employed
immediately preceding the Change of Control Date or any office
or location less than thirty-five (35) miles from such
location.
<PAGE>
(iii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is
entitled, the Executive agrees to devote reasonable attention
and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities.
During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate,
civic or charitable boards or committees, (B) deliver lec-
tures, fulfill speaking engagements or teach at educational
institutions and (C) manage personal investments, so long as
such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee
of the Company in accordance with this Agreement. It is also
expressly understood and agreed that to the extent that such
activities have been conducted by the Executive prior to the
Effective Date, the continued conduct of such activities (or
the conduct of activities similar in nature and scope thereto)
subsequent to the Effective Date shall not thereafter be
deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Company shall pay the Executive a base salary (x) for the
first 12 months of the term hereof at a rate not less than his
base salary in effect on the Effective Date of this Agreement,
and (y) during each succeeding 12 months of the term hereof at
a rate not less than his base salary in effect on the last day
of the preceding 12-month period. During the Employment
Period, base salary shall be reviewed at least annually and
shall be increased at any time and from time to time as shall
be substantially consistent with increases in base salary
awarded in the ordinary course of business to other key
employees of the Company and its subsidiaries. Any increase
in base salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Base salary
shall not be reduced after any such increase. Base salary
under Section 4(b)(i) shall hereinafter be referred to as the
"Base Salary".
<PAGE>
(ii) Annual Bonus. In addition to Base Salary, the
Executive shall be awarded, for each fiscal year during the
Employment Period, an annual bonus as shall be determined by
the Board or its Compensation and Benefits Committee in
accordance with the executive incentive compensation plan of
Group approved on September 28, 1988 by the Group Board of
Directors ("Incentive Plan") or otherwise. For each fiscal
year beginning or ending after the Change of Control Date
during the Employment Period, the annual bonus shall be at
least equal to the bonus that would have been payable to the
Executive from the Company as if Group had achieved the
"target level of performance" under the Incentive Plan set at
the level for the fiscal year immediately preceding the Change
of Control Date and assuming that the Executive's "target
percentage" under the Incentive Plan at least equals such
target percentage assigned to the Executive immediately
preceding the Change of Control Date. The annual bonus under
Section 4(b)(ii) shall hereinafter be referred to as the
"Annual Bonus".
(iii) Incentive, Savings and Retirement Plans. In
addition to Base Salary and Annual Bonus payable as herein-
above provided, the Employee shall be entitled to participate
during the Employment Period in all incentive, savings and
retirement plans, practices, policies and programs applicable
on or after the Effective Date to other key employees of the
Company and its subsidiaries (including but not limited to the
employee benefit plans listed on Exhibit A hereto), in each
case providing benefits which are the economic equivalent to
those in effect on the Effective Date or as subsequently
amended.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the
case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices,
policies and programs provided by the Company and its subsid-
iaries (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group
life, accidental death and travel accident insurance plans and
programs) applicable on or after the Effective Date to other
key employees of the Company and its subsidiaries, in each
case providing benefits which are the economic equivalent to
those in effect on the Effective Date or as subsequently
amended.
<PAGE>
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by the Executive in
accordance with the most favorable policies, practices and
procedures of the Company and its subsidiaries applicable at
any time on or after the Effective Date to other key employees
of the Company and its subsidiaries.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits, including
but not limited to pass privileges for non-revenue transporta-
tion, in accordance with the most favorable plans, practices,
programs and policies of the Company and its subsidiaries
applicable at any time on or after the Effective Date to other
key employees of the Company and its subsidiaries.
(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an appropriate
office or offices of a size and with furnishings and other
appointments, and to secretarial and other assistance, as
provided to other key employees of the Company and its
subsidiaries.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance
with the most favorable plans, policies, programs and practic-
es of the Company and its subsidiaries as in effect on or
after the Effective Date with respect to other key employees
of the Company and its subsidiaries.
5. Termination.
(a) Mutual Agreement. During the Employment Period, the
Executive's employment hereunder may be terminated at any time by
mutual agreement on terms to be negotiated at the time of such
termination.
(b) Death or Disability. This Agreement shall terminate
automatically upon the Executive's death. If the Company deter-
mines in good faith that the Disability of the Executive has
occurred (pursuant to the definition of "Disability" set forth
below), it may give to the Executive written notice of its
intention to terminate the Executive's employment. In such event,
the Executive's employment with the Company shall terminate
effective on the 90th day after receipt by the Executive of such
notice given at any time after a period of six consecutive months
of Disability and while such Disability is continuing (the
<PAGE>
"Disability Effective Date"), provided that, within the 90 days
after such receipt, the Executive shall not have returned to full-
time performance of the Executive's duties. For purposes of this
Agreement, "Disability" means disability which, at least six months
after its commencement, is determined to be total and permanent by
a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably).
During such six month period and until the Disability Effective
Date, Executive shall be entitled to all compensation provided for
under Section 4 hereof.
(c) Cause. During the Employment Period, the Company may
terminate the Executive's employment for "Cause." For purposes of
this Agreement, "Cause" means (i) an act or acts of personal
dishonesty taken by the Executive and intended to result in
substantial personal enrichment of the Executive at the expense of
the Company, (ii) repeated violations by the Executive of the
Executive's obligations under Section 4(a) of this Agreement which
are demonstrably willful and deliberate on the Executive's part and
which are not remedied in a reasonable period of time after receipt
of written notice from the Company or (iii) the conviction of the
Executive of a felony.
(d) Good Reason. During the Employment Period, the
Executive's employment hereunder may be terminated by the Executive
for Good Reason. For purposes of this Agreement, "Good Reason"
means
(i) the assignment to the Executive of any duties
inconsistent in any respect with Executive's position (includ-
ing status, offices, titles and reporting relationships),
authority, duties or responsibilities as contemplated by
Section 4(a)(i) or (ii) of this Agreement, or any other action
by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Execu-
tive;
(ii) (x) any failure by the Company to comply with
any of the provisions of Section 4(b) of this Agreement,
other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied
by the Company promptly after receipt of notice thereof
<PAGE>
given by the Executive or (y) after the Change of Control
Date, any failure of the Company to pay Base Salary or Annual
Bonus in accordance with Sections 4(b)(i) and (ii), respec-
tively, and any failure by the Company to maintain or provide
the plans, programs, policies and practices, and benefits
described in Sections 4(b)(iii)- (viii) on the most favorable
basis such plans programs, policies and practices were
maintained and benefits provided during the 90-day period
immediately preceding the Change of Control Date, or if more
favorable to the Executive and/or the Executive's family, as
in effect at any time thereafter with respect to other key
employees of the Company and its subsidiaries;
(iii) the Company's requiring the Executive to be based
at any office or location other than that described in
Sections 4(a)(i)(B) or 4(a)(ii) (B) hereof, except for travel
reasonably required in the performance of the Executive's
responsibilities;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted
by this Agreement; or
(v) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement.
For purposes of this Section 5(d), any good faith determina-
tion of "Good Reason" made by the Executive on or after the Change
of Control Date shall be conclusive. Anything in this Agreement to
the contrary notwithstanding, a termination by the Executive for
any reason during the 30-day period immediately following the first
anniversary of the Change of Control Date shall be deemed to be a
termination for Good Reason for all purposes of this Agreement.
(e) Notice of Termination. Any termination by the Company
for Cause or by the Executive for Good Reason shall be communicated
by Notice of Termination to the other party hereto given in
accordance with Section 12(b) of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other that
the date of receipt of such notice, specifies the termination date
(which date shall be not more than fifteen (15) days after the
<PAGE>
giving of such notice). The failure by the Executive to set forth
in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason shall not waive any right
of the Executive hereunder or preclude the Executive from asserting
such fact or circumstance in enforcing his rights hereunder.
(f) Date of Termination. "Date of Termination" means the
date of receipt of the Notice of Termination or any later date
specified therein, as the case may be; provided, however, that (i)
if the Executive's employment is terminated by the Company other
than for Cause or Disability, the Date of Termination shall be the
date on which the Company notifies the Executive of such termina-
tion and (ii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date
of death of the Executive or the Disability Effective Date, as the
case may be.
6. Obligations of the Company upon Termination.
(a) Death. If the Executive's employment is terminated by
reason of the Executive's death, this Agreement shall terminate
without further obligations to the Executive's legal representa-
tives under this Agreement, other than those obligations accrued or
earned and vested (if applicable) by the Executive as of the Date
of Termination, including, for this purpose (i) the Executive's
full Base Salary through the Date of Termination at the rate in
effect on the Date of Termination, disregarding any reduction in
Base Salary in violation of this Agreement (the "Highest Base
Salary"), (ii) the product of the Annual Bonus paid to the
Executive for the last full fiscal year and a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is
365 and (iii) any 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 (such amounts specified in clauses (i), (ii) and (iii) are
hereinafter referred to as "Accrued Obligations"). All such
Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination. Anything in this Agreement to the
contrary notwithstanding, the Executive's family shall be entitled
to receive benefits at least equal to the most favorable benefits
provided by the Company and any of its subsidiaries to surviving
families of employees of the Company and such subsidiaries under
such plans, programs, practices and policies relating to family
death benefits, if any, in accordance with the most favorable
plans, programs, practices and policies of the Company and its
<PAGE>
subsidiaries in effect on or after the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in
effect on the date of the Executive's death with respect to other
key employees of the Company and its subsidiaries and their
families.
(b) Disability. If the Executive's employment is terminated
by reason of the Executive's Disability, this Agreement shall
terminate without further obligations to the Executive, other than
those obligations accrued or earned and vested (if applicable) by
the Executive as of the Date of Termination, including for this
purpose, all Accrued Obligations. All such Accrued Obligations
shall be paid to the Employee in a lump sum in cash within 30 days
of the Date of Termination. Anything in this Agreement to the
contrary notwithstanding, the Employee shall be entitled after the
Disability Effective Date to receive disability and other benefits
at least equal to the most favorable of those provided by the
Company and its subsidiaries to disabled employees and/or their
families in accordance with such plans, programs, practices and
policies relating to disability, if any, in accordance with the
most favorable plans, programs, practices and policies of the
Company and its subsidiaries in effect on or after the Effective
Date or, if more favorable to the Executive and /or the Executive's
family, as in effect at any time thereafter with respect to other
key employees of the Company and its subsidiaries and their
families.
(c) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause, this Agreement shall
terminate without further obligations to the Executive (other than
the obligation to pay to the Executive the Highest Base Salary
through the Date of Termination plus the amount of any accrued
vacation pay not yet paid by the Company and any compensation
previously deferred by the Executive (together with accrued
interest thereon). If the Executive terminates employment other
than for Good Reason, this Agreement shall terminate without
further obligations to the Executive, other than those obligations
accrued or earned and vested (if applicable) by the Executive
through the Date of Termination, including for this purpose, all
Accrued Obligations and any obligations provided for in an
agreement, if any, between the Company and the Executive pursuant
to Section 5(a). All such Accrued Obligations shall be paid to
paid to the Executive in a lump sum in cash within 30 days of the
Date of Termination.
<PAGE>
(d) Good Reason; Other Than for Cause or Disability.
(1) If, during the Employment Period and prior to a
Change of Control, the Company shall terminate the Executive's
employment other than for Cause, Disability or death or if the
Executive shall terminate his employment for Good Reason:
(i) the Company shall pay to the Executive in a
lump sum in cash within 30 days after the Date of
Termination the aggregate of the following amounts:
A. to the extent not theretofore paid, the
Executive's Highest Base Salary through the Date of
Termination; and
B. basic salary at the rate of the Highest
Base Salary for the period from the Date of Termi-
nation until the end of the Employment Period; and
C. in the case of compensation previously
deferred by the Executive, all amounts previously
deferred (together with any accrued interest there-
on) and not yet paid by the Company, and any ac-
crued vacation pay not yet paid by the Company; and
(ii) for the remainder of the Employment Period, or
such longer period as any plan, program, practice or
policy may provide, the Company shall continue benefits
to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in
accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) and (vi) of this
Agreement if the Executive's employment had not been
terminated, including health insurance and life insur-
ance, in accordance with the most favorable plans,
practices, programs or policies of the Company and its
subsidiaries in effect on or after the Effective Date, or
if more favorable to the Executive, as in effect at any
time thereafter with respect to other key employees and
their families.
(2) If, during the Employment Period and on and after a
Change of Control Date, the Company shall terminate the Employee's
employment other than for Cause, Disability, or death or if the
Executive shall terminate his employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum
in cash within 30 days after the Date of Termination the
aggregate of the following amounts:
<PAGE>
A. to the extent not theretofore paid, the Execu-
tive's Highest Base Salary through the Date of Termina-
tion; and
B. the product of (x) the Annual Bonus paid to the
Executive for the last full fiscal year (if any) ending
during the Employment Period or, if higher, the Annual
Bonus paid to the Executive during the last full fiscal
year (if any) immediately preceding the Change of Control
Date (the higher of either amount under this (x) shall
hereinafter be called the "Recent Bonus") and (y) a
fraction, the numerator of which is the number of days in
the current fiscal year through the Date of Termination
and the denominator of which is 365; and
C. the product of (x) three and (y) the sum of (i)
the Highest Base Salary and (ii) the Recent Bonus (If by
reason of the Executive's date of hire or promotion, he
has not served for a full fiscal year in his position,
then for purposes of the calculations in subsection B
above and this subsection C, Annual Bonus shall be
calculated as provided in the second sentence of Section
4(b)(ii) hereof.); and
D. in the case of compensation previously deferred
by the Executive, all amounts previously deferred
(together with any accrued interest thereon) and not yet
paid by the Company, and any accrued vacation pay not yet
paid by the Company; and
E. the Executive shall be entitled to receive a
lump-sum retirement benefit equal to the difference
between (a) the actuarial equivalent of the benefit under
the Retirement Plan and any supplemental and/or excess
retirement plan the Executive would receive if he
remained employed by the Company at the compensation
level provided for in Sections 4(b)(i) and (ii) of this
Agreement for the remainder of the Employment Period and
(b) the actuarial equivalent of this benefit, if any,
under the Retirement Plan and any supplemental and/or
excess retirement plan; and
(ii) for the remainder of the Employment Period or such
longer period as any plan, program, practice or policy may
provide, the Company shall continue benefits to the Executive
and/or the Executive's family at least equal to those which
<PAGE>
would have been provided to them in accordance with the plans,
programs, practices and policies described in Sections
4(b)(iii)(with respect to any retirement plans), (iv) and (vi)
of this Agreement if the Executive's employment had not been
terminated, including health insurance and life insurance, in
accordance with the most favorable plans, practices, programs
or policies of the Company and its subsidiaries in effect on
or after the Effective Date or, if more favorable to the
Executive, as in effect at any time thereafter with respect to
other key employees and their families and for purposes of
eligibility for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be
considered to have remained employed until the end of the
Employment Period and to have retired on the last day of such
period.
7. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plans,
programs, policies or practices, provided by Group, the Company or
any of its subsidiaries and for which the Executive may qualify,
nor shall anything herein limit or otherwise affect such rights as
the Executive may have under any stock option, restricted stock or
other agreements with Group, the Company of any of its subsidiar-
ies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or
program of Group, the Company or any of its subsidiaries at or
subsequent to the Date of Termination shall be payable in accor-
dance with such plan, policy practice or program.
8. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform
its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defence or other claim, right or action
which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement.
The Company agrees to pay, to the full extent permitted by law, all
legal fees and expenses, as incurred by the Company, the Executive
and others, which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company or
others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive
about the amount of any payment pursuant of Section 9 of this
Agreement), plus in each case interest at the applicable Federal
rate provided for in Section 7872(f)(2) of the Internal Revenue
Code of 1986, as amended (the "Code").
<PAGE>
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstand-
ing, in the event it shall be determined that any payment or
distribution by the Company 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, but determined without
regard to any additional payments required under this Section 9) (a
"Payment"), would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an addition-
al payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax, imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon Payments.
(b) Subject to the provisions of Section 9(c), all determina-
tions required to be made under this Section 9, including whether
a Gross-Up Payment is required and the amount of such Gross-Up
Payment, shall be made by the firm of independent public accoun-
tants selected by Group to audit its financial statements (the
"Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that
there has been a Payment, or such earlier time as is requested by
the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determi-
nations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid to the Executive within 5 days of the
receipt of the Accounting Firm's determination. If the Accounting
Firm determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion that failure to
report the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence or a
similar penalty. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the
<PAGE>
uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and
the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Execu-
tive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later
than ten business days after the Executive knows of such claim and
shall apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the thirty-day period
following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes
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 Employee shall:
(i) give the Company any information reasonably request-
ed by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim,
(iv) permit the Company to participate in any proceed-
ings relating to such claim; provided, however, that the
Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax
or income tax, including interest and penalties with respect
<PAGE>
thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 9(c), the Company shall
control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole 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 appel-
late courts, as the Company shall determine; provided,
however, that if the Company directs the Executive to pay such
claim 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 Excise Tax or income tax,
including interest or penalties with respect thereto, imposed
with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that
any extension of the statute of limitations relating to
payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the
Company's control of the contest 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.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Execu-
tive becomes entitled to receive any refund with respect to
such claim, the Executive shall (subject to the Company's
complying with the requirements of Section 9(c)) promptly pay
to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable
thereto). If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), a determina-
tion 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 of refund prior to the expiration of thirty days after
such determination, then such advance shall be forgiven and
shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of
Gross-Up Payment required to be paid.
<PAGE>
10. Confidential Information. The Executive shall hold in
a fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to Group, the
Company or any of their subsidiaries, and their respective
businesses, which shall have been obtained by the Executive's
employment by the Company or any of its subsidiaries and which
shall not be or become public knowledge (other than by acts by
Executive or his representatives in violation of this Agreement).
After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the
Company, communicate or divulge any such information, knowledge or
data to anyone other than the Company and those designated by it.
In no event shall an asserted violation of the provisions of this
Section 10 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will 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
to assume expressly 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. 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
assumes and agrees to perform this Agreement by operation of law,
or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no
force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties
hereto or their respective successors and legal representatives.
<PAGE>
(b) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
W. Thomas Lagow
1501 Crystal Drive, Apt. 1132
Arlington, VA 22202
If to the Company:
USAir, Inc.
Crystal Park Four
2345 Crystal Drive
Arlington, VA 22227
Attention: General Counsel
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and communica-
tions shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or regula-
tion.
(e) The Executive's failure to insist upon strict compliance
with any provision hereof shall not be deemed to be a waiver of
such provision or any other provision thereof.
(f) Words or terms used in this Agreement which connote the
masculine gender are deemed to apply equally to female executives.
(g) This Agreement supersedes any prior employment agreement
between the Company and the Executive and contains the entire
understanding of the Company and the Executive with respect to the
subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in its name on its
behalf, all as of the day and year first above written.
EXECUTIVE
/s/W. Thomas Lagow
____________________________________
USAIR, INC.
By: /s/Seth E. Schofield
________________________________
Seth E. Schofield
President & Chief Executive
Officer
Attest:
/s/Michelle V. Bryan
________________________________
Secretary
<PAGE>
Exhibit A
Retirement Plan for Certain Employees of USAir, Inc.
Target Benefit Plan for Employees of USAir, Inc.
USAir, Inc. Supplementary Retirement Benefit Plan
Officers' Supplemental Benefit Plan
1988 Stock Incentive Plan of USAir Group, Inc.
1984 Stock Option and Stock Appreciation Rights Plan of USAir
Group, Inc.
1988 Executive Incentive Compensation Plan of USAir Group, Inc.
USAir, Inc. 401(k) Savings Plan
Individual Supplemental Retirement Agreements with senior officers
of USAir, Inc.
Restricted Stock Agreements with certain senior officers of USAir,
Inc.
<PAGE>
AMENDMENT NUMBER ONE TO
EMPLOYMENT AGREEMENT
This Amendment Number One, dated as of June 11, 1992, to the
Employment Agreement dated as of February 7, 1992, between USAir,
Inc., a Delaware corporation having a place of business at Crystal
Park Four, 2345 Crystal Drive, Arlington, Virginia 22227 (the
"Company") and W. Thomas Lagow, residing at 1501 Crystal Drive,
Apt. 1132, Arlington, Virginia 22202 (the "Executive"), is entered
into as of the date first stated above.
WHEREAS, the Board believes it is important to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened change
of control of the Company and to encourage the Executive's full
attention and dedication to the Company currently and in the event
of any threatened or pending change of control, and to provide the
Executive with compensation and benefits arrangements upon a change
of control which ensure that the compensation and benefits
expectations of the Executive will be satisfied; and
WHEREAS, the Board believes it to be in the best interests of
the Company to amend the existing Employment Agreement with the
Executive to achieve the aforementioned objectives;
NOW, THEREFORE, the following amendments are hereby made to
the Employment Agreement:
1. Section 2 of the Employment Agreement setting forth the
definition of "Change of Control" shall be amended by adding the
word "or" at the end of subparagraph (d) and by adding a new
subparagraph (e) at the end of the definition as follows:
(e) The acquisition by an individual, entity or
group of beneficial ownership of 20% or more of the then
outstanding securities of Group, including both voting
and non-voting securities, provided, however, that such
acquisition shall only constitute a change of control in
the event that such individual, entity or group also
obtains the power to elect by class vote, cumulative
voting or otherwise to appoint 20% or more of the total
number of directors to the Board of Directors of Group.
2. Section 4(b)(ii) of the Employment Agreement concerning
the payment of an annual bonus to the Executive shall be amended by
deleting the second sentence thereof, so that the Section shall
read in its entirety as follows:
<PAGE>
(ii) Annual Bonus. In addition to Base Salary,
the Executive shall be awarded, for each fiscal year
during the Employment Period, an annual bonus as shall be
determined by the Board or its Compensation and Benefits
Committee in accordance with the executive incentive
compensation plan of Group approved on September 28, 1988
by the Group Board of Directors ("Incentive Plan") or
otherwise. The annual bonus under Section 4(b)(ii) shall
hereinafter be referred to as the "Annual Bonus".
3. Section 6(d)(2)(i)(B) of the Employment Agreement setting
forth the compensation and benefits obligations of the Company upon
the termination of the Executive's employment for Good Reason or
other than for Cause, Disability or death following a Change of
Control, shall be amended to read in its entirety as follows:
B. the product of (x) the Annual Bonus paid to the
Executive for the last full fiscal year ending during the
Employment Period or, if higher, the Annual Bonus paid to
the Executive during the last full fiscal year ending
during the Employment Period or, if higher, a construc-
tive annual bonus calculated to be equal to the bonus
that would have been payable to the Executive from the
Company for the last full fiscal year ending prior to the
Date of Termination (regardless of whether the Executive
was employed in an officer position for all or any part
of such fiscal year) as if Group had achieved the "target
level of performance" under the Incentive Plan set at the
level for the fiscal year immediately preceding the
Change of Control Date and assuming the Executive's
"target percentage" under the Incentive Plan equals such
target percentage assigned to the Executive immediately
preceding the Change of Control Date (the highest Annual
Bonus determined under this clause (x) shall hereinafter
be referred to as the "Recent Bonus") and (y) a fraction,
the numerator of which is the number of days in the
current fiscal year through the Date of Termination and
the denominator of which is 365; and
4. Section 6(d)(2)(i)(C) of the Employment Agreement setting
forth the compensation and benefits obligations of the Company upon
the termination of the Executive's employment for Good Reason or
other than for Cause, Disability or death following a Change of
Control, shall be amended to read in its entirety as follows:
C. the product of (x) three and (y) the sum of (i)
the Highest Base Salary and (ii) the Recent Bonus; and
<PAGE>
5. Section 6(d)(2)(i) of the Employment Agreement setting
forth the compensation and benefits obligations of the Company upon
the termination of the Executive's employment for Good Reason or
other than for Cause, Disability or death following a Change of
Control, shall be amended to add a new subparagraph F to read in
its entirety as follows:
F. to the extent that the Executive has had his
Base Salary reduced pursuant to the salary reduction
program implemented for officers of the Company effective
January 1, 1992, then the Executive shall be entitled to
receive a lump-sum payment of the amount of salary
foregone from January 1, 1992 through the Date of
Termination and the Executive shall not be eligible to
receive any salary reduction payback through the profit
sharing plan established by the Company for such purpose;
provided, however, that if on the Date of Termination,
the Executive has already received payments from such
profit sharing plan, any such payments shall be offset
from the lump sum amount calculated under this subpara-
graph F; and
6. Section 6(d)(2)(ii) of the Employment Agreement setting
forth the compensation and benefits obligations of the Company upon
the termination of the Executive's employment for Good Reason or
other than for Cause, Disability or death following a Change of
Control, shall be amended to add a new paragraph, the section to
read in its entirety as follows:
(ii) (A) for the remainder of the Employment Period
or such longer period as any plan, program, practice or
policy may provide, the Company shall continue benefits
to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in
accordance with the plans, programs, practices and
policies described in Section 4(b)(iii) (with respect to
any retirement plans), (iv) and (vi) of this Agreement if
the Executive's employment had not been terminated,
including health insurance and life insurance, in
accordance with the most favorable plans, practices,
programs or policies of the Company and its subsidiaries
in effect on or after the Effective Date or, if more
favorable to the Executive, as in effect at any time
thereafter with respect to other key employees and their
families and for purposes of eligibility for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have
remained employed until the end of the Employment Period
and to have retired on the last day of such period; and
<PAGE>
(B) at the expiration of the Employment Period, the
Company shall continue to provide the Executive with
health insurance and on-line travel privileges on the
same basis such benefits were provided to the Executive
on the last day of the Employment Period, with such
benefits to continue for the life of the Executive;
provided, however, that if the Executive becomes eligible
for health insurance through a subsequent employer, the
Company's provision of such benefits shall be secondary
to the benefit coverage of the subsequent employer.
7. Section 6 of the Employment Agreement setting forth the
compensation and benefits obligations of the Company upon the
termination of the Executive's employment, shall be amended to add
a new subparagraph (e) at the end of the section to read in its
entirety as follows:
(e) Salary Reduction Program. For purposes of
determining the Company's compensation and benefits
obligations under any of the foregoing subparagraphs (a)
through (d) of Section 6, any reduction in the Execu-
tive's Base Salary resulting from the officer salary
reduction program implemented on January 1, 1992 shall be
disregarded and the Executive's "salary of record" as in
effect on December 31, 1991 shall be deemed to be in
effect for the duration of the salary reduction program
or, if higher, the Executive's actual annual salary.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization of its Board of Directors, the
Company has caused this Amendment to be executed in its name and on
its behalf, all as of the day and year first written above.
EXECUTIVE
/s/W. Thomas Lagow
______________________________________
W. Thomas Lagow
USAIR, INC.
/s/Seth E. Schofield
______________________________________
Seth E. Schofield.
Chairman of the Board, President and CEO
Attest:
/s/Michelle V. Bryan
______________________________
Secretary
<PAGE>
AMENDMENT NUMBER TWO TO
EMPLOYMENT AGREEMENT
This Amendment Number Two, dated as of January 27, 1993, to
the Employment Agreement dated as of February 7, 1992, between
USAir, Inc., a Delaware corporation having a place of business at
Crystal Park Four, 2345 Crystal Drive, Arlington, Virginia 22227
(the "Company"), and W. Thomas Lagow, residing at 1501 Crystal
Drive, Apt. 1132, Arlington, Virginia 22202 (the "Executive"), as
subsequently amended (the "Employment Agreement"), is entered into
as of the date first stated above.
WHEREAS, USAir Group, Inc. ("USAir Group") has authorized,
executed and delivered an investment agreement dated as of January
21, 1993, as subsequently amended, (the "Investment Agreement")
with British Airways, Plc ("BA") pursuant to which BA will acquire
an equity ownership interest in USAir Group and will be entitled to
elect members of the Board of Directors of USAir Group (the "BA
Transaction"); and
WHEREAS, at the "Second Closing" of the BA Transaction as that
term is defined in the Investment Agreement, whereby BA's equity
ownership in USAir Group and representation on the USAir Group
Board of Directors will constitute a "Change of Control" as that
term is defined by the Employment Agreement prior to any modifica-
tions set forth in this Amendment Number Two; and
WHEREAS, the parties have agreed to amend the provisions of
the Employment Agreement in certain respects to become effective
upon the Second Closing of the BA Transaction;
NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties
agree as follows:
1. Section 2 of the Employment Agreement shall be amended in
its entirety to read as follows:
For purposes of this Agreement and with respect to
transactions occurring subsequent to the Second Closing
of the BA Transaction, a "Change of Control" shall mean:
(a) The acquisition by an individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the
<PAGE>
"Exchange Act") of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more
of either (i) the then outstanding shares of common stock of
the Company's parent, USAir Group, Inc. ("Group") (the
"Outstanding Group Common Stock") or (ii) the combined voting
power of the then outstanding voting securities of Group
entitled to vote generally in the election of directors (the
"Outstanding Group Voting Securities"); provided, however,
that the following acquisitions shall not constitute a Change
of Control: (v) any acquisition by British Airways Plc or any
of its affiliates, (w) any acquisition directly from Group,
(x) any acquisition by Group or any of its subsidiaries, (y)
any acquisition by any employee benefit plan (or related
trust) sponsored or maintained by Group or any of its subsid-
iaries or (z) any acquisition by any corporation with respect
to which, following such acquisition, more than 85% of,
respectively, the then outstanding shares of common stock of
such corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then benefi-
cially owned, directly or indirectly, by all or substantially
all of the individuals and entities who were beneficial
owners, respectively, of the Outstanding Group Common Stock
and Outstanding Group Voting Securities in substantially the
same proportions as their ownership, immediately prior to such
acquisition, of the Outstanding Group Common Stock and
Outstanding Group Voting Securities, as the case may be; or
(b) Individuals who, as of the date hereof,
constitute Group's Board of Directors (the "Incumbent
Board") cease for any reason to constitute at least a
majority of the Group Board of Directors; provided,
however, that any individual becoming a director subse-
quent to the date hereof whose election, or nomination
for election by Group's shareholders, was approved by
British Airways Plc, or any of its affiliates, or 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; or
(c) Approval by the shareholders of Group of a
reorganization, merger or consolidation, in each case,
with respect to which all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Group Common Stock and
<PAGE>
Outstanding Group Voting Securities immediately prior to such
reorganization, merger or consolidation, beneficially own,
directly or indirectly, less than 85% 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
reorganization, merger or consolidation in substantially the
same proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding
Group Common Stock and the Outstanding Group Voting Securi-
ties, as the case may be; provided, however, that a reorgani-
zation, merger or consolidation to which British Airways Plc
and/or any of its affiliates, and Group and/or any of its
affiliates, are the only parties shall not constitute a Change
of Control; or
(d) Approval by the shareholders of Group of (i) a
complete liquidation or dissolution of Group or (ii) the
sale or other disposition of all or substantially all of
the assets of Group, other than to British Airways Plc or
any of its affiliates, or to a corporation, with respect
to which following such sale or other disposition, more
than 85% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting
power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individu-
als and entities who were the beneficial owners, respec-
tively, of the Outstanding Group Common Stock and
Outstanding Group Voting Securities immediately prior to
such sale or other disposition, in substantially the same
proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Group
Common Stock and Outstanding Group Voting Securities, as
the case may be; or
(e) The acquisition of beneficial ownership of 20%
or more of the then outstanding securities of Group,
including both voting and non-voting securities, by an
individual, entity or group other than British Airways
Plc or any of its affiliates; provided, however, that
such acquisition shall only constitute a change of
control in the event that such individual, entity or
group also obtains the power to elect by class vote,
cumulative voting or otherwise to appoint 20% or more of
the total number of directors to the Board of Directors
of Group.
<PAGE>
2. Section 4(a)(ii)(B) of the Agreement concerning the
Executive's position and duties during the Employment Period
following a Change of Control shall be amended by the addition of
the following sentence:
Notwithstanding the foregoing, the Executive and the Company
agree that following the Change of Control occasioned by the
Second Closing of the BA Transaction, the Company may transfer
the Executive's employment to any location which meets all of
the following criteria without such transfer constituting Good
Reason under Section 5(d)(iii) of the Agreement for the
Executive to terminate his employment:
(1) It is a location of a substantial activity for
which the Executive has responsibility.
(2) The location is either a corporate headquarters
or a major operations hub for the Company, BA or any of
their affiliates or principal business divisions.
(3) In the event the location is outside the United
States, the Company must provide the Executive a cost-of-
living adjustment in compensation so that the Executive
is in the same economic purchasing position that the
Executive was in at his or her location immediately prior
to the requested relocation.
(4) The Executive has not been transferred or
relocated during the prior twelve-month period.
3. Paragraph (d) of Section 5 of the Employment Agreement
setting forth the definition of "Good Reason" shall be amended by
adding after the last sentence of paragraph (d) the following
additional sentence:
Following the Change of Control occasioned by the Second
Closing of the BA Transaction, termination by the
Executive of his or her employment for any reason which
would not otherwise constitute Good Reason during the 30-
day period immediately following the first anniversary of
the Change of Control Date occasioned by the Second
Closing of the BA Transaction shall not be deemed a
termination for Good Reason under the terms of this
Employment Agreement or entitle the Executive to claim
benefits under Section 6(d)(2) of the Employment Agree-
ment.
<PAGE>
4. Section 5(d)(ii) of the Agreement shall be amended by the
addition of the following sentences:
Following the Change of Control occasioned by the Second
Closing of the BA transaction, notwithstanding the
foregoing, the Executive and the Company agree that any
diminution in the plans, programs, policies and practices
described in Sections 4(b)(iii) - (viii) which is (a)
not, individually or in the aggregate with all other such
changes, a material change, (b) is a change applicable to
all officers of the Company eligible for such benefit,
and (c) is a change approved by a majority of the members
of the Board of Directors of the Company who are not
elected by BA, shall not constitute Good Reason under
Section 5(d)(ii) of the Agreement. For purposes of this
paragraph, a "material change" shall be defined as a
change which decreases the Company's cost or the present
value of the benefit to the Executive, as applicable, as
determined by the Company's actuaries (using for purposes
of determining present value Pension Benefit Guaranty
Corporation actuarial factors) of such plans, programs,
policies or practices, by more than 15% of the aggregate
of the Company's cost for such Executive of such plans,
programs, policies and practices for calendar 1993
(excluding statutorily required plans, programs, policies
and practices); provided, however, that (x) the Execu-
tive's cost for any individual plan, program, policy or
practice may not be increased by more than 15%, and (y)
no individual plan, program, policy or practice listed on
Appendix A attached hereto may be eliminated in its
entirety.
5. The Executive hereby acknowledges that the previously
approved change in the pension benefit program, including the 1991
freeze of accruals under the defined benefit and target benefit
pension plans and the 1993 implementation of the two new defined
contribution pension plans, does not constitute Good Reason for the
Executive to terminate his or her employment under the Agreement
following the Change of Control occasioned by the Second Closing of
the BA Transaction.
6. This Amendment Number Two to the Employment Agreement
shall be effective only upon the occurrence of the Second Closing
of the BA Transaction without the need for further action.
* * * *
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization of its Board of Directors, the
Company has caused this Amendment to be executed in its name and on
its behalf, all as of the day and year first written above.
EXECUTIVE
/s/W. Thomas Lagow
_______________________________________
W. Thomas Lagow
USAIR, INC.
/s/Seth E. Schofield
_______________________________________
Seth E. Schofield
Chairman of the Board, President and CEO
Attest:
/s/Michelle V. Bryan
___________________________
Secretary
<PAGE>
APPENDIX A
1. USAir Health Benefit Plan (medical and dental, including
alternative plan such as HMO's)
2. Split dollar life insurance plan
3. Long term disability plan
4. Short term disability plan (unlimited sick leave)
5. Retirement Plan for Certain Employees of USAir, Inc.
6. Target Benefit Plan for Certain Employees of USAir, Inc.
7. USAir, Inc. Supplementary Retirement Benefit Plan
8. Individual supplemental retirement agreements with certain
officers
9. USAir, Inc. 401(k) Savings Plan
10. USAir, Inc. Employee Savings Plan - 1993
11. USAir, Inc. Employee Pension Plan - 1993
12. 1984 Stock Option and Stock Appreciation Rights Plan of USAir
Group, Inc.
13. 1988 Stock Incentive Plan of USAir Group, Inc.
14. Employee travel policy
15. Officer severance policy
16. Post retirement medical and dental
17. Accidental Death & Dismemberment Insurance
18. 125 Premium Conversion Plan
19. Flexible Spending Plan - 1993
20. Management life insurance program
21. Officer's Supplemental Benefit Plan
22. Employee Assistance Program
23. Education Assistance Plan
24. Post retirement death benefit
<PAGE>
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
Agreement dated as of June 29, 1989, between USAir, Inc., a
Delaware corporation, having a place of business at Crystal Park
Four, 2345 Crystal Drive, Arlington, VA 22227 (the "Company") and
James T. Lloyd, residing at 4720 Quebec Street, N.W., Washington,
D.C. 20016 (the "Executive").
WITNESSETH
WHEREAS, the Executive has assumed duties of a responsible
nature to the benefit of the Company and to the satisfaction of its
Board of Directors (the "Board");
WHEREAS, the Board believes it to be in the best interests of
the Company to enter into this Agreement to assure Executive's
continuing services to the Company including, but not limited to,
under circumstances in which there is a possible, threatened or
actual Change of Control (as defined below) of the Company; and
WHEREAS, the Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change
of Control and to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change
of Control which ensure that the compensation and benefits
expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order
to accomplish all the above objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the Company and the Executive hereby agree as follows:
1. Certain Definitions.
(a) The "Effective Date" shall mean the date hereof.
(b) The "Change of Control Date" shall mean the first date
during the Employment Period (as defined in Section 1(c)) on which
a Change of Control (as defined in Section 2) occurs. Anything in
this Agreement to the contrary notwithstanding, if a Change of
<PAGE>
Control occurs and if the Executive's employment with the Company
is terminated or the Executive ceases to be an officer of the
Company prior to the date on which the Change of Control occurs,
and if it is reasonably demonstrated by the Executive that such
termination of employment or cessation of status as an officer (i)
was at the request of a third party who has taken steps reasonably
calculated to effect the Change of Control or (ii) otherwise arose
in connection with or anticipation of the Change of Control, then
for all purposes of this Agreement the "Change of Control Date"
shall mean the date immediately prior to the date of such termina-
tion of employment or cessation of status as an officer.
(c) The "Employment Period" shall mean the period commencing
on the Effective Date and ending on the earlier to occur of (i) the
fourth anniversary of such date or (ii) the first day of the month
next following the Executive's 65th birthday ("Normal Retirement
Date"); provided, however, that commencing on the date one year
after the Effective Date, and on each annual anniversary of such
date (such date and each annual anniversary thereof shall be
hereinafter referred to as the "Renewal Date"), the Employment
Period shall be automatically extended so as to terminate on the
earlier of (x) four years from such Renewal Date or (y) the
Executive's Normal Retirement Date, unless at least 30 days prior
to the Renewal Date the Company shall give notice to the Executive
that the Employment Period shall not be so extended; and provided,
further, that upon the occurrence of a Change of Control Date, the
Employment Period shall automatically be extended so as to
terminate on the earlier to occur of (1) the fourth anniversary of
such date or (2) the Executive's Normal Retirement Date.
2. Change of Control. For the purpose of this Agreement,
a "Change in Control" shall mean:
(a) The acquisition by an individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of benefi-
cial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (i) the then outstanding
shares of common stock of the Company's parent, USAir Group, Inc.
("Group") (the "Outstanding Group Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of
Group entitled to vote generally in the election of directors (the
"Outstanding Group Voting Securities"); provided, however, that the
following acquisitions shall not constitute a Change of Control:
(w) any acquisition directly from Group, (x) any acquisition by
<PAGE>
Group or any of its subsidiaries, (y) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by
Group or any of its subsidiaries or (z) any acquisition by any
corporation with respect to which, following such acquisition, more
than 85% of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then
outstanding voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors, is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were
beneficial owners, respectively of the Outstanding Group Common
Stock and Outstanding Group Voting Securities in substantially the
same proportions as their ownership, immediately prior to such
acquisition, of the Outstanding Group Common Stock and Outstanding
Group Voting Securities, as the case may be; or
(b) Individuals who, as of the date hereof, constitute
Group's Board of Directors (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Group Board of
Directors; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomina-
tion for election by Group'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 either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) or other actual or threatened solicitation of
proxies or consents; or
(c) Approval by the shareholders of Group of a reorganiza-
tion, merger or consolidation, in each case, with respect to which
all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Group
Common Stock and Outstanding Group Voting Securities immediately
prior to such reorganization, merger or consolidation, beneficially
own, directly or indirectly, more than 85% 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 reorganization, merger or consoli-
dation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation
of the Outstanding Group Common Stock and the Outstanding Group
Voting Securities, as the case may be; or
<PAGE>
(d) Approval by the shareholders of Group of (i) a complete
liquidation or dissolution of Group or (ii) the sale or other
disposition of all or substantially all of the assets of Group,
other than to a corporation, with respect to which following such
sale or other disposition, more than 85% of, respectively, the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Group
Common Stock and Outstanding Group Voting Securities immediately
prior to such sale or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale or
other disposition, of the Outstanding Group Common Stock and
Outstanding Group Voting Securities, as the case may be.
3. Employment Period. The Company hereby agrees to continue
the Executive in its employ, and the Executive hereby agrees to
remain in the employ of the Company, during the Employment Period
under the terms and conditions provided herein.
4. Terms of Employment.
(a) Position and Duties.
(i) During the Employment Period and prior to a Change of
Control Date, (A) if the Board determines that the Executive
has been performing his duties in accordance with Section
4(a)(iii) hereof, it shall re-elect the Executive to a
responsible executive position with substantially similar
duties to the position held by the Executive on the Effective
Date, (B) the Executive's services shall be performed at the
Executive's location on the Effective Date, the Company's
headquarters, or a location where a substantial activity for
which the Executive has responsibility is located.
(ii) During the Employment Period and on and following a
Change of Control Date, (A) the Executive's position (includ-
ing status, offices, titles and reporting relationships),
authority, duties and responsibilities shall be at least
commensurate in all material respects with the most signifi-
cant of those held, exercised and assigned at any time during
the 90-day period immediately preceding the Change of Control
Date and (B) the Executive's services shall be performed at
the location where the Executive was employed immediately
preceding the Change of Control Date or any office or location
less than thirty-five (35) miles from such location.
<PAGE>
(iii) During the Employment Period, and excluding any
periods of vacation and sick leave to which the Executive is
entitled, the Executive agrees to devote reasonable attention
and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to
discharge the responsibilities assigned to the Executive
hereunder, to use the Executive's reasonable best efforts to
perform faithfully and efficiently such responsibilities.
During the Employment Period it shall not be a violation of
this Agreement for the Executive to (A) serve on corporate,
civic or charitable boards or committees, (B) deliver lec-
tures, fulfill speaking engagements or teach at educational
institutions and (C) manage personal investments, so long as
such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee
of the Company in accordance with this Agreement. It is also
expressly understood and agreed that to the extent that such
activities have been conducted by the Executive prior to the
Effective Date, the continued conduct of such activities (or
the conduct of activities similar in nature and scope thereto)
subsequent to the Effective Date shall not thereafter be
deemed to interfere with the performance of the Executive's
responsibilities to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Company shall pay the Executive a base salary (x) for the
first 12 months of the term hereof at a rate not less than his
base salary in effect on the Effective Date of this Agreement,
and (y) during each succeeding 12 months of the term hereof at
a rate not less than his base salary in effect on the last day
of the preceding 12-month period. During the Employment
Period, base salary shall be reviewed at least annually and
shall be increased at any time and from time to time as shall
be substantially consistent with increases in base salary
awarded in the ordinary course of business to other key
employees of the Company and its subsidiaries. Any increase
in base salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Base salary
shall not be reduced after any such increase. Base salary
under Section 4(b)(i) shall hereinafter be referred to as the
"Base Salary".
<PAGE>
(ii) Annual Bonus. In addition to Base Salary, the
Executive shall be awarded, for each fiscal year during the
Employment Period, an annual bonus as shall be determined by
the Board or its Compensation and Benefits Committee in
accordance with the executive incentive compensation plan of
Group approved on September 28, 1988 by the Group Board of
Directors ("Incentive Plan") or otherwise. For each fiscal
year beginning or ending after the Change of Control Date
during the Employment Period, the annual bonus shall be at
least equal to the bonus that would have been payable to the
Executive from the Company as if Group had achieved the
"target level of performance" under the Incentive Plan set at
the level for the fiscal year immediately preceding the Change
of Control Date and assuming that the Executive's "target
percentage" under the Incentive Plan at least equals such
target percentage assigned to the Executive immediately
preceding the Change of Control Date. The annual bonus under
Section 4(b)(ii) shall hereinafter be referred to as the
"Annual Bonus".
(iii) Incentive, Savings and Retirement Plans. In
addition to Base Salary and Annual Bonus payable as herein-
above provided, the Employee shall be entitled to participate
during the Employment Period in all incentive, savings and
retirement plans, practices, policies and programs applicable
on or after the Effective Date to other key employees of the
Company and its subsidiaries (including but not limited to the
employee benefit plans listed on Exhibit A hereto), in each
case providing benefits which are the economic equivalent to
those in effect on the Effective Date or as subsequently
amended.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the
case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices,
policies and programs provided by the Company and its subsid-
iaries (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group
life, accidental death and travel accident insurance plans and
programs) applicable on or after the Effective Date to other
key employees of the Company and its subsidiaries, in each
case providing benefits which are the economic equivalent to
those in effect on the Effective Date or as subsequently
amended.
<PAGE>
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by the Executive in
accordance with the most favorable policies, practices and
procedures of the Company and its subsidiaries applicable at
any time on or after the Effective Date to other key employees
of the Company and its subsidiaries.
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits, including
but not limited to pass privileges for non-revenue transporta-
tion, in accordance with the most favorable plans, practices,
programs and policies of the Company and its subsidiaries
applicable at any time on or after the Effective Date to other
key employees of the Company and its subsidiaries.
(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an appropriate
office or offices of a size and with furnishings and other
appointments, and to secretarial and other assistance, as
provided to other key employees of the Company and its
subsidiaries.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance
with the most favorable plans, policies, programs and practic-
es of the Company and its subsidiaries as in effect on or
after the Effective Date with respect to other key employees
of the Company and its subsidiaries.
5. Termination.
(a) Mutual Agreement. During the Employment Period, the
Executive's employment hereunder may be terminated at any time by
mutual agreement on terms to be negotiated at the time of such
termination.
(b) Death or Disability. This Agreement shall terminate
automatically upon the Executive's death. If the Company deter-
mines in good faith that the Disability of the Executive has
occurred (pursuant to the definition of "Disability" set forth
below), it may give to the Executive written notice of its
intention to terminate the Executive's employment. In such event,
the Executive's employment with the Company shall terminate
<PAGE>
effective on the 90th day after receipt by the Executive of such
notice given at any time after a period of six consecutive months
of Disability and while such Disability is continuing (the
"Disability Effective Date"), provided that, within the 90 days
after such receipt, the Executive shall not have returned to full-
time performance of the Executive's duties. For purposes of this
Agreement, "Disability" means disability which, at least six months
after its commencement, is determined to be total and permanent by
a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative (such
agreement as to acceptability not to be withheld unreasonably).
During such six month period and until the Disability Effective
Date, Executive shall be entitled to all compensation provided for
under Section 4 hereof.
(c) Cause. During the Employment Period, the Company may
terminate the Executive's employment for "Cause." For purposes of
this Agreement, "Cause" means (i) an act or acts of personal
dishonesty taken by the Executive and intended to result in
substantial personal enrichment of the Executive at the expense of
the Company, (ii) repeated violations by the Executive of the
Executive's obligations under Section 4(a) of this Agreement which
are demonstrably willful and deliberate on the Executive's part and
which are not remedied in a reasonable period of time after receipt
of written notice from the Company or (iii) the conviction of the
Executive of a felony.
(d) Good Reason. During the Employment Period, the Execu-
tive's employment hereunder may be terminated by the Executive for
Good Reason. For purposes of this Agreement, "Good Reason" means
(i) the assignment to the Executive of any duties
inconsistent in any respect with Executive's position (includ-
ing status, offices, titles and reporting relationships),
authority, duties or responsibilities as contemplated by
Section 4(a)(i) or (ii) of this Agreement, or any other action
by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this
purpose an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by the Company
promptly after receipt of notice thereof given by the Execu-
tive;
<PAGE>
(ii) (x) any failure by the Company to comply with
any of the provisions of Section 4(b) of this Agreement,
other than an isolated, insubstantial and inadvertent
failure not occurring in bad faith and which is remedied
by the Company promptly after receipt of notice thereof
given by the Executive or (y) after the Change of Control
Date, any failure of the Company to pay Base Salary or
Annual Bonus in accordance with Sections 4(b)(i) and
(ii), respectively, and any failure by the Company to
maintain or provide the plans, programs, policies and
practices, and benefits described in Sections 4(b)(iii) -
(viii) on the most favorable basis such plans programs,
policies and practices were maintained and benefits
provided during the 90-day period immediately preceding
the Change of Control Date, or if more favorable to the
Executive and/or the Executive's family, as in effect at
any time thereafter with respect to other key employees
of the Company and its subsidiaries;
(iii) the Company's requiring the Executive to be based
at any office or location other than that described in Sec-
tions 4(a)(i)(B) or 4(a)(ii) (B) hereof, except for travel
reasonably required in the performance of the Executive's
responsibilities;
(iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted
by this Agreement; or
(v) any failure by the Company to comply with and
satisfy Section 11(c) of this Agreement. For purposes of this
Section 5(d), any good faith determination of "Good Reason"
made by the Executive on or after the Change of Control Date
shall be conclusive. Anything in this Agreement to the
contrary notwithstanding, a termination by the Executive for
any reason during the 30-day period immediately following the
first anniversary of the Change of Control Date shall be
deemed to be a termination for Good Reason for all purposes of
this Agreement.
(e) Notice of Termination. Any termination by the Company
for Cause or by the Executive for Good Reason shall be communicated
by Notice of Termination to the other party hereto given in
accordance with Section 12(b) of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this
<PAGE>
Agreement relied upon, (ii) sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other that
the date of receipt of such notice, specifies the termination date
(which date shall be not more than fifteen (15) days after the
giving of such notice). The failure by the Executive to set forth
in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason shall not waive any right
of the Executive hereunder or preclude the Executive from asserting
such fact or circumstance in enforcing his rights hereunder.
(f) Date of Termination. "Date of Termination" means the
date of receipt of the Notice of Termination or any later date
specified therein, as the case may be; provided, however, that (i)
if the Executive's employment is terminated by the Company other
than for Cause or Disability, the Date of Termination shall be the
date on which the Company notifies the Executive of such termina-
tion and (ii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date
of death of the Executive or the Disability Effective Date, as the
case may be.
6. Obligations of the Company upon Termination.
(a) Death. If the Executive's employment is terminated by
reason of the Executive's death, this Agreement shall terminate
without further obligations to the Executive's legal representa-
tives under this Agreement, other than those obligations accrued or
earned and vested (if applicable) by the Executive as of the Date
of Termination, including, for this purpose (i) the Executive's
full Base Salary through the Date of Termination at the rate in
effect on the Date of Termination, disregarding any reduction in
Base Salary in violation of this Agreement (the "Highest Base
Salary"), (ii) the product of the Annual Bonus paid to the
Executive for the last full fiscal year and a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is
365 and (iii) any 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 (such amounts specified in clauses (i), (ii) and (iii) are
hereinafter referred to as "Accrued Obligations"). All such
Accrued Obligations shall be paid to the Executive's estate or
<PAGE>
beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination. Anything in this Agreement to the
contrary notwithstanding, the Executive's family shall be entitled
to receive benefits at least equal to the most favorable benefits
provided by the Company and any of its subsidiaries to surviving
families of employees of the Company and such subsidiaries under
such plans, programs, practices and policies relating to family
death benefits, if any, in accordance with the most favorable
plans, programs, practices and policies of the Company and its
subsidiaries in effect on or after the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in
effect on the date of the Executive's death with respect to other
key employees of the Company and its subsidiaries and their
families.
(b) Disability. If the Executive's employment is terminated
by reason of the Executive's Disability, this Agreement shall
terminate without further obligations to the Executive, other than
those obligations accrued or earned and vested (if applicable) by
the Executive as of the Date of Termination, including for this
purpose, all Accrued Obligations. All such Accrued Obligations
shall be paid to the Employee in a lump sum in cash within 30 days
of the Date of Termination. Anything in this Agreement to the
contrary notwithstanding, the Employee shall be entitled after the
Disability Effective Date to receive disability and other benefits
at least equal to the most favorable of those provided by the
Company and its subsidiaries to disabled employees and/or their
families in accordance with such plans, programs, practices and
policies relating to disability, if any, in accordance with the
most favorable plans, programs, practices and policies of the
Company and its subsidiaries in effect on or after the Effective
Date or, if more favorable to the Executive and /or the Executive's
family, as in effect at any time thereafter with respect to other
key employees of the Company and its subsidiaries and their
families.
(c) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause, this Agreement shall
terminate without further obligations to the Executive (other than
the obligation to pay to the Executive the Highest Base Salary
through the Date of Termination plus the amount of any accrued
vacation pay not yet paid by the Company and any compensation
previously deferred by the Executive (together with accrued
interest thereon). If the Executive terminates employment other
<PAGE>
than for Good Reason, this Agreement shall terminate without
further obligations to the Executive, other than those obligations
accrued or earned and vested (if applicable) by the Executive
through the Date of Termination, including for this purpose, all
Accrued Obligations and any obligations provided for in an
agreement, if any, between the Company and the Executive pursuant
to Section 5(a). All such Accrued Obligations shall be paid to
paid to the Executive in a lump sum in cash within 30 days of the
Date of Termination.
(d) Good Reason; Other Than for Cause or Disability.
(1) If, during the Employment Period and prior to a
Change of Control, the Company shall terminate the Executive's
employment other than for Cause, Disability or death or if the
Executive shall terminate his employment for Good Reason:
(i) the Company shall pay to the Executive in a lump sum
in cash within 30 days after the Date of Termination the
aggregate of the following amounts:
A. to the extent not theretofore paid, the
Executive's Highest Base Salary through the Date of
Termination; and
B. basic salary at the rate of the Highest
Base Salary for the period from the Date of Termi-
nation until the end of the Employment Period; and
C. in the case of compensation previously
deferred by the Executive, all amounts previously
deferred (together with any accrued interest there-
on) and not yet paid by the Company, and any ac-
crued vacation pay not yet paid by the Company; and
(ii) for the remainder of the Employment Period, or
such longer period as any plan, program, practice or
policy may provide, the Company shall continue benefits
to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in
accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) and (vi) of this
Agreement if the Executive's employment had not been
terminated, including health insurance and life insur-
ance, in accordance with the most favorable plans,
<PAGE>
practices, programs or policies of the Company and its
subsidiaries in effect on or after the Effective Date, or
if more favorable to the Executive, as in effect at any
time thereafter with respect to other key employees and
their families.
(2) If, during the Employment Period and on and after a
Change of Control Date, the Company shall terminate the
Employee's employment other than for Cause, Disability, or
death or if the Executive shall terminate his employment for
Good Reason:
(i) the Company shall pay to the Executive in a
lump sum in cash within 30 days after the Date of
Termination the aggregate of the following amounts:
A. to the extent not theretofore paid, the
Executive's Highest Base Salary through the Date of
Termination; and
B. the product of (x) the Annual Bonus paid
to the Executive for the last full fiscal year (if
any) ending during the Employment Period or, if
higher, the Annual Bonus paid to the Executive
during the last full fiscal year (if any) immedi-
ately preceding the Change of Control Date (the
higher of either amount under this (x) shall here-
inafter be called the "Recent Bonus") and (y) a
fraction, the numerator of which is the number of
days in the current fiscal year through the Date of
Termination and the denominator of which is 365;
and
C. the product of (x) three and (y) the sum
of (i) the Highest Base Salary and (ii) the Recent
Bonus (If by reason of the Executive's date of hire
or promotion, he has not served for a full fiscal
year in his position, then for purposes of the
calculations in subsection B above and this subsec-
tion C, Annual Bonus shall be calculated as provid-
ed in the second sentence of Section 4(b)(ii)
hereof.); and
D. in the case of compensation previously
deferred by the Executive, all amounts previously
deferred (together with any accrued interest there-
on) and not yet paid by the Company, and any ac-
crued vacation pay not yet paid by the Company; and
<PAGE>
E. the Executive shall be entitled to receive
a lump-sum retirement benefit equal to the differ-
ence between (a) the actuarial equivalent of the
benefit under the Retirement Plan and any supple-
mental and/or excess retirement plan the Executive
would receive if he remained employed by the Compa-
ny at the compensation level provided for in Sec-
tions 4(b)(i) and (ii) of this Agreement for the
remainder of the Employment Period and (b) the
actuarial equivalent of this benefit, if any, under
the Retirement Plan and any supplemental and/or
excess retirement plan; and
(ii) for the remainder of the Employment Period or
such longer period as any plan, program, practice or
policy may provide, the Company shall continue benefits
to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in
accordance with the plans, programs, practices and
policies described in Sections 4(b)(iii)(with respect to
any retirement plans), (iv) and (vi) of this Agreement if
the Executive's employment had not been terminated,
including health insurance and life insurance, in
accordance with the most favorable plans, practices,
programs or policies of the Company and its subsidiaries
in effect on or after the Effective Date or, if more
favorable to the Executive, as in effect at any time
thereafter with respect to other key employees and their
families and for purposes of eligibility for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have
remained employed until the end of the Employment Period
and to have retired on the last day of such period.
7. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plans,
programs, policies or practices, provided by Group, the Company or
any of its subsidiaries and for which the Executive may qualify,
nor shall anything herein limit or otherwise affect such rights as
the Executive may have under any stock option, restricted stock or
other agreements with Group, the Company of any of its subsidiar-
ies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or
program of Group, the Company or any of its subsidiaries at or
subsequent to the Date of Termination shall be payable in accor-
dance with such plan, policy practice or program.
<PAGE>
8. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform
its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defence or other claim, right or action
which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement.
The Company agrees to pay, to the full extent permitted by law, all
legal fees and expenses, as incurred by the Company, the Executive
and others, which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company or
others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive
about the amount of any payment pursuant of Section 9 of this
Agreement), plus in each case interest at the applicable Federal
rate provided for in Section 7872(f)(2) of the Internal Revenue
Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstand-
ing, in the event it shall be determined that any payment or
distribution by the Company 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, but determined without
regard to any additional payments required under this Section 9) (a
"Payment"), would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest and
penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an addition-
al payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax, imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon Payments.
(b) Subject to the provisions of Section 9(c), all determina-
tions required to be made under this Section 9, including whether
a Gross-Up Payment is required and the amount of such Gross-Up
Payment, shall be made by the firm of independent public accoun
<PAGE>
tants selected by Group to audit its financial statements (the
"Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that
there has been a Payment, or such earlier time as is requested by
the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determi-
nations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid to the Executive within 5 days of the
receipt of the Accounting Firm's determination. If the Accounting
Firm determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion that failure to
report the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence or a
similar penalty. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and
the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Execu-
tive.
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later
than ten business days after the Executive knows of such claim and
shall apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the thirty-day period
following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes
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 Employee shall:
<PAGE>
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from time
to time, including, without limitation, accepting legal representa-
tion with respect to such claim by an attorney reasonably selected
by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim,
(iv) permit the Company to participate in any proceedings
relating to such claim; provided, however, that the Company shall
bear and pay directly all costs and expenses (including additional
interest and penalties) incurred in connection with such contest
and shall indemnify and hold the Executive harmless, on an after-
tax basis, for any Excise Tax or income tax, including interest and
penalties with respect thereto, imposed as a result of such
representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 9(c), the
Company shall control all proceedings taken in connection with such
contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with
the taxing authority in respect of such claim and may, at its sole
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 jurisdic-
tion and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the
Executive to pay such claim 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 Excise Tax or income tax,
including interest or penalties with respect thereto, imposed with
respect to such advance or with respect to any imputed income with
respect to such advance; and further provided that any extension of
the statute of limitations relating to payment of taxes for the
taxable year of the Executive with respect to which such contested
amount is claimed to be due is limited solely to such contested
amount. Furthermore, the Company's control of the contest 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.
<PAGE>
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive
becomes entitled to receive any refund with respect to such claim,
the Executive shall (subject to the Company's complying with the
requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to
Section 9(c), 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 of refund prior to the expiration of thirty
days after such determination, then such advance shall be forgiven
and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
10. Confidential Information. The Executive shall hold in
a fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to Group, the
Company or any of their subsidiaries, and their respective
businesses, which shall have been obtained by the Executive's
employment by the Company or any of its subsidiaries and which
shall not be or become public knowledge (other than by acts by
Executive or his representatives in violation of this Agreement).
After termination of the Executive's employment with the Company,
the Executive shall not, without the prior written consent of the
Company, communicate or divulge any such information, knowledge or
data to anyone other than the Company and those designated by it.
In no event shall an asserted violation of the provisions of this
Section 10 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
<PAGE>
(c) The Company will 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
to assume expressly 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. 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
assumes and agrees to perform this Agreement by operation of law,
or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no
force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties
hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
4720 Quebec Street, N.W.
Washington, D.C. 20016
If to the Company:
USAir, Inc.
Crystal Park Four
2345 Crystal Drive
Arlington, VA 22227
Attention: General Counsel
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and communica-
tions shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
<PAGE>
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or regula-
tion.
(e) The Executive's failure to insist upon strict compliance
with any provision hereof shall not be deemed to be a waiver of
such provision or any other provision thereof.
(f) Words or terms used in this Agreement which connote the
masculine gender are deemed to apply equally to female executives.
(g) This Agreement supersedes any prior employment agreement
between the Company and the Executive and contains the entire
understanding of the Company and the Executive with respect to the
subject matter hereof.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in its name on its
behalf, all as of the day and year first above written.
EXECUTIVE
/s/James T. Lloyd
______________________________________
James T. Lloyd
Senior Vice President and
General Counsel
USAIR, INC.
By: /s/Seth E. Schofield
____________________________________
Seth E. Schofield
President & Chief Executive Officer
Attest: /s/Michelle V. Bryan
________________________________
Secretary
<PAGE>
Exhibit A
Retirement Plan for Certain Employees of USAir, Inc.
Target Benefit Plan for Employees of USAir, Inc.
USAir, Inc. Supplementary Retirement Benefit Plan
Officers' Supplemental Benefit Plan
1988 Stock Incentive Plan of USAir Group, Inc.
1984 Stock Option and Stock Appreciation Rights Plan of USAir
Group, Inc.
1988 Executive Incentive Compensation Plan of USAir Group, Inc.
USAir, Inc. 401(k) Savings Plan
Individual Supplemental Retirement Agreements with senior officers
of USAir, Inc.
Restricted Stock Agreements with certain senior officers of USAir,
Inc.
<PAGE>
AMENDMENT NUMBER ONE TO
EMPLOYMENT AGREEMENT
This Amendment Number One, dated as of June 11, 1992, to the
Employment Agreement dated as of June 29, 1989, between USAir,
Inc., a Delaware corporation having a place of business at Crystal
Park Four, 2345 Crystal Drive, Arlington, Virginia 22227 (the
"Company") and James T. Lloyd, residing at 4511 Potomac Avenue,
N.W., Washington, D.C. 20007 (the "Executive"), is entered into as
of the date first stated above.
WHEREAS, the Board believes it is important to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened change
of control of the Company and to encourage the Executive's full
attention and dedication to the Company currently and in the event
of any threatened or pending change of control, and to provide the
Executive with compensation and benefits arrangements upon a change
of control which ensure that the compensation and benefits
expectations of the Executive will be satisfied; and
WHEREAS, the Board believes it to be in the best interests of
the Company to amend the existing Employment Agreement with the
Executive to achieve the aforementioned objectives;
NOW, THEREFORE, the following amendments are hereby made to
the Employment Agreement:
1. Section 2 of the Employment Agreement setting forth the
definition of "Change of Control" shall be amended by adding the
word "or" at the end of subparagraph (d) and by adding a new
subparagraph (e) at the end of the definition as follows:
(e) The acquisition by an individual, entity or
group of beneficial ownership of 20% or more of the then
outstanding securities of Group, including both voting
and non-voting securities, provided, however, that such
acquisition shall only constitute a change of control in
the event that such individual, entity or group also
obtains the power to elect by class vote, cumulative
voting or otherwise to appoint 20% or more of the total
number of directors to the Board of Directors of Group.
2. Section 4(b)(ii) of the Employment Agreement concerning
the payment of an annual bonus to the Executive shall be amended by
deleting the second sentence thereof, so that the Section shall
read in its entirety as follows:
<PAGE>
(ii) Annual Bonus. In addition to Base Salary,
the Executive shall be awarded, for each fiscal year
during the Employment Period, an annual bonus as shall be
determined by the Board or its Compensation and Benefits
Committee in accordance with the executive incentive
compensation plan of Group approved on September 28, 1988
by the Group Board of Directors ("Incentive Plan") or
otherwise. The annual bonus under Section 4(b)(ii) shall
hereinafter be referred to as the "Annual Bonus".
3. Section 6(d)(2)(i)(B) of the Employment Agreement setting
forth the compensation and benefits obligations of the Company upon
the termination of the Executive's employment for Good Reason or
other than for Cause, Disability or death following a Change of
Control, shall be amended to read in its entirety as follows:
B. the product of (x) the Annual Bonus paid to the
Executive for the last full fiscal year ending during the
Employment Period or, if higher, the Annual Bonus paid to
the Executive during the last full fiscal year ending
during the Employment Period or, if higher, a construc-
tive annual bonus calculated to be equal to the bonus
that would have been payable to the Executive from the
Company for the last full fiscal year ending prior to the
Date of Termination (regardless of whether the Executive
was employed in an officer position for all or any part
of such fiscal year) as if Group had achieved the "target
level of performance" under the Incentive Plan set at the
level for the fiscal year immediately preceding the
Change of Control Date and assuming the Executive's
"target percentage" under the Incentive Plan equals such
target percentage assigned to the Executive immediately
preceding the Change of Control Date (the highest Annual
Bonus determined under this clause (x) shall hereinafter
be referred to as the "Recent Bonus") and (y) a fraction,
the numerator of which is the number of days in the
current fiscal year through the Date of Termination and
the denominator of which is 365; and
4. Section 6(d)(2)(i)(C) of the Employment Agreement setting
forth the compensation and benefits obligations of the Company upon
the termination of the Executive's employment for Good Reason or
other than for Cause, Disability or death following a Change of
Control, shall be amended to read in its entirety as follows:
C. the product of (x) three and (y) the sum of (i)
the Highest Base Salary and (ii) the Recent Bonus; and
<PAGE>
5. Section 6(d)(2)(i) of the Employment Agreement setting
forth the compensation and benefits obligations of the Company upon
the termination of the Executive's employment for Good Reason or
other than for Cause, Disability or death following a Change of
Control, shall be amended to add a new subparagraph F to read in
its entirety as follows:
F. to the extent that the Executive has had his
Base Salary reduced pursuant to the salary reduction
program implemented for officers of the Company effective
January 1, 1992, then the Executive shall be entitled to
receive a lump-sum payment of the amount of salary
foregone from January 1, 1992 through the Date of
Termination and the Executive shall not be eligible to
receive any salary reduction payback through the profit
sharing plan established by the Company for such purpose;
provided, however, that if on the Date of Termination,
the Executive has already received payments from such
profit sharing plan, any such payments shall be offset
from the lump sum amount calculated under this subpara-
graph F; and
6. Section 6(d)(2)(ii) of the Employment Agreement setting
forth the compensation and benefits obligations of the Company upon
the termination of the Executive's employment for Good Reason or
other than for Cause, Disability or death following a Change of
Control, shall be amended to add a new paragraph, the section to
read in its entirety as follows:
(ii) (A) for the remainder of the Employment Period
or such longer period as any plan, program, practice or
policy may provide, the Company shall continue benefits
to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in
accordance with the plans, programs, practices and
policies described in Section 4(b)(iii) (with respect to
any retirement plans), (iv) and (vi) of this Agreement if
the Executive's employment had not been terminated,
including health insurance and life insurance, in
accordance with the most favorable plans, practices,
programs or policies of the Company and its subsidiaries
in effect on or after the Effective Date or, if more
favorable to the Executive, as in effect at any time
thereafter with respect to other key employees and their
families and for purposes of eligibility for retiree
benefits pursuant to such plans, practices, programs and
policies, the Executive shall be considered to have
remained employed until the end of the Employment Period
and to have retired on the last day of such period; and
<PAGE>
(B) at the expiration of the Employment Period, the
Company shall continue to provide the Executive with
health insurance and on-line travel privileges on the
same basis such benefits were provided to the Executive
on the last day of the Employment Period, with such
benefits to continue for the life of the Executive;
provided, however, that if the Executive becomes eligible
for health insurance through a subsequent employer, the
Company's provision of such benefits shall be secondary
to the benefit coverage of the subsequent employer.
7. Section 6 of the Employment Agreement setting forth the
compensation and benefits obligations of the Company upon the
termination of the Executive's employment, shall be amended to add
a new subparagraph (e) at the end of the section to read in its
entirety as follows:
(e) Salary Reduction Program. For purposes of
determining the Company's compensation and benefits
obligations under any of the foregoing subparagraphs (a)
through (d) of Section 6, any reduction in the Execu-
tive's Base Salary resulting from the officer salary
reduction program implemented on January 1, 1992 shall be
disregarded and the Executive's "salary of record" as in
effect on December 31, 1991 shall be deemed to be in
effect for the duration of the salary reduction program
or, if higher, the Executive's actual annual salary.
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization of its Board of Directors, the
Company has caused this Amendment to be executed in its name and on
its behalf, all as of the day and year first written above.
EXECUTIVE
/s/James T. Lloyd
_______________________________________
James T. Lloyd
USAIR, INC.
/s/Seth E. Schofield
_______________________________________
Seth E. Schofield
Chairman of the Board, President and CEO
Attest:
/s/Michelle V. Bryan
______________________________
Secretary
<PAGE>
AMENDMENT NUMBER TWO TO
EMPLOYMENT AGREEMENT
This Amendment Number Two, dated as of January 27, 1993, to
the Employment Agreement dated as of June 29, 1989, between USAir,
Inc., a Delaware corporation having a place of business at Crystal
Park Four, 2345 Crystal Drive, Arlington, Virginia 22227 (the
"Company"), and James T. Lloyd, residing at 4561 Indian Rock
Terrace, N.W., Washington, D.C. 20007 (the "Executive"), as
subsequently amended (the "Employment Agreement"), is entered into
as of the date first stated above.
WHEREAS, USAir Group, Inc. ("USAir Group") has authorized,
executed and delivered an investment agreement dated as of January
21, 1993, as subsequently amended, (the "Investment Agreement")
with British Airways, Plc ("BA") pursuant to which BA will acquire
an equity ownership interest in USAir Group and will be entitled to
elect members of the Board of Directors of USAir Group (the "BA
Transaction"); and
WHEREAS, at the "Second Closing" of the BA Transaction as that
term is defined in the Investment Agreement, whereby BA's equity
ownership in USAir Group and representation on the USAir Group
Board of Directors will constitute a "Change of Control" as that
term is defined by the Employment Agreement prior to any modifica-
tions set forth in this Amendment Number Two; and
WHEREAS, the parties have agreed to amend the provisions of
the Employment Agreement in certain respects to become effective
upon the Second Closing of the BA Transaction;
NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties
agree as follows:
1. Section 2 of the Employment Agreement shall be amended in
its entirety to read as follows:
For purposes of this Agreement and with respect to transac-
tions occurring subsequent to the Second Closing of the BA
Transaction, a "Change of Control" shall mean:
(a) The acquisition by an individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act") of beneficial ownership (within the meaning of Rule 13d-
3 promulgated under the Exchange Act) of 20% or more of either
(i) the then outstanding shares of common stock of the
<PAGE>
Company's parent, USAir Group, Inc. ("Group") (the "Outstand-
ing Group Common Stock") or (ii) the combined voting power of
the then outstanding voting securities of Group entitled to
vote generally in the election of directors (the "Outstanding
Group Voting Securities"); provided, however, that the
following acquisitions shall not constitute a Change of
Control: (v) any acquisition by British Airways Plc or any of
its affiliates, (w) any acquisition directly from Group, (x)
any acquisition by Group or any of its subsidiaries, (y) any
acquisition by any employee benefit plan (or related trust)
sponsored or maintained by Group or any of its subsidiaries or
(z) any acquisition by any corporation with respect to which,
following such acquisition, more than 85% of, respectively,
the then outstanding shares of common stock of such corpora-
tion and the combined voting power of the then outstanding
voting securities of such corporation entitled to vote
generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of
the individuals and entities who were beneficial owners,
respectively, of the Outstanding Group Common Stock and
Outstanding Group Voting Securities in substantially the same
proportions as their ownership, immediately prior to such
acquisition, of the Outstanding Group Common Stock and
Outstanding Group Voting Securities, as the case may be; or
(b) Individuals who, as of the date hereof,
constitute Group's Board of Directors (the "Incumbent
Board") cease for any reason to constitute at least a
majority of the Group Board of Directors; provided,
however, that any individual becoming a director subse-
quent to the date hereof whose election, or nomination
for election by Group's shareholders, was approved by
British Airways Plc, or any of its affiliates, or 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; or
(c) Approval by the shareholders of Group of a
reorganization, merger or consolidation, in each case,
with respect to which all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Group Common Stock and
Outstanding Group Voting Securities immediately prior to
such reorganization, merger or consolidation, beneficial-
ly own, directly or indirectly, less than 85% of,
<PAGE>
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 reorganization, merger or consolidation in substan-
tially the same proportions as their ownership, immediately
prior to such reorganization, merger or consolidation, of the
Outstanding Group Common Stock and the Outstanding Group
Voting Securities, as the case may be; provided, however, that
a reorganization, merger or consolidation to which British
Airways Plc and/or any of its affiliates, and Group and/or any
of its affiliates, are the only parties shall not constitute
a Change of Control; or
(d) Approval by the shareholders of Group of (i) a
complete liquidation or dissolution of Group or (ii) the
sale or other disposition of all or substantially all of
the assets of Group, other than to British Airways Plc or
any of its affiliates, or to a corporation, with respect
to which following such sale or other disposition, more
than 85% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting
power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individu-
als and entities who were the beneficial owners, respec-
tively, of the Outstanding Group Common Stock and
Outstanding Group Voting Securities immediately prior to
such sale or other disposition, in substantially the same
proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Group
Common Stock and Outstanding Group Voting Securities, as
the case may be; or
(e) The acquisition of beneficial ownership of 20%
or more of the then outstanding securities of Group,
including both voting and non-voting securities, by an
individual, entity or group other than British Airways
Plc or any of its affiliates; provided, however, that
such acquisition shall only constitute a change of
control in the event that such individual, entity or
group also obtains the power to elect by class vote,
cumulative voting or otherwise to appoint 20% or more of
the total number of directors to the Board of Directors
of Group.
<PAGE>
2. Section 4(a)(ii)(B) of the Agreement concerning the
Executive's position and duties during the Employment Period
following a Change of Control shall be amended by the addition of
the following sentence:
Notwithstanding the foregoing, the Executive and the
Company agree that following the Change of Control
occasioned by the Second Closing of the BA Transaction,
the Company may transfer the Executive's employment to
any location which meets all of the following criteria
without such transfer constituting Good Reason under
Section 5(d)(iii) of the Agreement for the Executive to
terminate his employment:
(1) It is a location of a substantial activity for which
the Executive has responsibility.
(2) The location is either a corporate headquarters or
a major operations hub for the Company, BA or any of their
affiliates or principal business divisions.
(3) In the event the location is outside the United
States, the Company must provide the Executive a cost-of-
living adjustment in compensation so that the Executive is in
the same economic purchasing position that the Executive was
in at his or her location immediately prior to the requested
relocation.
(4) The Executive has not been transferred or relocated
during the prior twelve-month period.
3. Paragraph (d) of Section 5 of the Employment Agreement
setting forth the definition of "Good Reason" shall be amended by
adding after the last sentence of paragraph (d) the following
additional sentence:
Following the Change of Control occasioned by the
Second Closing of the BA Transaction, termination by the
Executive of his or her employment for any reason which
would not otherwise constitute Good Reason during the 30-
day period immediately following the first anniversary of
the Change of Control Date occasioned by the Second
Closing of the BA Transaction shall not be deemed a
termination for Good Reason under the terms of this
Employment Agreement or entitle the Executive to claim
benefits under Section 6(d)(2) of the Employment Agree-
ment.
<PAGE>
4. Section 5(d)(ii) of the Agreement shall be amended by the
addition of the following sentences:
Following the Change of Control occasioned by the
Second Closing of the BA transaction, notwithstanding the
foregoing, the Executive and the Company agree that any
diminution in the plans, programs, policies and practices
described in Sections 4(b)(iii) - (viii) which is (a)
not, individually or in the aggregate with all other such
changes, a material change, (b) is a change applicable to
all officers of the Company eligible for such benefit,
and (c) is a change approved by a majority of the members
of the Board of Directors of the Company who are not
elected by BA, shall not constitute Good Reason under
Section 5(d)(ii) of the Agreement. For purposes of this
paragraph, a "material change" shall be defined as a
change which decreases the Company's cost or the present
value of the benefit to the Executive, as applicable, as
determined by the Company's actuaries (using for purposes
of determining present value Pension Benefit Guaranty
Corporation actuarial factors) of such plans, programs,
policies or practices, by more than 15% of the aggregate
of the Company's cost for such Executive of such plans,
programs, policies and practices for calendar 1993
(excluding statutorily required plans, programs, policies
and practices); provided, however, that (x) the Execu-
tive's cost for any individual plan, program, policy or
practice may not be increased by more than 15%, and (y)
no individual plan, program, policy or practice listed on
Appendix A attached hereto may be eliminated in its
entirety.
5. The Executive hereby acknowledges that the previously
approved change in the pension benefit program, including the 1991
freeze of accruals under the defined benefit and target benefit
pension plans and the 1993 implementation of the two new defined
contribution pension plans, does not constitute Good Reason for the
Executive to terminate his or her employment under the Agreement
following the Change of Control occasioned by the Second Closing of
the BA Transaction.
6. This Amendment Number Two to the Employment Agreement
shall be effective only upon the occurrence of the Second Closing
of the BA Transaction without the need for further action.
* * * *
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization of its Board of Directors, the
Company has caused this Amendment to be executed in its name and on
its behalf, all as of the day and year first written above.
EXECUTIVE
/s/James T. Lloyd
________________________________________
James T. Lloyd
USAIR, INC.
/s/Seth E. Schofield
________________________________________
Seth E. Schofield
Chairman of the Board, President and CEO
Attest:
/s/Michelle V. Bryan
___________________________
Secretary
<PAGE>
APPENDIX A
1. USAir Health Benefit Plan (medical and dental, including
alternative plan such as HMO's)
2. Split dollar life insurance plan
3. Long term disability plan
4. Short term disability plan (unlimited sick leave)
5. Retirement Plan for Certain Employees of USAir, Inc.
6. Target Benefit Plan for Certain Employees of USAir, Inc.
7. USAir, Inc. Supplementary Retirement Benefit Plan
8. Individual supplemental retirement agreements with certain
officers
9. USAir, Inc. 401(k) Savings Plan
10. USAir, Inc. Employee Savings Plan - 1993
11. USAir, Inc. Employee Pension Plan - 1993
12. 1984 Stock Option and Stock Appreciation Rights Plan of USAir
Group, Inc.
13. 1988 Stock Incentive Plan of USAir Group, Inc.
14. Employee travel policy
15. Officer severance policy
16. Post retirement medical and dental
17. Accidental Death & Dismemberment Insurance
18. 125 Premium Conversion Plan
19. Flexible Spending Plan - 1993
20. Management life insurance program
21. Officer's Supplemental Benefit Plan
22. Employee Assistance Program
23. Education Assistance Plan
24. Post retirement death benefit
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
Agreement dated as of June 29, 1989, between USAir, Inc., a
Delaware corporation, having a place of business at Crystal Park
Four, 2345 Crystal Drive, Arlington, VA 22227 (the "Company") and
John P. Frestel, Jr., residing at 6612 Madison-McLean Drive,
McLean, Virginia 22101 (the "Executive").
WITNESSETH
WHEREAS, the Executive has assumed duties of a responsible
nature to the benefit of the Company and to the satisfaction of its
Board of Directors (the "Board");
WHEREAS, the Board believes it to be in the best interests of
the Company to enter into this Agreement to assure Executive's
continuing services to the Company including, but not limited to,
under circumstances in which there is a possible, threatened or
actual Change of Control (as defined below) of the Company; and
WHEREAS, the Board believes it is imperative to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened Change
of Control and to encourage the Executive's full attention and
dedication to the Company currently and in the event of any
threatened or pending Change of Control, and to provide the
Executive with compensation and benefits arrangements upon a Change
of Control which ensure that the compensation and benefits
expectations of the Executive will be satisfied and which are
competitive with those of other corporations. Therefore, in order
to accomplish all the above objectives, the Board has caused the
Company to enter into this Agreement.
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the Company and the Executive hereby agree as follows:
1. Certain Definitions.
(a) The "Effective Date" shall mean the date hereof.
(b) The "Change of Control Date" shall mean the first date
during the Employment Period (as defined in Section 1(c)) on which
a Change of Control (as defined in Section 2) occurs. Anything in
this Agreement to the contrary notwithstanding, if a Change of
Control occurs and if the Executive's employment with the Company
<PAGE>
is terminated or the Executive ceases to be an officer of the
Company prior to the date on which the Change of Control occurs,
and if it is reasonably demonstrated by the Executive that such
termination of employment or cessation of status as an officer (i)
was at the request of a third party who has taken steps reasonably
calculated to effect the Change of Control or (ii) otherwise arose
in connection with or anticipation of the Change of Control, then
for all purposes of this Agreement the "Change of Control Date"
shall mean the date immediately prior to the date of such termina-
tion of employment or cessation of status as an officer.
(c) The "Employment Period" shall mean the period commencing
on the Effective Date and ending on the earlier to occur of (i) the
fourth anniversary of such date or (ii) the first day of the month
next following the Executive's 65th birthday ("Normal Retirement
Date"); provided, however, that commencing on the date one year
after the Effective Date, and on each annual anniversary of such
date (such date and each annual anniversary thereof shall be
hereinafter referred to as the "Renewal Date"), the Employment
Period shall be automatically extended so as to terminate on the
earlier of (x) four years from such Renewal Date or (y) the
Executive's Normal Retirement Date, unless at least 30 days prior
to the Renewal Date the Company shall give notice to the Executive
that the Employment Period shall not be so extended; and provided,
further, that upon the occurrence of a Change of Control Date, the
Employment Period shall automatically be extended so as to
terminate on the earlier to occur of (1) the fourth anniversary of
such date or (2) the Executive's Normal Retirement Date.
2. Change of Control. For the purpose of this Agreement, a
"Change in Control" shall mean:
(a) The acquisition by an individual, entity or group (within
the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) of benefi-
cial ownership (within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20% or more of either (i) the then outstanding
shares of common stock of the Company's parent, USAir Group, Inc.
("Group") (the "Outstanding Group Common Stock") or (ii) the
combined voting power of the then outstanding voting securities of
Group entitled to vote generally in the election of directors (the
"Outstanding Group Voting Securities"); provided, however, that the
following acquisitions shall not constitute a Change of Control:
(w) any acquisition directly from Group, (x) any acquisition by
Group or any of its subsidiaries, (y) any acquisition by any
employee benefit plan (or related trust) sponsored or maintained by
Group or any of its subsidiaries or (z) any acquisition by any
<PAGE>
corporation with respect to which, following such acquisition, more
than 85% of, respectively, the then outstanding shares of common
stock of such corporation and the combined voting power of the then
outstanding voting power of the then outstanding voting securities
of such corporation entitled to vote generally in the election of
directors, is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were
beneficial owners, respectively of the Outstanding Group Common
Stock and Outstanding Group Voting Securities in substantially the
same proportions as their ownership, immediately prior to such
acquisition, of the Outstanding Group Common Stock and Outstanding
Group Voting Securities, as the case may be; or
(b) Individuals who, as of the date hereof, constitute
Group's Board of Directors (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Group Board of
Directors; provided, however, that any individual becoming a
director subsequent to the date hereof whose election, or nomina-
tion for election by Group'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 either an actual or threatened election contest (as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under
the Exchange Act) or other actual or threatened solicitation of
proxies or consents; or
(c) Approval by the shareholders of Group of a reorganiza-
tion, merger or consolidation, in each case, with respect to which
all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Group
Common Stock and Outstanding Group Voting Securities immediately
prior to such reorganization, merger or consolidation, beneficially
own, directly or indirectly, more than 85% 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 reorganization, merger or consoli-
dation in substantially the same proportions as their ownership,
immediately prior to such reorganization, merger or consolidation
of the Outstanding Group Common Stock and the Outstanding Group
Voting Securities, as the case may be; or
(d) Approval by the shareholders of Group of (i) a complete
liquidation or dissolution of Group or (ii) the sale or other
disposition of all or substantially all of the assets of Group,
<PAGE>
other than to a corporation, with respect to which following such
sale or other disposition, more than 85% of, respectively, the then
outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by
all or substantially all of the individuals and entities who were
the beneficial owners, respectively, of the Outstanding Group
Common Stock and Outstanding Group Voting Securities immediately
prior to such sale or other disposition in substantially the same
proportion as their ownership, immediately prior to such sale or
other disposition, of the Outstanding Group Common Stock and
Outstanding Group Voting Securities, as the case may be.
3. Employment Period. The Company hereby agrees to continue
the Executive in its employ, and the Executive hereby agrees to
remain in the employ of the Company, during the Employment Period
under the terms and conditions provided herein.
4. Terms of Employment.
(a) Position and Duties. (i) During the Employment Period
and prior to a Change of Control Date, (A) if the Board determines
that the Executive has been performing his duties in accordance
with Section 4(a)(iii) hereof, it shall re-elect the Executive to
a responsible executive position with substantially similar duties
to the position held by the Executive on the Effective Date, (B)
the Executive's services shall be performed at the Executive's
location on the Effective Date, the Company's headquarters, or a
location where a substantial activity for which the Executive has
responsibility is located. (ii) During the Employment Period and
on and following a Change of Control Date, (A) the Executive's
position (including status, offices, titles and reporting relation-
ships), authority, duties and responsibilities shall be at least
commensurate in all material respects with the most significant of
those held, exercised and assigned at any time during the 90-day
period immediately preceding the Change of Control Date and (B) the
Executive's services shall be performed at the location where the
Executive was employed immediately preceding the Change of Control
Date or any office or location less than thirty-five (35) miles
from such location. (iii) During the Employment Period, and
excluding any periods of vacation and sick leave to which the
Executive is entitled, the Executive agrees to devote reasonable
attention and time during normal business hours to the business and
affairs of the Company and, to the extent necessary to discharge
the responsibilities assigned to the Executive hereunder, to use
<PAGE>
the Executive's reasonable best efforts to perform faithfully and
efficiently such responsibilities. During the Employment Period it
shall not be a violation of this Agreement for the Executive to (A)
serve on corporate, civic or charitable boards or committees, (B)
deliver lectures, fulfill speaking engagements or teach at
educational institutions and (C) manage personal investments, so
long as such activities do not significantly interfere with the
performance of the Executive's responsibilities as an employee of
the Company in accordance with this Agreement. It is also
expressly understood and agreed that to the extent that such
activities have been conducted by the Executive prior to the
Effective Date, the continued conduct of such activities (or the
conduct of activities similar in nature and scope thereto)
subsequent to the Effective Date shall not thereafter be deemed to
interfere with the performance of the Executive's responsibilities
to the Company.
(b) Compensation.
(i) Base Salary. During the Employment Period, the
Company shall pay the Executive a base salary (x) for the
first 12 months of the term hereof at a rate not less than his
base salary in effect on the Effective Date of this Agreement,
and (y) during each succeeding 12 months of the term hereof at
a rate not less than his base salary in effect on the last day
of the preceding 12-month period. During the Employment
Period, base salary shall be reviewed at least annually and
shall be increased at any time and from time to time as shall
be substantially consistent with increases in base salary
awarded in the ordinary course of business to other key
employees of the Company and its subsidiaries. Any increase
in base salary shall not serve to limit or reduce any other
obligation to the Executive under this Agreement. Base salary
shall not be reduced after any such increase. Base salary
under Section 4(b)(i) shall hereinafter be referred to as the
"Base Salary".
(ii) Annual Bonus. In addition to Base Salary, the
Executive shall be awarded, for each fiscal year during the
Employment Period, an annual bonus as shall be determined by
the Board or its Compensation and Benefits Committee in
accordance with the executive incentive compensation plan of
Group approved on September 28, 1988 by the Group Board of
Directors ("Incentive Plan") or otherwise. For each fiscal
year beginning or ending after the Change of Control Date
<PAGE>
during the Employment Period, the annual bonus shall be at
least equal to the bonus that would have been payable to the
Executive from the Company as if Group had achieved the
"target level of performance" under the Incentive Plan set at
the level for the fiscal year immediately preceding the Change
of Control Date and assuming that the Executive's "target
percentage" under the Incentive Plan at least equals such
target percentage assigned to the Executive immediately
preceding the Change of Control Date. The annual bonus under
Section 4(b)(ii) shall hereinafter be referred to as the
"Annual Bonus".
(iii) Incentive, Savings and Retirement Plans. In
addition to Base Salary and Annual Bonus payable as herein-
above provided, the Employee shall be entitled to participate
during the Employment Period in all incentive, savings and
retirement plans, practices, policies and programs applicable
on or after the Effective Date to other key employees of the
Company and its subsidiaries (including but not limited to the
employee benefit plans listed on Exhibit A hereto), in each
case providing benefits which are the economic equivalent to
those in effect on the Effective Date or as subsequently
amended.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the
case may be, shall be eligible for participation in and shall
receive all benefits under welfare benefit plans, practices,
policies and programs provided by the Company and its subsid-
iaries (including, without limitation, medical, prescription,
dental, disability, salary continuance, employee life, group
life, accidental death and travel accident insurance plans and
programs) applicable on or after the Effective Date to other
key employees of the Company and its subsidiaries, in each
case providing benefits which are the economic equivalent to
those in effect on the Effective Date or as subsequently
amended.
(v) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement
for all reasonable expenses incurred by the Executive in
accordance with the most favorable policies, practices and
procedures of the Company and its subsidiaries applicable at
any time on or after the Effective Date to other key employees
of the Company and its subsidiaries.
<PAGE>
(vi) Fringe Benefits. During the Employment Period,
the Executive shall be entitled to fringe benefits, including
but not limited to pass privileges for non-revenue transporta-
tion, in accordance with the most favorable plans, practices,
programs and policies of the Company and its subsidiaries
applicable at any time on or after the Effective Date to other
key employees of the Company and its subsidiaries.
(vii) Office and Support Staff. During the Employment
Period, the Executive shall be entitled to an appropriate
office or offices of a size and with furnishings and other
appointments, and to secretarial and other assistance, as
provided to other key employees of the Company and its
subsidiaries.
(viii) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance
with the most favorable plans, policies, programs and practic-
es of the Company and its subsidiaries as in effect on or
after the Effective Date with respect to other key employees
of the Company and its subsidiaries.
5. Termination.
(a) Mutual Agreement. During the Employment Period, the
Executive's employment hereunder may be terminated at any time by
mutual agreement on terms to be negotiated at the time of such
termination.
(b) Death or Disability. This Agreement shall terminate
automatically upon the Executive's death. If the Company deter-
mines in good faith that the Disability of the Executive has
occurred (pursuant to the definition of "Disability" set forth
below), it may give to the Executive written notice of its
intention to terminate the Executive's employment. In such event,
the Executive's employment with the Company shall terminate
effective on the 90th day after receipt by the Executive of such
notice given at any time after a period of six consecutive months
of Disability and while such Disability is continuing (the
"Disability Effective Date"), provided that, within the 90 days
after such receipt, the Executive shall not have returned to full-
time performance of the Executive's duties. For purposes of this
Agreement, "Disability" means disability which, at least six months
after its commencement, is determined to be total and permanent by
a physician selected by the Company or its insurers and acceptable
to the Executive or the Executive's legal representative (such
<PAGE>
agreement as to acceptability not to be withheld unreasonably).
During such six month period and until the Disability Effective
Date, Executive shall be entitled to all compensation provided for
under Section 4 hereof.
(c) Cause. During the Employment Period, the Company may
terminate the Executive's employment for "Cause." For purposes of
this Agreement, "Cause" means (i) an act or acts of personal
dishonesty taken by the Executive and intended to result in
substantial personal enrichment of the Executive at the expense of
the Company, (ii) repeated violations by the Executive of the
Executive's obligations under Section 4(a) of this Agreement which
are demonstrably willful and deliberate on the Executive's part and
which are not remedied in a reasonable period of time after receipt
of written notice from the Company or (iii) the conviction of the
Executive of a felony.
(d) Good Reason. During the Employment Period, the Execu-
tive's employment hereunder may be terminated by the Executive for
Good Reason. For purposes of this Agreement, "Good Reason" means
(i) the assignment to the Executive of any duties inconsistent in
any respect with Executive's position (including status, offices,
titles and reporting relationships), authority, duties or responsi-
bilities as contemplated by Section 4(a)(i) or (ii) of this
Agreement, or any other action by the Company which results in a
diminution in such position, authority, duties or responsibilities,
excluding for this purpose an isolated, insubstantial and inadver-
tent action not taken in bad faith and which is remedied by the
Company promptly after receipt of notice thereof given by the
Executive; (ii) (x) any failure by the Company to comply with any
of the provisions of Section 4(b) of this Agreement, other than an
isolated, insubstantial and inadvertent failure not occurring in
bad faith and which is remedied by the Company promptly after
receipt of notice thereof given by the Executive or (y) after the
Change of Control Date, any failure of the Company to pay Base
Salary or Annual Bonus in accordance with Sections 4(b)(i) and
(ii), respectively, and any failure by the Company to maintain or
provide the plans, programs, policies and practices, and benefits
described in Sections 4(b)(iii) - (viii) on the most favorable
basis such plans programs, policies and practices were maintained
and benefits provided during the 90-day period immediately
preceding the Change of Control Date, or if more favorable to the
Executive and/or the Executive's family, as in effect at any time
thereafter with respect to other key employees of the Company and
its subsidiaries; (iii) the Company's requiring the Executive to
be based at any office or location other than that described in
Sections 4(a)(i)(B) or 4(a)(ii) (B) hereof, except for travel
<PAGE>
reasonably required in the performance of the Executive's responsi-
bilities; (iv) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by
this Agreement; or (v) any failure by the Company to comply with
and satisfy Section 11(c) of this Agreement. For purposes of this
Section 5(d), any good faith determination of "Good Reason" made by
the Executive on or after the Change of Control Date shall be
conclusive. Anything in this Agreement to the contrary notwith-
standing, a termination by the Executive for any reason during the
30-day period immediately following the first anniversary of the
Change of Control Date shall be deemed to be a termination for Good
Reason for all purposes of this Agreement.
(e) Notice of Termination. Any termination by the Company
for Cause or by the Executive for Good Reason shall be communicated
by Notice of Termination to the other party hereto given in
accordance with Section 12(b) of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice
which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination
of the Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other that
the date of receipt of such notice, specifies the termination date
(which date shall be not more than fifteen (15) days after the
giving of such notice). The failure by the Executive to set forth
in the Notice of Termination any fact or circumstance which
contributes to a showing of Good Reason shall not waive any right
of the Executive hereunder or preclude the Executive from asserting
such fact or circumstance in enforcing his rights hereunder.
(f) Date of Termination. "Date of Termination" means the
date of receipt of the Notice of Termination or any later date
specified therein, as the case may be; provided, however, that (i)
if the Executive's employment is terminated by the Company other
than for Cause or Disability, the Date of Termination shall be the
date on which the Company notifies the Executive of such termina-
tion and (ii) if the Executive's employment is terminated by reason
of death or Disability, the Date of Termination shall be the date
of death of the Executive or the Disability Effective Date, as the
case may be.
<PAGE>
6. Obligations of the Company upon Termination.
(a) Death. If the Executive's employment is terminated by
reason of the Executive's death, this Agreement shall terminate
without further obligations to the Executive's legal representa-
tives under this Agreement, other than those obligations accrued or
earned and vested (if applicable) by the Executive as of the Date
of Termination, including, for this purpose (i) the Executive's
full Base Salary through the Date of Termination at the rate in
effect on the Date of Termination, disregarding any reduction in
Base Salary in violation of this Agreement (the "Highest Base
Salary"), (ii) the product of the Annual Bonus paid to the
Executive for the last full fiscal year and a fraction, the
numerator of which is the number of days in the current fiscal year
through the Date of Termination, and the denominator of which is
365 and (iii) any 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 (such amounts specified in clauses (i), (ii) and (iii) are
hereinafter referred to as "Accrued Obligations"). All such
Accrued Obligations shall be paid to the Executive's estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of
the Date of Termination. Anything in this Agreement to the
contrary notwithstanding, the Executive's family shall be entitled
to receive benefits at least equal to the most favorable benefits
provided by the Company and any of its subsidiaries to surviving
families of employees of the Company and such subsidiaries under
such plans, programs, practices and policies relating to family
death benefits, if any, in accordance with the most favorable
plans, programs, practices and policies of the Company and its
subsidiaries in effect on or after the Effective Date or, if more
favorable to the Executive and/or the Executive's family, as in
effect on the date of the Executive's death with respect to other
key employees of the Company and its subsidiaries and their
families.
(b) Disability. If the Executive's employment is terminated
by reason of the Executive's Disability, this Agreement shall
terminate without further obligations to the Executive, other than
those obligations accrued or earned and vested (if applicable) by
the Executive as of the Date of Termination, including for this
purpose, all Accrued Obligations. All such Accrued Obligations
shall be paid to the Employee in a lump sum in cash within 30 days
of the Date of Termination. Anything in this Agreement to the
contrary notwithstanding, the Employee shall be entitled after the
Disability Effective Date to receive disability and other benefits
<PAGE>
at least equal to the most favorable of those provided by the
Company and its subsidiaries to disabled employees and/or their
families in accordance with such plans, programs, practices and
policies relating to disability, if any, in accordance with the
most favorable plans, programs, practices and policies of the
Company and its subsidiaries in effect on or after the Effective
Date or, if more favorable to the Executive and /or the Executive's
family, as in effect at any time thereafter with respect to other
key employees of the Company and its subsidiaries and their
families.
(c) Cause; Other than for Good Reason. If the Executive's
employment shall be terminated for Cause, this Agreement shall
terminate without further obligations to the Executive (other than
the obligation to pay to the Executive the Highest Base Salary
through the Date of Termination plus the amount of any accrued
vacation pay not yet paid by the Company and any compensation
previously deferred by the Executive (together with accrued
interest thereon). If the Executive terminates employment other
than for Good Reason, this Agreement shall terminate without
further obligations to the Executive, other than those obligations
accrued or earned and vested (if applicable) by the Executive
through the Date of Termination, including for this purpose, all
Accrued Obligations and any obligations provided for in an
agreement, if any, between the Company and the Executive pursuant
to Section 5(a). All such Accrued Obligations shall be paid to
paid to the Executive in a lump sum in cash within 30 days of the
Date of Termination.
(d) Good Reason; Other Than for Cause or Disability.
(1) If, during the Employment Period and prior to a
Change of Control, the Company shall terminate the Executive's
employment other than for Cause, Disability or death or if the
Executive shall terminate his employment for Good Reason:
(i) the Company shall pay to the Executive in a
lump sum in cash within 30 days after the Date of
Termination the aggregate of the following amounts:
A. to the extent not theretofore paid, the
Executive's Highest Base Salary through the Date of
Termination; and
B. basic salary at the rate of the Highest
Base Salary for the period from the Date of Termi-
nation until the end of the Employment Period; and
<PAGE>
C. in the case of compensation previously
deferred by the Executive, all amounts previously
deferred (together with any accrued interest there-
on) and not yet paid by the Company, and any ac-
crued vacation pay not yet paid by the Company; and
(ii) for the remainder of the Employment Period, or
such longer period as any plan, program, practice or
policy may provide, the Company shall continue benefits
to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in
accordance with the plans, programs, practices and
policies described in Section 4(b)(iv) and (vi) of this
Agreement if the Executive's employment had not been
terminated, including health insurance and life insur-
ance, in accordance with the most favorable plans,
practices, programs or policies of the Company and its
subsidiaries in effect on or after the Effective Date, or
if more favorable to the Executive, as in effect at any
time thereafter with respect to other key employees and
their families.
(2) If, during the Employment Period and on and after a
Change of Control Date, the Company shall terminate the
Employee's employment other than for Cause, Disability, or
death or if the Executive shall terminate his employment for
Good Reason:
(i) the Company shall pay to the Executive in a
lump sum in cash within 30 days after the Date of
Termination the aggregate of the following amounts:
A. to the extent not theretofore paid, the
Executive's Highest Base Salary through the Date of
Termination; and
B. the product of (x) the Annual Bonus paid
to the Executive for the last full fiscal year (if
any) ending during the Employment Period or, if
higher, the Annual Bonus paid to the Executive
during the last full fiscal year (if any) immedi-
ately preceding the Change of Control Date (the
higher of either amount under this (x) shall here-
inafter be called the "Recent Bonus") and (y) a
fraction, the numerator of which is the number of
days in the current fiscal year through the Date of
Termination and the denominator of which is 365;
and
<PAGE>
C. the product of (x) three and (y) the sum
of (i) the Highest Base Salary and (ii) the Recent
Bonus (If by reason of the Executive's date of hire
or promotion, he has not served for a full fiscal
year in his position, then for purposes of the
calculations in subsection B above and this subsec-
tion C, Annual Bonus shall be calculated as provid-
ed in the second sentence of Section 4(b)(ii)
hereof.); and
D. in the case of compensation previously
deferred by the Executive, all amounts previously
deferred (together with any accrued interest there-
on) and not yet paid by the Company, and any ac-
crued vacation pay not yet paid by the Company; and
E. the Executive shall be entitled to receive
a lump-sum retirement benefit equal to the differ-
ence between (a) the actuarial equivalent of the
benefit under the Retirement Plan and any supple-
mental and/or excess retirement plan the Executive
would receive if he remained employed by the Compa-
ny at the compensation level provided for in Sec-
tions 4(b)(i) and (ii) of this Agreement for the
remainder of the Employment Period and (b) the
actuarial equivalent of this benefit, if any, under
the Retirement Plan and any supplemental and/or
excess retirement plan; and
(ii) for the remainder of the Employment Period or such
longer period as any plan, program, practice or policy may
provide, the Company shall continue benefits to the Executive
and/or the Executive's family at least equal to those which
would have been provided to them in accordance with the plans,
programs, practices and policies described in Sections
4(b)(iii)(with respect to any retirement plans), (iv) and (vi)
of this Agreement if the Executive's employment had not been
terminated, including health insurance and life insurance, in
accordance with the most favorable plans, practices, programs
or policies of the Company and its subsidiaries in effect on
or after the Effective Date or, if more favorable to the
Executive, as in effect at any time thereafter with respect to
other key employees and their families and for purposes of
eligibility for retiree benefits pursuant to such plans,
practices, programs and policies, the Executive shall be
considered to have remained employed until the end of the
Employment Period and to have retired on the last day of such
period.
<PAGE>
7. Non-exclusivity of Rights. Nothing in this Agreement
shall prevent or limit the Executive's continuing or future
participation in any benefit, bonus, incentive or other plans,
programs, policies or practices, provided by Group, the Company or
any of its subsidiaries and for which the Executive may qualify,
nor shall anything herein limit or otherwise affect such rights as
the Executive may have under any stock option, restricted stock or
other agreements with Group, the Company of any of its subsidiar-
ies. Amounts which are vested benefits or which the Executive is
otherwise entitled to receive under any plan, policy, practice or
program of Group, the Company or any of its subsidiaries at or
subsequent to the Date of Termination shall be payable in accor-
dance with such plan, policy practice or program.
8. Full Settlement. The Company's obligation to make the
payments provided for in this Agreement and otherwise to perform
its obligations hereunder shall not be affected by any set-off,
counterclaim, recoupment, defence or other claim, right or action
which the Company may have against the Executive or others. In no
event shall the Executive be obligated to seek other employment or
take any other action by way of mitigation of the amounts payable
to the Executive under any of the provisions of this Agreement.
The Company agrees to pay, to the full extent permitted by law, all
legal fees and expenses, as incurred by the Company, the Executive
and others, which the Executive may reasonably incur as a result of
any contest (regardless of the outcome thereof) by the Company or
others of the validity or enforceability of, or liability under,
any provision of this Agreement or any guarantee of performance
thereof (including as a result of any contest by the Executive
about the amount of any payment pursuant of Section 9 of this
Agreement), plus in each case interest at the applicable Federal
rate provided for in Section 7872(f)(2) of the Internal Revenue
Code of 1986, as amended (the "Code").
9. Certain Additional Payments by the Company.
(a) Anything in this Agreement to the contrary notwithstand-
ing, in the event it shall be determined that any payment or
distribution by the Company 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, but determined without
regard to any additional payments required under this Section 9) (a
"Payment"), would be subject to the excise tax imposed by Section
4999 of the Code or any interest or penalties with respect to such
excise tax (such excise tax, together with any such interest and
<PAGE>
penalties, are hereinafter collectively referred to as the "Excise
Tax"), then the Executive shall be entitled to receive an addition-
al payment (a "Gross-Up Payment") in an amount such that after
payment by the Executive of all taxes (including any interest or
penalties imposed with respect to such taxes), including, without
limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax, imposed upon the
Gross-Up Payment, the Executive retains an amount of the Gross-Up
Payment equal to the Excise Tax imposed upon Payments.
(b) Subject to the provisions of Section 9(c), all determina-
tions required to be made under this Section 9, including whether
a Gross-Up Payment is required and the amount of such Gross-Up
Payment, shall be made by the firm of independent public accoun-
tants selected by Group to audit its financial statements (the
"Accounting Firm") which shall provide detailed supporting
calculations both to the Company and the Executive within 15
business days of the receipt of notice from the Executive that
there has been a Payment, or such earlier time as is requested by
the Company. In the event that the Accounting Firm is serving as
accountant or auditor for the individual, entity or group
effecting the Change of Control, the Executive shall appoint
another nationally recognized accounting firm to make the determi-
nations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and
expenses of the Accounting Firm shall be borne solely by the
Company. Any Gross-Up Payment, as determined pursuant to this
Section 9, shall be paid to the Executive within 5 days of the
receipt of the Accounting Firm's determination. If the Accounting
Firm determines that no Excise Tax is payable by the Executive, it
shall furnish the Executive with a written opinion that failure to
report the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence or a
similar penalty. Any determination by the Accounting Firm shall be
binding upon the Company and the Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the
time of the initial determination by the Accounting Firm hereunder,
it is possible that Gross-up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent
with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 9(c) and
the Executive thereafter is required to make a payment of any
Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be
promptly paid by the Company to or for the benefit of the Execu-
tive.
<PAGE>
(c) The Executive shall notify the Company in writing of any
claim by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment. Such
notification shall be given as soon as practicable but no later
than ten business days after the Executive knows of such claim and
shall apprise the Company of the nature of such claim and the date
on which such claim is requested to be paid. The Executive shall
not pay such claim prior to the expiration of the thirty-day period
following the date on which it gives such notice to the Company (or
such shorter period ending on the date that any payment of taxes
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 Employee shall:
(i) give the Company any information reasonably request-
ed by the Company relating to such claim,
(ii) take such action in connection with contesting such
claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal
representation with respect to such claim by an attorney
reasonably selected by the Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim,
(iv) permit the Company to participate in any proceed-
ings relating to such claim; provided, however, that the
Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis, for any Excise Tax
or income tax, including interest and penalties with respect
thereto, imposed as a result of such representation and
payment of costs and expenses. Without limitation on the
foregoing provisions of this Section 9(c), the Company shall
control all proceedings taken in connection with such contest
and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences
with the taxing authority in respect of such claim and may, at
its sole 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,
<PAGE>
in a court of initial jurisdiction and in one or more appel-
late courts, as the Company shall determine; provided,
however, that if the Company directs the Executive to pay such
claim 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 Excise Tax or income tax, in-
cluding interest or penalties with respect thereto, imposed
with respect to such advance or with respect to any imputed
income with respect to such advance; and further provided that
any extension of the statute of limitations relating to
payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due is
limited solely to such contested amount. Furthermore, the
Company's control of the contest 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.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9(c), the Executive
becomes entitled to receive any refund with respect to such claim,
the Executive shall (subject to the Company's complying with the
requirements of Section 9(c)) promptly pay to the Company the
amount of such refund (together with any interest paid or credited
thereon after taxes applicable thereto). If, after the receipt by
the Executive of an amount advanced by the Company pursuant to
Section 9(c), 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 of refund prior to the expiration of thirty
days after such determination, then such advance shall be forgiven
and shall not be required to be repaid and the amount of such
advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
10. Confidential Information. The Executive shall hold in
a fiduciary capacity for the benefit of the Company all secret or
confidential information, knowledge or data relating to Group, the
Company or any of their subsidiaries, and their respective
businesses, which shall have been obtained by the Executive's
employment by the Company or any of its subsidiaries and which
shall not be or become public knowledge (other than by acts by
Executive or his representatives in violation of this Agreement).
After termination of the Executive's employment with the Company,
<PAGE>
the Executive shall not, without the prior written consent of the
Company, communicate or divulge any such information, knowledge or
data to anyone other than the Company and those designated by it.
In no event shall an asserted violation of the provisions of this
Section 10 constitute a basis for deferring or withholding any
amounts otherwise payable to the Executive under this Agreement.
11. Successors.
(a) This Agreement is personal to the Executive and without
the prior written consent of the Company shall not be assignable by
the Executive otherwise than by will or the laws of descent and
distribution. This Agreement shall inure to the benefit of and be
enforceable by the Executive's legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will 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
to assume expressly 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. 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
assumes and agrees to perform this Agreement by operation of law,
or otherwise.
12. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without
reference to principles of conflict of laws. The captions of this
Agreement are not part of the provisions hereof and shall have no
force or effect. This Agreement may not be amended or modified
otherwise than by a written agreement executed by the parties
hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be
in writing and shall be given by hand delivery to the other party
or by registered or certified mail, return receipt requested,
postage prepaid, addressed as follows:
If to the Executive:
6612 Madison-McLean Drive
McLean, VA 22101
<PAGE>
If to the Company:
USAir, Inc.
Crystal Park Four
2345 Crystal Drive
Arlington, VA 22227
Attention: General Counsel
or to such other address as either party shall have furnished to
the other in writing in accordance herewith. Notice and communica-
tions shall be effective when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(d) The Company may withhold from any amounts payable under
this Agreement such Federal, state or local taxes as shall be
required to be withheld pursuant to any applicable law or regula-
tion.
(e) The Executive's failure to insist upon strict compliance
with any provision hereof shall not be deemed to be a waiver of
such provision or any other provision thereof.
(f) Words or terms used in this Agreement which connote the
masculine gender are deemed to apply equally to female executives.
(g) This Agreement supersedes any prior employment agreement
between the Company and the Executive and contains the entire
understanding of the Company and the Executive with respect to the
subject matter hereof.
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization from its Board of Directors, the
Company has caused these presents to be executed in its name on its
behalf, all as of the day and year first above written.
EXECUTIVE
/s/John P. Frestel, Jr.
_______________________________________
John P. Frestel, Jr.
Senior Vice President-Human Resources
USAIR, INC.
By: /s/Seth E. Schofield
___________________________________
Seth E. Schofield
President & Chief Executive Officer
Attest: /s/Michelle V. Bryan
________________________________
Secretary
<PAGE>
Exhibit A
Retirement Plan for Certain Employees of USAir, Inc.
Target Benefit Plan for Employees of USAir, Inc.
USAir, Inc. Supplementary Retirement Benefit Plan
Officers' Supplemental Benefit Plan
1988 Stock Incentive Plan of USAir Group, Inc.
1984 Stock Option and Stock Appreciation Rights Plan of USAir
Group, Inc.
1988 Executive Incentive Compensation Plan of USAir Group, Inc.
USAir, Inc. 401(k) Savings Plan
Individual Supplemental Retirement Agreements with senior officers
of USAir, Inc.
Restricted Stock Agreements with certain senior officers of USAir,
Inc.
<PAGE>
AMENDMENT NUMBER ONE TO
EMPLOYMENT AGREEMENT
This Amendment Number One, dated as of June 11, 1992, to the
Employment Agreement dated as of June 29, 1989, between USAir,
Inc., a Delaware corporation having a place of business at Crystal
Park Four, 2345 Crystal Drive, Arlington, Virginia 22227 (the
"Company") and John P. Frestel, Jr., residing at 10509 Springvale
Forest Court, Great Falls, Virginia 22066 (the "Executive"), is
entered into as of the date first stated above.
WHEREAS, the Board believes it is important to diminish the
inevitable distraction of the Executive by virtue of the personal
uncertainties and risks created by a pending or threatened change
of control of the Company and to encourage the Executive's full
attention and dedication to the Company currently and in the event
of any threatened or pending change of control, and to provide the
Executive with compensation and benefits arrangements upon a change
of control which ensure that the compensation and benefits
expectations of the Executive will be satisfied; and
WHEREAS, the Board believes it to be in the best interests of
the Company to amend the existing Employment Agreement with the
Executive to achieve the aforementioned objectives;
NOW, THEREFORE, the following amendments are hereby made to
the Employment Agreement:
1. Section 2 of the Employment Agreement setting forth the
definition of "Change of Control" shall be amended by adding the
word "or" at the end of subparagraph (d) and by adding a new
subparagraph (e) at the end of the definition as follows:
(e) The acquisition by an individual, entity or group of
beneficial ownership of 20% or more of the then outstanding
securities of Group, including both voting and non-voting
securities, provided, however, that such acquisition shall
only constitute a change of control in the event that such
individual, entity or group also obtains the power to elect by
class vote, cumulative voting or otherwise to appoint 20% or
more of the total number of directors to the Board of Direc-
tors of Group.
<PAGE>
2. Section 4(b)(ii) of the Employment Agreement concerning
the payment of an annual bonus to the Executive shall be amended by
deleting the second sentence thereof, so that the Section shall
read in its entirety as follows:
(ii) Annual Bonus. In addition to Base Salary, the
Executive shall be awarded, for each fiscal year during the
Employment Period, an annual bonus as shall be determined by the
Board or its Compensation and Benefits Committee in accordance with
the executive incentive compensation plan of Group approved on
September 28, 1988 by the Group Board of Directors ("Incentive
Plan") or otherwise. The annual bonus under Section 4(b)(ii) shall
hereinafter be referred to as the "Annual Bonus".
3. Section 6(d)(2)(i)(B) of the Employment Agreement setting
forth the compensation and benefits obligations of the Company upon
the termination of the Executive's employment for Good Reason or
other than for Cause, Disability or death following a Change of
Control, shall be amended to read in its entirety as follows:
B. the product of (x) the Annual Bonus paid to the
Executive for the last full fiscal year ending during the
Employment Period or, if higher, the Annual Bonus paid to
the Executive during the last full fiscal year ending
during the Employment Period or, if higher, a construc-
tive annual bonus calculated to be equal to the bonus
that would have been payable to the Executive from the
Company for the last full fiscal year ending prior to the
Date of Termination (regardless of whether the Executive
was employed in an officer position for all or any part
of such fiscal year) as if Group had achieved the "target
level of performance" under the Incentive Plan set at the
level for the fiscal year immediately preceding the
Change of Control Date and assuming the Executive's
"target percentage" under the Incentive Plan equals such
target percentage assigned to the Executive immediately
preceding the Change of Control Date (the highest Annual
Bonus determined under this clause (x) shall hereinafter
be referred to as the "Recent Bonus") and (y) a fraction,
the numerator of which is the number of days in the
current fiscal year through the Date of Termination and
the denominator of which is 365; and
4. Section 6(d)(2)(i)(C) of the Employment Agreement setting
forth the compensation and benefits obligations of the Company upon
the termination of the Executive's employment for Good Reason or
other than for Cause, Disability or death following a Change of
Control, shall be amended to read in its entirety as follows:
<PAGE>
C. the product of (x) three and (y) the sum of (i)
the Highest Base Salary and (ii) the Recent Bonus; and
5. Section 6(d)(2)(i) of the Employment Agreement setting
forth the compensation and benefits obligations of the Company upon
the termination of the Executive's employment for Good Reason or
other than for Cause, Disability or death following a Change of
Control, shall be amended to add a new subparagraph F to read in
its entirety as follows:
F. to the extent that the Executive has had his
Base Salary reduced pursuant to the salary reduction
program implemented for officers of the Company effective
January 1, 1992, then the Executive shall be entitled to
receive a lump-sum payment of the amount of salary
foregone from January 1, 1992 through the Date of
Termination and the Executive shall not be eligible to
receive any salary reduction payback through the profit
sharing plan established by the Company for such purpose;
provided, however, that if on the Date of Termination,
the Executive has already received payments from such
profit sharing plan, any such payments shall be offset
from the lump sum amount calculated under this subpara-
graph F; and
6. Section 6(d)(2)(ii) of the Employment Agreement setting
forth the compensation and benefits obligations of the Company upon
the termination of the Executive's employment for Good Reason or
other than for Cause, Disability or death following a Change of
Control, shall be amended to add a new paragraph, the section to
read in its entirety as follows:
(ii) (A) for the remainder of the Employment Period
or such longer period as any plan, program, practice or
policy may provide, the Company shall continue benefits
to the Executive and/or the Executive's family at least
equal to those which would have been provided to them in
accordance with the plans, programs, practices and
policies described in Section 4(b)(iii) (with respect to
any retirement plans), (iv) and (vi) of this Agreement if
the Executive's employment had not been terminated,
including health insurance and life insurance, in
accordance with the most favorable plans, practices,
programs or policies of the Company and its subsidiaries
in effect on or after the Effective Date or, if more
favorable to the Executive, as in effect at any time
thereafter with respect to other key employees and their
<PAGE>
families and for purposes of eligibility for retiree benefits
pursuant to such plans, practices, programs and policies, the
Executive shall be considered to have remained employed until
the end of the Employment Period and to have retired on the
last day of such period; and
(B) at the expiration of the Employment Period, the
Company shall continue to provide the Executive with
health insurance and on-line travel privileges on the
same basis such benefits were provided to the Executive
on the last day of the Employment Period, with such
benefits to continue for the life of the Executive;
provided, however, that if the Executive becomes eligible
for health insurance through a subsequent employer, the
Company's provision of such benefits shall be secondary
to the benefit coverage of the subsequent employer.
7. Section 6 of the Employment Agreement setting forth the
compensation and benefits obligations of the Company upon the
termination of the Executive's employment, shall be amended to add
a new subparagraph (e) at the end of the section to read in its
entirety as follows:
(e) Salary Reduction Program. For purposes of
determining the Company's compensation and benefits
obligations under any of the foregoing subparagraphs (a)
through (d) of Section 6, any reduction in the Execu-
tive's Base Salary resulting from the officer salary
reduction program implemented on January 1, 1992 shall be
disregarded and the Executive's "salary of record" as in
effect on December 31, 1991 shall be deemed to be in
effect for the duration of the salary reduction program
or, if higher, the Executive's actual annual salary.
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization of its Board of Directors, the
Company has caused this Amendment to be executed in its name and on
its behalf, all as of the day and year first written above.
EXECUTIVE
/s/John P. Frestel, Jr.
________________________________________
John P. Frestel, Jr.
USAIR, INC.
/s/Seth E. Schofield
________________________________________
Seth E. Schofield.
Chairman of the Board, President and CEO
Attest:
/s/Michelle V. Bryan
______________________________
Secretary
<PAGE>
AMENDMENT NUMBER TWO TO
EMPLOYMENT AGREEMENT
This Amendment Number Two, dated as of January 27, 1993, to
the Employment Agreement dated as of June 29, 1989, between USAir,
Inc., a Delaware corporation having a place of business at Crystal
Park Four, 2345 Crystal Drive, Arlington, Virginia 22227 (the
"Company"), and John P. Frestel, Jr., residing at 10509 Springvale
Forest Court, Great Falls, Virginia 22066 (the "Executive"), as
subsequently amended (the "Employment Agreement"), is entered into
as of the date first stated above.
WHEREAS, USAir Group, Inc. ("USAir Group") has authorized,
executed and delivered an investment agreement dated as of
January 21, 1993, as subsequently amended, (the "Investment
Agreement") with British Airways, Plc ("BA") pursuant to which BA
will acquire an equity ownership interest in USAir Group and will
be entitled to elect members of the Board of Directors of USAir
Group (the "BA Transaction"); and
WHEREAS, at the "Second Closing" of the BA Transaction as that
term is defined in the Investment Agreement, whereby BA's equity
ownership in USAir Group and representation on the USAir Group
Board of Directors will constitute a "Change of Control" as that
term is defined by the Employment Agreement prior to any modifica-
tions set forth in this Amendment Number Two; and
WHEREAS, the parties have agreed to amend the provisions of
the Employment Agreement in certain respects to become effective
upon the Second Closing of the BA Transaction;
NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which is hereby acknowledged, the parties
agree as follows:
1. Section 2 of the Employment Agreement shall be amended in
its entirety to read as follows:
For purposes of this Agreement and with respect to
transactions occurring subsequent to the Second Closing
of the BA Transaction, a "Change of Control" shall mean:
(a) The acquisition by an individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Exchange Act)
<PAGE>
of 20% or more of either (i) the then outstanding shares of
common stock of the Company's parent, USAir Group, Inc.
("Group") (the "Outstanding Group Common Stock") or (ii) the
combined voting power of the then outstanding voting securi-
ties of Group entitled to vote generally in the election of
directors (the "Outstanding Group Voting Securities");
provided, however, that the following acquisitions shall not
constitute a Change of Control: (v) any acquisition by
British Airways Plc or any of its affiliates, (w) any acquisi-
tion directly from Group, (x) any acquisition by Group or any
of its subsidiaries, (y) any acquisition by any employee
benefit plan (or related trust) sponsored or maintained by
Group or any of its subsidiaries or (z) any acquisition by any
corporation with respect to which, following such acquisition,
more than 85% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power
of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were
beneficial owners, respectively, of the Outstanding Group
Common Stock and Outstanding Group Voting Securities in
substantially the same proportions as their ownership,
immediately prior to such acquisition, of the Outstanding
Group Common Stock and Outstanding Group Voting Securities, as
the case may be; or
(b) Individuals who, as of the date hereof,
constitute Group's Board of Directors (the "Incumbent
Board") cease for any reason to constitute at least a
majority of the Group Board of Directors; provided,
however, that any individual becoming a director subse-
quent to the date hereof whose election, or nomination
for election by Group's shareholders, was approved by
British Airways Plc, or any of its affiliates, or 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; or
(c) Approval by the shareholders of Group of a
reorganization, merger or consolidation, in each case,
with respect to which all or substantially all of the
individuals and entities who were the beneficial owners,
respectively, of the Outstanding Group Common Stock and
Outstanding Group Voting Securities immediately prior to
such reorganization, merger or consolidation, beneficial
<PAGE>
ly own, directly or indirectly, less than 85% of, respective-
ly, the then outstanding shares of common stock and the
combined voting power of the then outstanding voting securi-
ties entitled to vote generally in the election of directors,
as the case may be, of the corporation resulting from such
reorganization, merger or consolidation in substantially the
same proportions as their ownership, immediately prior to such
reorganization, merger or consolidation, of the Outstanding
Group Common Stock and the Outstanding Group Voting Securi-
ties, as the case may be; provided, however, that a reorgani-
zation, merger or consolidation to which British Airways Plc
and/or any of its affiliates, and Group and/or any of its
affiliates, are the only parties shall not constitute a Change
of Control; or
(d) Approval by the shareholders of Group of (i) a
complete liquidation or dissolution of Group or (ii) the
sale or other disposition of all or substantially all of
the assets of Group, other than to British Airways Plc or
any of its affiliates, or to a corporation, with respect
to which following such sale or other disposition, more
than 85% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting
power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or
indirectly, by all or substantially all of the individu-
als and entities who were the beneficial owners, respec-
tively, of the Outstanding Group Common Stock and
Outstanding Group Voting Securities immediately prior to
such sale or other disposition, in substantially the same
proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Group
Common Stock and Outstanding Group Voting Securities, as
the case may be; or
(e) The acquisition of beneficial ownership of 20%
or more of the then outstanding securities of Group,
including both voting and non-voting securities, by an
individual, entity or group other than British Airways
Plc or any of its affiliates; provided, however, that
such acquisition shall only constitute a change of
control in the event that such individual, entity or
group also obtains the power to elect by class vote,
cumulative voting or otherwise to appoint 20% or more of
the total number of directors to the Board of Directors
of Group.
<PAGE>
2. Section 4(a)(ii)(B) of the Agreement concerning the
Executive's position and duties during the Employment Period
following a Change of Control shall be amended by the addition of
the following sentence:
Notwithstanding the foregoing, the Executive and the
Company agree that following the Change of Control
occasioned by the Second Closing of the BA Transaction,
the Company may transfer the Executive's employment to
any location which meets all of the following criteria
without such transfer constituting Good Reason under
Section 5(d)(iii) of the Agreement for the Executive to
terminate his employment:
(1) It is a location of a substantial activity for which
the Executive has responsibility.
(2) The location is either a corporate headquarters or
a major operations hub for the Company, BA or any of their
affiliates or principal business divisions.
(3) In the event the location is outside the United
States, the Company must provide the Executive a cost-of-
living adjustment in compensation so that the Executive is in
the same economic purchasing position that the Executive was
in at his or her location immediately prior to the requested
relocation.
(4) The Executive has not been transferred or relocated
during the prior twelve-month period.
3. Paragraph (d) of Section 5 of the Employment Agreement
setting forth the definition of "Good Reason" shall be amended by
adding after the last sentence of paragraph (d) the following
additional sentence:
Following the Change of Control occasioned by the
Second Closing of the BA Transaction, termination by the
Executive of his or her employment for any reason which
would not otherwise constitute Good Reason during the 30-
day period immediately following the first anniversary of
the Change of Control Date occasioned by the Second
Closing of the BA Transaction shall not be deemed a
termination for Good Reason under the terms of this
Employment Agreement or entitle the Executive to claim
benefits under Section 6(d)(2) of the Employment Agree-
ment.
<PAGE>
4. Section 5(d)(ii) of the Agreement shall be amended by the
addition of the following sentences:
Following the Change of Control occasioned by the
Second Closing of the BA transaction, notwithstanding
the foregoing, the Executive and the Company agree that
any diminution in the plans, programs, policies and
practices described in Sections 4(b)(iii) - (viii) which
is (a) not, individually or in the aggregate with all
other such changes, a material change, (b) is a change
applicable to all officers of the Company eligible for
such benefit, and (c) is a change approved by a majority
of the members of the Board of Directors of the Company
who are not elected by BA, shall not constitute Good
Reason under Section 5(d)(ii) of the Agreement. For
purposes of this paragraph, a "material change" shall be
defined as a change which decreases the Company's cost or
the present value of the benefit to the Executive, as
applicable, as determined by the Company's actuaries
(using for purposes of determining present value Pension
Benefit Guaranty Corporation actuarial factors) of such
plans, programs, policies or practices, by more than 15%
of the aggregate of the Company's cost for such Executive
of such plans, programs, policies and practices for
calendar 1993 (excluding statutorily required plans,
programs, policies and practices); provided, however,
that (x) the Executive's cost for any individual plan,
program, policy or practice may not be increased by more
than 15%, and (y) no individual plan, program, policy or
practice listed on Appendix A attached hereto may be
eliminated in its entirety.
5. The Executive hereby acknowledges that the previously
approved change in the pension benefit program, including the 1991
freeze of accruals under the defined benefit and target benefit
pension plans and the 1993 implementation of the two new defined
contribution pension plans, does not constitute Good Reason for the
Executive to terminate his or her employment under the Agreement
following the Change of Control occasioned by the Second Closing of
the BA Transaction.
6. This Amendment Number Two to the Employment Agreement
shall be effective only upon the occurrence of the Second Closing
of the BA Transaction without the need for further action.
* * * *
<PAGE>
IN WITNESS WHEREOF, the Executive has hereunto set his hand
and, pursuant to the authorization of its Board of Directors, the
Company has caused this Amendment to be executed in its name and on
its behalf, all as of the day and year first written above.
EXECUTIVE
/s/John P. Frestel, Jr.
_______________________________________
John P. Frestel, Jr.
USAIR, INC.
/s/Seth E. Schofield
_______________________________________
Seth E. Schofield
Chairman of the Board, President and CEO
Attest:
/s/Michelle V. Bryan
___________________________
Secretary
<PAGE>
APPENDIX A
1. USAir Health Benefit Plan (medical and dental, including
alternative plan such as HMO's)
2. Split dollar life insurance plan
3. Long term disability plan
4. Short term disability plan (unlimited sick leave)
5. Retirement Plan for Certain Employees of USAir, Inc.
6. Target Benefit Plan for Certain Employees of USAir, Inc.
7. USAir, Inc. Supplementary Retirement Benefit Plan
8. Individual supplemental retirement agreements with certain
officers
9. USAir, Inc. 401(k) Savings Plan
10. USAir, Inc. Employee Savings Plan - 1993
11. USAir, Inc. Employee Pension Plan - 1993
12. 1984 Stock Option and Stock Appreciation Rights Plan of USAir
Group, Inc.
13. 1988 Stock Incentive Plan of USAir Group, Inc.
14. Employee travel policy
15. Officer severance policy
16. Post retirement medical and dental
17. Accidental Death & Dismemberment Insurance
18. 125 Premium Conversion Plan
19. Flexible Spending Plan - 1993
20. Management life insurance program
21. Officer's Supplemental Benefit Plan
22. Employee Assistance Program
23. Education Assistance Plan
24. Post retirement death benefit
<PAGE>
EXHIBIT 10.15(a)
December 6, 1991
Mr. Frank L. Salizzoni
Executive Vice President-Finance
USAir, Inc.
Crystal Park Four
2345 Crystal Drive
Arlington, Virginia 22227
Dear Frank:
This letter, when countersigned by you, will constitute an
agreement between you and USAir, Inc. ("USAir") concerning
supplemental retirement benefits to be paid to you upon your
retirement from USAir. This agreement has been approved by the
Board of Directors at its meeting on November 13, 1991 and
supersedes any prior supplemental pension agreement with you.
USAir hereby agrees with you as follows:
1. In consideration for your past services to USAir and
your future services between the date of this letter and the time
of your retirement, USAir will pay or cause to be paid to you, or
on your account, a supplemental pension benefit in an amount
determined in accordance with paragraph 3 of this letter.
2. For purposes of this agreement, (a) the Retirement Plan
for Certain Employees of USAir, Inc., (b) the Target Benefit Plan
for Certain Employees of USAir, Inc., (c) the USAir, Inc.
Supplementary Retirement Benefit Plan, and (d) any defined
contribution pension plan established by USAir in the future for
the purpose of providing retirement income, will be referred to
collectively as the "Pension Plans" and the Retirement Plan for
Certain Employees of USAir, Inc. when being referenced on its own
will be referred to as the "Retirement Plan."
3. The supplemental pension benefit payable to you
pursuant to this agreement will be in an amount calculated as
follows:
(a) In the event of your retirement from USAir at age
65, your supplemental benefit will be the difference of
subparagraph (i) minus subparagraph (ii), where (i) and
(ii) are:
<PAGE>
(i) the pension benefit calculated under the
benefit formula set forth in the Retirement Plan
had you been employed by USAir for a period of 30
years;
(ii) all pension benefits payable to you in the
aggregate under the Pension Plans as defined above
and any other pension benefits accruing to you as a
result of other employment prior to reaching age 65
(either prior to your employment with USAir or
subsequent to such employment).
(b) In the event of your retirement from USAir or death
while an employee of USAir on or after age 55, but before
age 65, your supplemental benefit will be the difference
of subparagraph (i) minus subparagraph (ii), where (i)
and (ii) are:
(i) the pension benefit calculated under the
benefit formula set forth in the Retirement Plan
had you been employed by USAir for a period of 30
years less the difference between age 65 and your
then attained age;
(ii) all pension benefits payable to you in the
aggregate under the Pension Plans as defined above
and any other pension benefits accruing to you as a
result of other employment prior to reaching age 65
(either prior to your employment with USAir or
subsequent to such employment).
(c) In the event you cease to be an employee of USAir
prior to age 55 as a result of the termination of your
employment by USAir, other than termination for cause as
defined in the employment agreement between you and USAir
as in effect at the time of the termination, your
supplemental benefit will be the difference of
subparagraph (i) minus subparagraph (ii), where (i) and
(ii) are:
(i) the pension benefit calculated under the
benefit formula set forth in the Retirement Plan
had you been employed by USAir at the date of such
termination for a period of 30 years less the
difference between age 65 and your then attained
age;
<PAGE>
(ii) all pension benefits payable to you in the
aggregate under the Pension Plans as defined above
and any other pension benefits accruing to you as a
result of other employment prior to reaching age 65
(either prior to your employment with USAir or
subsequent to such employment).
4. For purposes of calculating the supplemental benefits
under paragraph 3 above, the following rules will be applied:
(a) In determining the amount of the pension benefit
calculated under the benefit formula set forth in the
Retirement Plan for purposes of any subparagraph (i), it
shall be assumed that the Retirement Plan was not frozen
in 1991.
(b) In determining the amount of the pension benefit
calculated under the benefit formula set forth in the
Retirement Plan for purposes of any subparagraph (i), it shall
be assumed that the limitations imposed by Sections 401(a)(17)
and 415 of the Internal Revenue Code of 1986, as amended, are
not applicable.
(c) In determining the amount of the pension benefits
payable in the aggregate under the Pension Plans for purposes
of any subparagraph (ii), any benefit payable under a defined
contribution plan maintained by USAir shall only be included
to the extent that the benefit is attributable to
contributions made by USAir and any portion of the benefit
payable under such defined contribution plan attributable to
your own contributions shall be excluded.
(d) In determining the amount of the pension benefits
payable in the aggregate under the Pension Plans for
purposes of any subparagraph (ii), any benefit payable
under one of the Pension Plans in the form of a lump sum,
shall be converted to an annuity for purposes of
calculating the benefit to be offset by any subparagraph
(ii).
5. In the event you terminate your employment with USAir
at any time prior to age 55 or if USAir terminates your employment
for cause as defined by the employment agreement between you and
USAir in effect at the time of the termination, USAir will not be
obligated to pay any pension benefits under this agreement.
<PAGE>
6. If you terminate your employment after age 55 and
accept other employment, no pension benefits shall be payable
hereunder until the first to occur of termination of such
subsequent employment or your reaching age 65.
7. The supplemental benefit payable hereunder shall be
unfunded and shall be paid directly from USAir's general assets,
including any trust or fund created for that purpose. The
supplemental benefit payable hereunder shall be paid in the same
form of payment as your benefit payments are made under the
Retirement Plan.
8. If you have an accrued vested pension benefit payable
to you upon retirement as a result of employment other than at
USAir, it is understood and agreed that you will furnish USAir with
such information as it may reasonably require concerning these
pension benefits to enable USAir to ascertain the amount of its
obligation under this agreement. It is further understood and
agreed that, for purposes of determining USAir's obligation under
this agreement, any benefits to be offset from such other
employment will be done on the basis that all benefits paid from
all plans are to paid commencing at the same age and in the same
payment form.
9. This letter may be amended or supplemented at the
request of either party hereto to clarify its application with
respect to any future pension plan which USAir may adopt replacing
or supplementing its existing Pension Plans. Any such amendment or
supplement will be prepared on the basis of the intent of the
parties that USAir is seeking to provide you with supplemental
pension benefits as determined in paragraph 3 above.
10. If you concur in the foregoing, please indicate your
agreement by signing a copy of this letter in the space provided
below.
USAIR, INC.
By: /s/Seth E. Schofield
___________________________
Seth E. Schofield
President & Chief Executive
Officer
Agreed:
/s/Frank L. Salizzoni
_____________________________
_____________________________ (Date)
<PAGE>
EXHIBIT 10.15(b)
April 1, 1992
Mr. W. Thomas Lagow
Executive Vice President-Marketing
USAir, Inc.
Crystal Park Four
2345 Crystal Drive
Arlington, Virginia 22227
Dear Tom:
This letter, when countersigned by you, will constitute an
agreement between you and USAir, Inc. ("USAir") concerning
supplemental retirement benefits to be paid to you upon your
retirement from USAir. This agreement has been approved by the
Board of Directors by resolutions adopted by unanimous written
consent on February 7, 1992 and supersedes any prior supplemental
pension agreement with you. USAir hereby agrees with you as
follows:
1. In consideration for your services to USAir between the
date of this letter and the time of your retirement, USAir will pay
or cause to be paid to you, or on your account, a supplemental
pension benefit in an amount determined in accordance with
paragraph 3 of this letter.
2. For purposes of this agreement, (a) the Retirement Plan
for Certain Employees of USAir, Inc., (b) the Target Benefit Plan
for Certain Employees of USAir, Inc., (c) the USAir, Inc.
Supplementary Retirement Benefit Plan, and (d) any defined
contribution pension plan established by USAir in the future for
the purpose of providing retirement income, will be referred to
collectively as the "Pension Plans" and the Retirement Plan for
Certain Employees of USAir, Inc. when being referenced on its own
will be referred to as the "Retirement Plan."
3. The supplemental pension benefit payable to you
pursuant to this agreement will be the difference of subparagraph
(i) minus subparagraph (ii), where (i) and (ii) are:
(i) the pension benefit calculated under the benefit
formula set forth in the Retirement Plan using "deemed
credited service" determined in accordance with the
following schedule, up to a maximum of 30 years of
"deemed credited service":
<PAGE>
Actual Service Deemed Credited Service
______________ _______________________
Years 1 through 5 3 years of credited service
per year of actual service
Years 6 through 10 2 years of credited service per
year of actual service
Years 11 and up 1 year of credited service per
year of actual service
(ii) all pension benefits payable to you in the
aggregate under the Pension Plans as defined above and
any other pension benefits accruing to you as a result of
other employment prior to reaching age 65 (either prior
to your employment with USAir or subsequent to such
employment).
The amount of supplemental pension benefit calculated pursuant to
this paragraph will be payable in the event of your normal
retirement from USAir at age 65. In the event of your early
retirement from USAir or death while an employee of USAir after
attaining age 55, the amount of supplemental pension payable
hereunder will be determined in accordance with the deemed service
schedule set forth above based on actual service up to the date of
early retirement or death, with the resulting benefit reduced for
early commencement. In the event you cease to be an employee of
USAir prior to age 55 as a result of the termination of your
employment by USAir, other than termination for cause as defined in
the employment agreement between you and USAir as in effect at the
time of the termination, your supplemental pension payable
hereunder will be determined in accordance with the deemed service
schedule set forth above based on actual service up to the date of
your termination. No benefit will become payable until you reach
early retirement age and will be reduced for early commencement if
payment is before age 65.
4. For purposes of calculating the supplemental benefits
under paragraph 3 above, the following rules will be applied:
(a) In determining the amount of the pension benefit
calculated under the benefit formula set forth in the
Retirement Plan for purposes of subparagraph (i), it
shall be assumed that the Retirement Plan was not frozen
in 1991.
<PAGE>
(b) In determining the amount of the pension benefit
calculated under the benefit formula set forth in the
Retirement Plan for purposes of subparagraph (i), it
shall be assumed that the limitations imposed by Sections
401(a)(17) and 415 of the Internal Revenue Code of 1986,
as amended, are not applicable.
(c) In determining the amount of the pension benefits
payable in the aggregate under the Pension Plans for
purposes of subparagraph (ii), any benefit payable under
a defined contribution plan maintained by USAir shall
only be included to the extent that the benefit is
attributable to contributions made by USAir and any
portion of the benefit payable under such defined
contribution plan attributable to your own contributions
shall be excluded.
(d) In determining the amount of the pension benefits
payable in the aggregate under the Pension Plans for purposes
of subparagraph (ii), any benefit payable under one of the
Pension Plans in the form of a lump sum, shall be converted to
an annuity for purposes of calculating the benefit to be
offset by subparagraph (ii).
(e) In determining the amount of your supplemental
benefit hereunder, the reduction factors, actuarial
assumptions, definitions, administrative provisions and
other applicable provisions of the Retirement Plan will
control.
5. In the event you terminate your employment with USAir
at any time prior to age 55 or if USAir terminates your employment
for cause as defined by the employment agreement between you and
USAir in effect at the time of the termination, USAir will not be
obligated to pay any supplemental pension benefits under this
agreement.
6. If you terminate your employment after age 55 and
accept other employment, no pension benefits shall be payable
hereunder until the first to occur of termination of such
subsequent employment or your reaching age 65.
<PAGE>
7. The supplemental benefit payable hereunder shall be
unfunded and shall be paid directly from USAir's general assets,
including any trust or fund created for that purpose. The
supplemental benefit payable hereunder shall be paid in the same
form of payment as your benefit payments are made under the Pension
Plans.
8. If you have an accrued vested pension benefit payable
to you upon retirement as a result of employment other than at
USAir, it is understood and agreed that you will furnish USAir with
such information as it may reasonably require concerning these
pension benefits to enable USAir to ascertain the amount of its
obligation under this agreement. It is further understood and
agreed that, for purposes of determining USAir's obligation under
this agreement, any benefits to be offset from such other
employment will be done on the basis that all benefits paid from
all plans are to paid commencing at the same age and in the same
payment form.
9. This letter may be amended or supplemented at the
request of either party hereto to clarify its application with
respect to any future pension plan which USAir may adopt replacing
or supplementing its existing Pension Plans. Any such amendment or
supplement will be prepared on the basis of the intent of the
parties that USAir is seeking to provide you with supplemental
pension benefits as determined in paragraph 3 above.
10. If you concur in the foregoing, please indicate your
agreement by signing a copy of this letter in the space provided
below.
USAIR, INC.
By: /s/Seth E. Schofield
_____________________
Seth E. Schofield
President & Chief Executive
Officer
Agreed:
/s/W. Thomas Lagow
_____________________________
May 5, 1992
_____________________________ (Date)
<PAGE>
EXHIBIT 10.15(c)
December 6, 1991
Mr. James T. Lloyd
Executive Vice President
and General Counsel
USAir, Inc.
Crystal Park Four
2345 Crystal Drive
Arlington, Virginia 22227
Dear Jim:
This letter, when countersigned by you, will constitute an
agreement between you and USAir, Inc. ("USAir") concerning
supplemental retirement benefits to be paid to you upon your
retirement from USAir. This agreement has been approved by the
Board of Directors at its meeting on November 13, 1991 and
supersedes any prior supplemental pension agreement with you.
USAir hereby agrees with you as follows:
1. In consideration for your past services to USAir and
your future services between the date of this letter and the time
of your retirement, USAir will pay or cause to be paid to you, or
on your account, a supplemental pension benefit in an amount
determined in accordance with paragraph 3 of this letter.
2. For purposes of this agreement, (a) the Retirement Plan
for Certain Employees of USAir, Inc., (b) the Target Benefit Plan
for Certain Employees of USAir, Inc., (c) the USAir, Inc.
Supplementary Retirement Benefit Plan, and (d) any defined
contribution pension plan established by USAir in the future for
the purpose of providing retirement income, will be referred to
collectively as the "Pension Plans" and the Retirement Plan for
Certain Employees of USAir, Inc. when being referenced on its own
will be referred to as the "Retirement Plan."
3. The supplemental pension benefit payable to you
pursuant to this agreement will be in an amount calculated as
follows:
(a) In the event of your retirement from USAir at age
65, your supplemental benefit will be the difference of
subparagraph (i) minus subparagraph (ii), where (i) and
(ii) are:
(i) the pension benefit calculated under the
benefit formula set forth in the Retirement Plan
had you been employed by USAir for a period of 30
years;
<PAGE>
(ii) all pension benefits payable to you in the
aggregate under the Pension Plans as defined above
and any other pension benefits accruing to you as a
result of other employment prior to reaching age 65
(either prior to your employment with USAir or
subsequent to such employment).
(b) In the event of your retirement from USAir or death
while an employee of USAir on or after age 55, but before
age 65, your supplemental benefit will be the difference
of subparagraph (i) minus subparagraph (ii), where (i)
and (ii) are:
(i) the pension benefit calculated under the
benefit formula set forth in the Retirement Plan
had you been employed by USAir for a period of 30
years less the difference between age 65 and your
then attained age;
(ii) all pension benefits payable to you in the
aggregate under the Pension Plans as defined above
and any other pension benefits accruing to you as a
result of other employment prior to reaching age 65
(either prior to your employment with USAir or
subsequent to such employment).
(c) In the event you cease to be an employee of USAir
prior to age 55 as a result of the termination of your
employment by USAir, other than termination for cause as
defined in the employment agreement between you and USAir
as in effect at the time of the termination, your
supplemental benefit will be the difference of
subparagraph (i) minus subparagraph (ii), where (i) and
(ii) are:
(i) the pension benefit calculated under the
benefit formula set forth in the Retirement Plan
had you been employed by USAir at the date of such
termination for a period of 30 years less the
difference between age 65 and your then attained
age;
(ii) all pension benefits payable to you in the
aggregate under the Pension Plans as defined above
and any other pension benefits accruing to you as a
result of other employment prior to reaching age 65
(either prior to your employment with USAir or
subsequent to such employment).
<PAGE>
4. For purposes of calculating the supplemental benefits
under paragraph 3 above, the following rules will be applied:
(a) In determining the amount of the pension benefit
calculated under the benefit formula set forth in the
Retirement Plan for purposes of any subparagraph (i), it
shall be assumed that the Retirement Plan was not frozen
in 1991.
(b) In determining the amount of the pension benefit
calculated under the benefit formula set forth in the
Retirement Plan for purposes of any subparagraph (i), it
shall be assumed that the limitations imposed by Sections
401(a)(17) and 415 of the Internal Revenue Code of 1986,
as amended, are not applicable.
(c) In determining the amount of the pension benefits
payable in the aggregate under the Pension Plans for
purposes of any subparagraph (ii), any benefit payable
under a defined contribution plan maintained by USAir
shall only be included to the extent that the benefit is
attributable to contributions made by USAir and any
portion of the benefit payable under such defined
contribution plan attributable to your own contributions
shall be excluded.
(d) In determining the amount of the pension benefits
payable in the aggregate under the Pension Plans for
purposes of any subparagraph (ii), any benefit payable
under one of the Pension Plans in the form of a lump sum,
shall be converted to an annuity for purposes of
calculating the benefit to be offset by any subparagraph
(ii).
5. In the event you terminate your employment with USAir
at any time prior to age 55 or if USAir terminates your employment
for cause as defined by the employment agreement between you and
USAir in effect at the time of the termination, USAir will not be
obligated to pay any pension benefits under this agreement.
6. If you terminate your employment after age 55 and
accept other employment, no pension benefits shall be payable
hereunder until the first to occur of termination of such
subsequent employment or your reaching age 65.
7. The supplemental benefit payable hereunder shall be
unfunded and shall be paid directly from USAir's general assets,
including any trust or fund created for that purpose. The
supplemental benefit payable hereunder shall be paid in the same
form of payment as your benefit payments are made under the
Retirement Plan.
<PAGE>
8. If you have an accrued vested pension benefit payable
to you upon retirement as a result of employment other than at
USAir, it is understood and agreed that you will furnish USAir with
such information as it may reasonably require concerning these
pension benefits to enable USAir to ascertain the amount of its
obligation under this agreement. It is further understood and
agreed that, for purposes of determining USAir's obligation under
this agreement, any benefits to be offset from such other
employment will be done on the basis that all benefits paid from
all plans are to paid commencing at the same age and in the same
payment form.
9. This letter may be amended or supplemented at the
request of either party hereto to clarify its application with
respect to any future pension plan which USAir may adopt replacing
or supplementing its existing Pension Plans. Any such amendment or
supplement will be prepared on the basis of the intent of the
parties that USAir is seeking to provide you with supplemental
pension benefits as determined in paragraph 3 above.
10. If you concur in the foregoing, please indicate your
agreement by signing a copy of this letter in the space provided
below.
USAIR, INC.
By: /s/Seth E. Schofield
_________________________
Seth E. Schofield
President & Chief
Executive Officer
Agreed:
/s/James T. Lloyd
_____________________________
December 10, 1991
_____________________________ (Date)
<PAGE>
EXHIBIT 10.15(d)
December 6, 1991
Mr. John P. Frestel, Jr.
Senior Vice President-Human Resources
USAir, Inc.
Crystal Park Four
2345 Crystal Drive
Arlington, Virginia 22227
Dear Jack:
This letter, when countersigned by you, will constitute an
agreement between you and USAir, Inc. ("USAir") concerning
supplemental retirement benefits to be paid to you upon your
retirement from USAir. This agreement has been approved by the
Board of Directors at its meeting on November 13, 1991 and
supersedes any prior supplemental pension agreement with you.
USAir hereby agrees with you as follows:
1. In consideration for your past services to USAir and
your future services between the date of this letter and the time
of your retirement, USAir will pay or cause to be paid to you, or
on your account, a supplemental pension benefit in an amount
determined in accordance with paragraph 3 of this letter.
2. For purposes of this agreement, (a) the Retirement Plan
for Certain Employees of USAir, Inc., (b) the Target Benefit Plan
for Certain Employees of USAir, Inc., (c) the USAir, Inc.
Supplementary Retirement Benefit Plan, and (d) any defined
contribution pension plan established by USAir in the future for
the purpose of providing retirement income, will be referred to
collectively as the "Pension Plans" and the Retirement Plan for
Certain Employees of USAir, Inc. when being referenced on its own
will be referred to as the "Retirement Plan."
3. The supplemental pension benefit payable to you
pursuant to this agreement will be the difference of subparagraph
(i) minus subparagraph (ii), where (i) and (ii) are:
(i) the pension benefit calculated under the
benefit formula set forth in the Retirement Plan
using your combined years of service at USAir, The
Atchison, Topeka and Santa Fe Railway Co. and the
Santa Fe Southern Pacific Corp.;
<PAGE>
(ii) all pension benefits payable to you in the
aggregate under the Pension Plans as defined above
and any other pension benefits accruing to you as a
result of other employment prior to reaching age 65
(either prior to your employment with USAir or
subsequent to such employment).
The supplemental pension benefit determined under this paragraph 3
will be payable without regard to the years of service vesting
requirement contained in the Retirement Plan. The supplemental
pension benefit amount determined under this paragraph 3 is the
amount payable for benefit commencement at normal retirement, age
65. In the event that you leave employment with USAir prior to
normal retirement age, you may elect to receive your pension
benefits, including this supplemental benefit, at any time after
attaining age 55. In the event that you elect such an early
commencement of pension benefits, your pension benefits, including
your supplemental benefit, will be reduced in accordance with the
early retirement provisions of the Retirement Plan.
4. For purposes of calculating the supplemental benefits
under paragraph 3 above, the following rules will be applied:
(a) In determining the amount of the pension benefit
calculated under the benefit formula set forth in the
Retirement Plan for purposes of subparagraph (i), it
shall be assumed that the Retirement Plan was not frozen
in 1991.
(b) In determining the amount of the pension benefit
calculated under the benefit formula set forth in the
Retirement Plan for purposes of subparagraph (i), it
shall be assumed that the limitations imposed by Sections
401(a)(17) and 415 of the Internal Revenue Code of 1986,
as amended, are not applicable.
(c) In determining the amount of the pension benefits
payable in the aggregate under the Pension Plans for
purposes of subparagraph (ii), any benefit payable under
a defined contribution plan maintained by USAir shall
only be included to the extent that the benefit is
attributable to contributions made by USAir and any
portion of the benefit payable under such defined
contribution plan attributable to your own contributions
shall be excluded.
(d) In determining the amount of the pension benefits
payable in the aggregate under the Pension Plans for
purposes of subparagraph (ii), any benefit payable under
one of the Pension Plans in the form of a lump sum, shall
be converted to an annuity for purposes of calculating
the benefit to be offset by subparagraph (ii).
<PAGE>
5. In the event USAir terminates your employment for cause
as defined by the employment agreement between you and USAir in
effect at the time of the termination, USAir will not be obligated
to pay any pension benefits under this agreement.
6. If you terminate your employment after age 55, accept
other employment, and elect to commence pension benefits hereunder,
no offset will be made for any pension accruing as a result of such
subsequent employment until you start receiving a pension benefit
from such subsequent employer or until you reach age 65, whichever
occurs first.
7. The supplemental benefit payable hereunder shall be
unfunded and shall be paid directly from USAir's general assets,
including any trust or fund created for that purpose. The
supplemental benefit payable hereunder shall be paid in the same
form of payment as your benefit payments are made under the
Retirement Plan.
8. If you have an accrued vested pension benefit payable
to you upon retirement as a result of employment other than at
USAir, it is understood and agreed that you will furnish USAir with
such information as it may reasonably require concerning these
pension benefits to enable USAir to ascertain the amount of its
obligation under this agreement. It is further understood and
agreed that, for purposes of determining USAir's obligation under
this agreement, any benefits to be offset from such other
employment will be done on the basis that all benefits paid from
all plans are to paid commencing at the same age and in the same
payment form.
9. This letter may be amended or supplemented at the
request of either party hereto to clarify its application with
respect to any future pension plan which USAir may adopt replacing
or supplementing its existing Pension Plans. Any such amendment or
supplement will be prepared on the basis of the intent of the
parties that USAir is seeking to provide you with supplemental
pension benefits as determined in paragraph 3 above.
<PAGE>
10. If you concur in the foregoing, please indicate your
agreement by signing a copy of this letter in the space provided
below.
USAIR, INC.
By: /s/Seth E. Schofield
______________________
Seth E. Schofield
President & Chief
Executive Officer
Agreed:
/s/John P. Frestel, Jr.
_____________________________
December 11, 1991
_____________________________ (Date)
<PAGE>
<TABLE>
USAir Group, Inc.
Exhibit 11
Computation of Primary and Fully Diluted Earnings Per Share
(dollars in thousands, except per share amounts)
<CAPTION>
Years Ended December 31,
-----------------------------------------------------------
1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Adjustments to Net Income (Loss)
Income (loss) before
accounting change $(684,923) $(349,367) $ (600,818) $(305,258) $(454,448)
Preferred dividend requirement (78,036) (73,651) (51,766) (44,306) (33,115)
-------- -------- ---------- -------- --------
Net income (loss) applicable to
common stock before accounting
change (762,959) (423,018) (652,584) (349,564) (487,563)
Accounting change - (43,749) (628,098) - -
------- -------- ---------- -------- --------
Net income (loss) applicable to
common stock and common stock
equivalents used for primary
computation (762,959) (466,767) (1,280,682) (349,564) (487,563)
Fully Diluted Adjustments
Assume conversion of preferred
stock and convertible debentures
Preferred dividend requirement 78,036 73,651 51,766 44,306 33,115
Reduction of interest and debt
issue expense, net - - - - 24
-------- -------- ---------- -------- --------
Adjusted net income (loss)
applicable to common stock
assuming full dilution $(684,923) $(393,116) $(1,228,916) $(305,258) $(454,424)
======== ======== ========== ======== ========
Adjustments to Shares Outstanding
Average number of shares of common
stock 59,915 55,070 47,026 45,864 44,763
Primary Adjustments (1)
Assume exercise of options and
common stock equivalents - - - - -
Total average number of common -------- -------- ---------- -------- --------
and common equivalent shares
used for primary computation 59,915 55,070 47,026 45,864 44,763
======== ======== ========== ======== ========
Average number of shares of common
stock 59,915 55,070 47,026 45,864 44,763
Fully Diluted Adjustments (2)
Assume exercise of options 12 517 - 12 7
Assume conversion of preferred
stock and debentures
Preferred stock 39,156 38,642 17,463 12,928 5,967
Convertible debentures - - - - 11
Total average number of -------- -------- ---------- -------- --------
shares assumed to be
outstanding after full
conversion 99,083 94,229 64,489 58,804 50,748
======== ======== ========== ======== =========
Income (Loss) Per Common Share
Primary (1)
Before accounting change $ (12.73) $ (7.68) $ (13.88) $ (7.62) $ (10.89)
Effect of accounting change - (0.80) (13.35) - -
-------- -------- ---------- -------- --------
Primary income (loss) per
common share $ (12.73) $ (8.48) $ (27.23) $ (7.62) $ (10.89)
======== ======== ========== ======== ========
Fully diluted (2)
Before accounting change $ (6.91) $ (3.71) $ (9.32) $ (5.19) $ (8.95)
Effect of accounting change - (0.46) (9.74) - -
-------- -------- ---------- -------- --------
Fully diluted income (loss)
per common share $ (6.91) $ (4.17) $ (19.06) $ (5.19) $ (8.95)
======== ======== ========== ======== ========
(1) The assumed exercise of options and common stock equivalents which are anti-dilutive are not
included in the computation and presentation of primary earnings per share.
(2) The assumed exercise of options and conversion of preferred stock are anti-dilutive but are
included in accordance with Regulation S-K Item 601(a)(11).
</TABLE>
<PAGE>
EXHIBIT 21
Subsidiaries of USAir Group, Inc.
---------------------------------
USAir, Inc.
Allegheny Airlines, Inc.
Piedmont Airlines, Inc.
Jetstream International Airlines, Inc.
USAir Fuel Corporation
USAir Leasing and Services, Inc.
Material Services Company, Inc.
Subsidiary of USAir, Inc.
-------------------------
USAM Corp.
<PAGE>
EXHIBIT 23.1
Consent of Independent Auditors
The Board of Directors
USAir Group, Inc.:
We consent to the incorporation by reference in the registration
statement Nos. 2-98828, 33-26762, 33-39896, 33-44835, 33-50231, 33-
60618 and 33-60620 on Form S-8 and the Registration Statement No.
33-41821 on Form S-3 of USAir Group, Inc. of our report dated
February 22, 1995, except as to note 4(a) and 4(c) which are as of
April 10, 1995, relating to the consolidated balance sheets of
USAir Group, Inc. and subsidiaries (the Company) as of December 31,
1994 and 1993 and the related consolidated statements of
operations, cash flows and changes in stockholders' equity
(deficit) and the related consolidated financial statement schedule
for each of the years in the three-year period ended December 31,
1994 which appear in the December 31, 1994 annual report on Form
10-K of the Company and USAir, Inc..
Our report dated February 22, 1995, except as to note 4(a) and 4(c)
which are as of April 10, 1995, contains an explanatory paragraph
that states that the Company has suffered recurring losses from
operations and has a net capital deficiency that raise substantial
doubt about its ability to continue as a going concern. The
consolidated financial statements and financial statement schedule
do not include any adjustments that might result from the outcome
of this uncertainty.
Our report also refers to a change in the Company's method of
accounting for postemployemnt benefits effective January 1, 1993
and a change in the method of accounting for postretirement
benefits other than pensions effective January 1, 1992.
/s/KPMG Peat Marwick LLP
Washington, DC
April 12, 1995
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors
The Board of Directors
USAir, Inc.:
We consent to the incorporation by reference in the registration
statement Nos. 33-35509 and 33-50231-01 on Form S-3 of USAir, Inc.,
of our report dated February 22, 1995, except as to note 4(a) and
4(c) which are as of April 10, 1995, relating to the consolidated
balance sheets of USAir, Inc. and subsidiary (the Company) as of
December 31, 1994 and 1993 and the related consolidated statements
of operations, cash flows and changes in stockholder's equity
(deficit) and the related consolidated financial statement schedule
for each of the years in the three-year period ended December 31,
1994 which appear in the December 31, 1994 annual report on Form
10-K of USAir Group, Inc. and the Company.
Our report dated February 22, 1995, except as to note 4(a) and 4(c)
which are as of April 10, 1995, contains an explanatory paragraph
that states that the Company has suffered recurring losses from
operations and has a net capital deficiency that raise substantial
doubt about its ability to continue as a going concern. The
consolidated financial statements and financial statement schedule
do not include any adjustments that might result from the outcome
of this uncertainty.
Our report also refers to a change in the Company's method of
accounting for postemployment benefits effective January 1, 1993
and a change in the method of accounting for postretirement
benefits other than pensions effective January 1, 1992.
/s/KPMG Peat Marwick LLP
Washington, DC
April 12, 1995
<PAGE>
Exhibit 24.1
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Warren E. Buffett,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and John W. Harper, and each
of them (with full power to each of them to act alone), attorney
and agent for me and in my name and on my behalf to sign any Annual
Report on Form 10-K of the Company for the year ended December 31,
1994 and any amendments or supplements thereto which shall be filed
with the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
23rd day of January, 1995.
/s/Warren E. Buffett (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Edwin I. Colodny,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and John W. Harper, and each
of them (with full power to each of them to act alone), attorney
and agent for me and in my name and on my behalf to sign any Annual
Report on Form 10-K of the Company for the year ended December 31,
1994 and any amendments or supplements thereto which shall be filed
with the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
18th day of January, 1995.
/s/Edwin I. Colodny (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Mathias J. DeVito,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and John W. Harper, and each
of them (with full power to each of them to act alone), attorney
and agent for me and in my name and on my behalf to sign any Annual
Report on Form 10-K of the Company for the year ended December 31,
1994 and any amendments or supplements thereto which shall be filed
with the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
23rd day of January, 1995.
/s/Mathias J. DeVito (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, George J. W. Goodman,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and John W. Harper, and each
of them (with full power to each of them to act alone), attorney
and agent for me and in my name and on my behalf to sign any Annual
Report on Form 10-K of the Company for the year ended December 31,
1994 and any amendments or supplements thereto which shall be filed
with the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
14th day of February, 1995.
/s/George J. W. Goodman (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, John W. Harris,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and John W. Harper, and each
of them (with full power to each of them to act alone), attorney
and agent for me and in my name and on my behalf to sign any Annual
Report on Form 10-K of the Company for the year ended December 31,
1994 and any amendments or supplements thereto which shall be filed
with the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
13th day of January, 1995.
/s/John W. Harris (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Edward A. Horrigan,
Jr., Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and John W. Harper, and each
of them (with full power to each of them to act alone), attorney
and agent for me and in my name and on my behalf to sign any Annual
Report on Form 10-K of the Company for the year ended December 31,
1994 and any amendments or supplements thereto which shall be filed
with the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
19th day of January, 1995.
/s/Edward A. Horrigan, Jr. (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Robert LeBuhn,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and John W. Harper, and each
of them (with full power to each of them to act alone), attorney
and agent for me and in my name and on my behalf to sign any Annual
Report on Form 10-K of the Company for the year ended December 31,
1994 and any amendments or supplements thereto which shall be filed
with the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
17th day of January, 1995.
/s/Robert LeBuhn (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Sir Colin Marshall,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and John W. Harper, and each
of them (with full power to each of them to act alone), attorney
and agent for me and in my name and on my behalf to sign any Annual
Report on Form 10-K of the Company for the year ended December 31,
1994 and any amendments or supplements thereto which shall be filed
with the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
25th day of January, 1995.
/s/Colin Marshall (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Roger P. Maynard,
Jr., Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and John W. Harper, and each
of them (with full power to each of them to act alone), attorney
and agent for me and in my name and on my behalf to sign any Annual
Report on Form 10-K of the Company for the year ended December 31,
1994 and any amendments or supplements thereto which shall be filed
with the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
31st day of January, 1995.
/s/Roger P. Maynard (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, John G. Medlin, Jr.,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and John W. Harper, and each
of them (with full power to each of them to act alone), attorney
and agent for me and in my name and on my behalf to sign any Annual
Report on Form 10-K of the Company for the year ended December 31,
1994 and any amendments or supplements thereto which shall be filed
with the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
17th day of January, 1995.
/s/John G. Medlin, Jr. (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Hanne M. Merriman,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and John W. Harper, and each
of them (with full power to each of them to act alone), attorney
and agent for me and in my name and on my behalf to sign any Annual
Report on Form 10-K of the Company for the year ended December 31,
1994 and any amendments or supplements thereto which shall be filed
with the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
26th day of January, 1995.
/s/Hanne M. Merriman (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Charles T. Munger,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and John W. Harper, and each
of them (with full power to each of them to act alone), attorney
and agent for me and in my name and on my behalf to sign any Annual
Report on Form 10-K of the Company for the year ended December 31,
1994 and any amendments or supplements thereto which shall be filed
with the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
19th day of January, 1995.
/s/Charles T. Munger (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Frank L. Salizzoni,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and John W. Harper, and each
of them (with full power to each of them to act alone), attorney
and agent for me and in my name and on my behalf to sign any Annual
Report on Form 10-K of the Company for the year ended December 31,
1994 and any amendments or supplements thereto which shall be filed
with the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
23rd day of January, 1995.
/s/Frank L. Salizzoni (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Raymond W. Smith,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and John W. Harper, and each
of them (with full power to each of them to act alone), attorney
and agent for me and in my name and on my behalf to sign any Annual
Report on Form 10-K of the Company for the year ended December 31,
1994 and any amendments or supplements thereto which shall be filed
with the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
23rd day of January, 1995.
/s/R. W. Smith (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Derek M. Stevens,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint James T. Lloyd and John W. Harper, and each
of them (with full power to each of them to act alone), attorney
and agent for me and in my name and on my behalf to sign any Annual
Report on Form 10-K of the Company for the year ended December 31,
1994 and any amendments or supplements thereto which shall be filed
with the Securities and Exchange Commission under the Securities
and Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
23rd day of January, 1995.
/s/Derek M. Stevens (L.S.)
-----------------------------------
<PAGE>
Exhibit 24.2
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Warren E. Buffett,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and John W. Harper, and each of them (with
full power to each of them to act alone), attorney and agent for me
and in my name and on my behalf to sign any Annual Report on Form
10-K of the Company for the year ended December 31, 1994 and any
amendments or supplements thereto which shall be filed with the
Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
23rd day of January, 1995.
/s/Warren E. Buffett (L.S.)
--------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Edwin I. Colodny,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and John W. Harper, and each of them (with
full power to each of them to act alone), attorney and agent for me
and in my name and on my behalf to sign any Annual Report on Form
10-K of the Company for the year ended December 31, 1994 and any
amendments or supplements thereto which shall be filed with the
Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
18th day of January, 1995.
/s/Edwin I. Colodny (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Mathias J. DeVito,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and John W. Harper, and each of them (with
full power to each of them to act alone), attorney and agent for me
and in my name and on my behalf to sign any Annual Report on Form
10-K of the Company for the year ended December 31, 1994 and any
amendments or supplements thereto which shall be filed with the
Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
23rd day of January, 1995.
/s/Mathias J. DeVito (L.S.)
----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, George J. W. Goodman,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and John W. Harper, and each of them (with
full power to each of them to act alone), attorney and agent for me
and in my name and on my behalf to sign any Annual Report on Form
10-K of the Company for the year ended December 31, 1994 and any
amendments or supplements thereto which shall be filed with the
Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
14th day of February, 1995.
/s/George J. W. Goodman (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, John W. Harris,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and John W. Harper, and each of them (with
full power to each of them to act alone), attorney and agent for me
and in my name and on my behalf to sign any Annual Report on Form
10-K of the Company for the year ended December 31, 1994 and any
amendments or supplements thereto which shall be filed with the
Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
13th day of January, 1995.
/s/John W. Harris (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Edward A. Horrigan,
Jr., Director of USAir, Inc., (the "Company"), do hereby constitute
and appoint James T. Lloyd and John W. Harper, and each of them
(with full power to each of them to act alone), attorney and agent
for me and in my name and on my behalf to sign any Annual Report on
Form 10-K of the Company for the year ended December 31, 1994 and
any amendments or supplements thereto which shall be filed with the
Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
19th day of January, 1995.
/s/Edward A. Horrigan Jr. (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Robert LeBuhn,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and John W. Harper, and each of them (with
full power to each of them to act alone), attorney and agent for me
and in my name and on my behalf to sign any Annual Report on Form
10-K of the Company for the year ended December 31, 1994 and any
amendments or supplements thereto which shall be filed with the
Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
12th day of January, 1995.
/s/Robert LeBuhn (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Sir Colin Marshall,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and John W. Harper, and each of them (with
full power to each of them to act alone), attorney and agent for me
and in my name and on my behalf to sign any Annual Report on Form
10-K of the Company for the year ended December 31, 1994 and any
amendments or supplements thereto which shall be filed with the
Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
25th day of January, 1995.
/s/Colin Marshall (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Roger P. Maynard,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and John W. Harper, and each of them (with
full power to each of them to act alone), attorney and agent for me
and in my name and on my behalf to sign any Annual Report on Form
10-K of the Company for the year ended December 31, 1994 and any
amendments or supplements thereto which shall be filed with the
Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
31st day of January, 1995.
/s/Roger P. Maynard (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, John G. Medlin, Jr.,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and John W. Harper, and each of them (with
full power to each of them to act alone), attorney and agent for me
and in my name and on my behalf to sign any Annual Report on Form
10-K of the Company for the year ended December 31, 1994 and any
amendments or supplements thereto which shall be filed with the
Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
17th day of January, 1995.
/s/John G. Medlin, Jr. (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Hanne M. Merriman,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and John W. Harper, and each of them (with
full power to each of them to act alone), attorney and agent for me
and in my name and on my behalf to sign any Annual Report on Form
10-K of the Company for the year ended December 31, 1994 and any
amendments or supplements thereto which shall be filed with the
Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
26th day of January, 1995.
/s/Hanne M. Merriman (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Charles T. Munger,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and John W. Harper, and each of them (with
full power to each of them to act alone), attorney and agent for me
and in my name and on my behalf to sign any Annual Report on Form
10-K of the Company for the year ended December 31, 1994 and any
amendments or supplements thereto which shall be filed with the
Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
19th day of January, 1995.
/s/Charles T. Munger (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Frank L. Salizzoni,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and John W. Harper, and each of them (with
full power to each of them to act alone), attorney and agent for me
and in my name and on my behalf to sign any Annual Report on Form
10-K of the Company for the year ended December 31, 1994 and any
amendments or supplements thereto which shall be filed with the
Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
23rd day of January, 1995.
/s/Frank L. Salizzoni (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Raymond W. Smith,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and John W. Harper, and each of them (with
full power to each of them to act alone), attorney and agent for me
and in my name and on my behalf to sign any Annual Report on Form
10-K of the Company for the year ended December 31, 1994 and any
amendments or supplements thereto which shall be filed with the
Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
23rd day of January, 1995.
/s/R. W. Smith (L.S.)
-----------------------------------
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, THAT I, Derek M. Stevens,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint James T. Lloyd and John W. Harper, and each of them (with
full power to each of them to act alone), attorney and agent for me
and in my name and on my behalf to sign any Annual Report on Form
10-K of the Company for the year ended December 31, 1994 and any
amendments or supplements thereto which shall be filed with the
Securities and Exchange Commission under the Securities and
Exchange Act of 1934, as amended.
I hereby give and grant to said attorneys and agents, and each
of them, full power and authority generally to do and perform all
acts and things necessary to be done in the premises as fully and
effectually in all respects as I could do if personally present;
and I hereby ratify and confirm all that said attorneys and agents,
and each of them, shall do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, I have hereunto set my hand and seal this
23rd day of January, 1995.
/s/Derek M. Stevens (L.S.)
-----------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000701345
<NAME> USAir Group, Inc.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-END> DEC-31-1994 SEP-30-1994
<CASH> 429,538 485,572
<SECURITIES> 22,133 0
<RECEIVABLES> 324,539<F1> 492,234<F1>
<ALLOWANCES> 0<F1> 0<F1>
<INVENTORY> 258,664 329,343
<CURRENT-ASSETS> 1,116,516 1,416,003
<PP&E> 6,417,327 6,352,894
<DEPRECIATION> 2,085,499 2,026,103
<TOTAL-ASSETS> 6,808,042 7,086,221
<CURRENT-LIABILITIES> 2,260,053 2,445,836
<BONDS> 2,895,378 2,772,945
<COMMON> 61,088 61,076
758,719 758,719
213,153 213,153
<OTHER-SE> (1,171,144) (889,212)
<TOTAL-LIABILITY-AND-EQUITY> 6,808,042 7,086,221
<SALES> 0 0
<TOTAL-REVENUES> 6,997,194 5,316,225
<CGS> 0 0
<TOTAL-COSTS> 7,488,550 5,537,381
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 284,034 210,020
<INCOME-PRETAX> (684,923) (362,905)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (684,923) (362,905)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (684,923) (362,905)
<EPS-PRIMARY> (12.73) (7.06)
<EPS-DILUTED> 0<F2> 0<F2>
<FN>
<F1>Receivables are presented net of allowances.
<F2>Fully diluted EPS are anti-dilutive and therefore not presented.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0000714560
<NAME> USAir, Inc.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1994
<PERIOD-END> DEC-31-1994 SEP-30-1994
<CASH> 428,925 484,517
<SECURITIES> 22,133 0
<RECEIVABLES> 326,012<F1> 536,180<F1>
<ALLOWANCES> 0<F1> 0<F1>
<INVENTORY> 238,481 312,148
<CURRENT-ASSETS> 1,092,662 1,435,889
<PP&E> 6,150,806 6,088,411
<DEPRECIATION> 2,006,041 1,950,071
<TOTAL-ASSETS> 6,675,960 6,998,379
<CURRENT-LIABILITIES> 2,317,860 2,429,277
<BONDS> 2,849,488 2,830,232
<COMMON> 1 1
0 0
0 0
<OTHER-SE> (273,186) 23,404
<TOTAL-LIABILITY-AND-EQUITY> 6,675,960 6,998,379
<SALES> 0 0
<TOTAL-REVENUES> 6,578,593 4,994,412
<CGS> 0 0
<TOTAL-COSTS> 7,095,565 5,233,835
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 285,846 209,763
<INCOME-PRETAX> (716,183) (384,646)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (716,183) (384,646)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (716,183) (384,646)
<EPS-PRIMARY> 0<F2> 0<F2>
<EPS-DILUTED> 0<F2> 0<F2>
<FN>
<F1>Receivables are presented net of allowances.
<F2>EPS calculations are not relevant because USAir, Inc. is a wholly owned
subsidiary of USAir Group, Inc.
</FN>
</TABLE>
