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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, 1995
_________________________
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 Con-
vertible Preferred
Stock
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 29, 1996 was approximately
$1,667,450,000. On February 29, 1996, there were outstanding
approximately 63,460,000 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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Item Document Incorporated
of Form 10-K: By Reference
- ----------------------- ----------------------------------
Part III, Items 10, 11,
12 and 13 Proxy Statement* (excluding there-
from the subsections entitled "Re-
port of the Compensation and Bene-
fits Committee of the Board of Di-
rectors" and "Performance Graph")
- -------------------------------
Refers to the definitive Proxy Statement of USAir Group, Inc.,
to be filed pursuant to Regulation 14A, relating to the Annual
Meeting of Stockholders of USAir Group, Inc. to be held on
May 22, 1996.
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USAir Group, Inc.
and
USAir, Inc.
Form 10-K
Year Ended December 31, 1995
TABLE OF CONTENTS
Part I Page
Item 1. Business 1
Strategy 2
Capacity and Route Rationalization 3
Enhanced Customer Service, Performance and Reliability 4
Cost Reductions 5
General Industry Conditions 7
Significant Impact of Low Cost, Low Fare Competition 8
Industry Restructuring and Cost-Cutting 9
Deferral of Dividends by USAir Group 11
Likelihood of No Future Investments by British Airways 12
Executive Officers 13
Employees 15
Historical Cost Reduction Programs 17
ALPA Contract: Effects of a Change of Control of USAir
Group or USAir 19
Unionizing Efforts 20
Status of USAir's Labor Agreements 21
Frequent Traveler Program 21
Computerized Reservation Systems 22
Maintenance Marketing Joint Venture with BA 22
Jet Fuel 22
Insurance 23
Industry Regulation and Airport Access 24
British Airways Investment Agreement 26
Terms of the Series F Preferred Stock 26
DOT Order Regarding BA's Investment in USAir Group 27
Board Representation 28
U.S.-U.K. Routes 28
Code Sharing 29
Provisions Regarding Additional BA Investments; BA
Announcement Regarding No Additional Investment
in USAir Group 30
Terms of the Series C Preferred Stock and Series E
Preferred Stock 31
Terms of BA Common Stock 31
Certain Governance Matters 32
Miscellaneous 34
Operating Statistics 35
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TABLE OF CONTENTS
(Continued)
Part I (continued) Page
Item 2. Properties 36
Flight Equipment 36
Ground Facilities 38
Terminal Construction Projects 38
Item 3. Legal Proceedings 40
Item 4. Submission of Matters to a Vote
of Security Holders 44
Part II
Item 5A. Market for USAir Group's Common Equity
and Related Stockholder Matters 45
Item 5B. Market for USAir's Common Equity and
Related Stockholder Matters 46
Item 6. Selected Financial Data 47
Item 7. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 49
Item 8A. Financial Statements and Supplementary
Information - USAir Group, Inc. 76
Item 8B. Financial Statements and Supplementary
Information - USAir, Inc. 125
Item 9. Changes In and Disagreements with
Accountants on Accounting and
Financial Disclosure 162
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TABLE OF CONTENTS
(Continued)
Part III Page
Item 10. Directors and Executive Officers of
USAir Group, Inc. 162
Item 11. Executive Compensation 162
Item 12. Security Ownership of Certain Beneficial
Owners and Management 162
Item 13. Certain Relationships and Related
Transactions 162
Part IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K 163
Financial Statements - USAir Group, Inc. 163
Financial Statements - USAir, Inc. 163
Financial Statement Schedules 163
Reports on Form 8-K 164
Exhibits 164
Signatures
USAir Group, Inc. 170
USAir, Inc. 173
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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. (formerly
Pennsylvania Commuter Airlines, Inc.) ("Allegheny"), Piedmont
Airlines, Inc. ("Piedmont") (formerly Henson Aviation, Inc.), PSA
Airlines, Inc. ("PSA") (formerly Jetstream International Airlines,
Inc.), 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.
USAir, a certificated air carrier engaged primarily in the
business of transporting passengers, property and mail, is the
Company's principal operating subsidiary, and accounted for
approximately 93% of USAir Group's operating revenues for the
fiscal year ended December 31, 1995. USAir enplaned more than 57
million passengers in 1995 and is the fifth largest United States
air carrier ranked by revenue passenger miles ("RPMs") flown. As
of December 31, 1995, USAir provided regularly scheduled jet
service through 108 airports to approximately 143 cities in the
continental United States, Canada, Mexico, France, Germany, and the
Caribbean. 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 are flown within or to and from the eastern United
States. USAir also maintains significant operations at major
airports in the large east coast population centers of Boston, New
York City (LaGuardia Airport ("LaGuardia") and Washington, D.C.
National Airport ("Washington National"). When measured by
departures, USAir is the largest or second largest airline at each
of the foregoing airports and is the predominant air carrier in
many smaller eastern cities, such as Albany, Buffalo, Hartford,
Providence, Richmond, Rochester and Syracuse. In addition, USAir
is the leading airline from the Northeast to Florida. For fiscal
year 1995, approximately 36% of all scheduled flights on the east
coast of the United States were USAir flights. Approximately 64%
of USAir's flights and 44% of its available seat miles ("ASMs") are
represented by intra-east coast flying.
USAir has an important international alliance with British
Airways plc ("BA"), a major investor in USAir Group. As of
December 31, 1995, the two air carriers had implemented code
sharing from 70 of the 138 airports currently authorized by the
United States Department of Transportation ("DOT"). The USAir/BA
alliance also extends to the sharing of ground services at certain
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airports and joint cooperation in areas such as product branding,
cargo services, jet fuel purchasing, frequent traveler programs and
maintenance services.
USAir also code shares with eleven regional airline affiliates
operating under the "USAir Express" trade name. USAir Group owns
three of the USAir Express carriers-Piedmont, Allegheny, and PSA.
Through its service agreements, USAir provides reservations and, at
certain stations, ground support services, in return for service
fees. The USAir Express network feeds traffic into USAir's route
system at several points, including its major hub operations at
Pittsburgh, Charlotte, Philadelphia and BWI. At December 31, 1995,
USAir Express carriers served 176 airports in the United States,
Canada and the Bahamas, including 76 also served by USAir. During
1995, USAir Express' combined operations enplaned approximately 9.6
million passengers, over half of whom connected to USAir flights.
USAir also has a management agreement and code shares with Shuttle,
Inc. operating under the name "USAir Shuttle." The USAir Shuttle
operates frequent service between LaGuardia and Boston and between
LaGuardia and Washington National.
In January 1996, Stephen M. Wolf was appointed Chairman and
Chief Executive Officer of USAir and of USAir Group. Mr. Wolf
succeeds Seth E. Schofield, who retired after 38 years with USAir.
Mr. Wolf has been a senior executive at United Airlines, Inc.
("United"), The Flying Tiger Line Inc. ("Flying Tigers"), Republic
Airlines, Inc., Continental Airlines, Inc. ("Continental"), Pan
American World Airways and American Airlines, Inc. ("American"). In
addition, in February 1996, USAir announced the executive
appointments of Rakesh Gangwal as President and Chief Operating
Officer of USAir and USAir Group and Lawrence M. Nagin as Executive
Vice President - Corporate Affairs and General Counsel of USAir and
USAir Group. Mr. Gangwal has been a senior officer at Air France
and United and Mr. Nagin has held senior positions at United and
Flying Tigers.
Strategy
USAir Group recorded net income of $119.3 million in 1995, its
first profitable year since 1988. From 1989 through 1994, USAir
Group incurred substantial losses. Its results of operations have
been adversely affected by, among other factors, the growth of low
cost, low fare competition, particularly in 1994, and its unit
costs, which are among the highest of United States air carriers.
USAir Group is striving to improve its profitability and respond to
the competitive environment that characterizes the United States
airline industry by:
- Rationalizing the level and geographic distribution of
USAir's capacity;
- Improving USAir's product and delivery; and
- Reducing capital requirements and operating costs.
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Capacity and Route Rationalization
Beginning in the spring of 1995, USAir instituted a signifi-
cant rationalization of its capacity and routes with the goal of
reducing less profitable non-hub (point-to-point) flying, emphasiz-
ing the quality of departures versus the quantity of flights,
reducing excess capacity in strong markets and replacing low demand
jet service with modern turboprop aircraft operated by USAir
Express. The effect of USAir's rightsizing plan has been a reduc-
tion in the number of USAir's departures and its capacity. In the
second half of 1995, departures decreased by 17% and capacity (as
measured by ASMs) decreased 10.8% compared to the second half of
1994. Although USAir's traffic also declined as a result of this
plan, USAir was successful in retaining a significant portion of
the revenue and traffic from eliminated flights. In the second
half of 1995, USAir achieved a record load factor of 66.2%. For the
full year 1995, USAir's load factor also set a record at 64.7%. For
fiscal year 1995, USAir's departures, capacity and traffic were
down by 10%, 4.7% and 0.9%, respectively. In addition, by
December 31, 1995, USAir non-hub flying represented less than 10%
of its total flying, compared to approximately 18% at December 31,
1994.
USAir has been seeking to broaden its route portfolio by
leveraging its strong east coast franchise into expanded transcon-
tinental and international service from the eastern United States.
By diversifying its route structure in this way, USAir can enhance
its long-haul service and increase its average length of haul.
Increasing its average length of haul will enable USAir to increase
the average value of tickets sold and reduce the unit cost of
serving each passenger. In 1995, USAir's average length of haul
increased 4.1% to 664 miles from 638 miles in 1994. Domestically,
USAir has added more flights to the west coast from its hubs. In
1995, USAir retired, sold, returned or otherwise disposed of 37
operating aircraft while adding seven Boeing 757-200s - an aircraft
more suitable for transcontinental operations. At December 31,
1995, USAir operated 34 Boeing 757-200 aircraft and had orders for
eight additional 757-200 aircraft to be delivered in 1998.
Internationally, USAir has expanded service to the Caribbean
and has re-aligned its international routes in an effort to further
develop Philadelphia and Boston as transatlantic gateways. In this
regard, the DOT recently granted USAir a two-year exemption
authority to operate to Madrid, Spain from both Philadelphia and
Boston. USAir intends to begin service to Madrid from Philadelphia
on June 15, 1996. In addition, USAir recently re-aligned its
Frankfurt service. It increased the number of weekly flights from
the East Coast from 14 to 21 in June 1995 for the summer season and
introduced non-stop service from Philadelphia and Boston. In
February 1996, USAir received final approval from the DOT to serve
Munich, Germany from Philadelphia. USAir will inaugurate its
service to Munich on May 23, 1996. The number of weekly USAir
flights to Germany will increase to 28 by mid-1996. In February
1996, the DOT issued a show cause order granting USAir authority to
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institute service to Rome, Italy from Philadelphia with through
service from Los Angeles. Pending final approval, USAir intends to
inaugurate its service to Rome on June 1, 1996. USAir estimates
that its transatlantic capacity in 1996 (as measured by ASMs) will
increase by approximately 54% compared to 1995. USAir believes
that the further development of international service from
Philadelphia and Boston will enable it to achieve a competitive
advantage by leveraging USAir's existing domestic network with the
strong local transatlantic demand and the favorable geographic
position of these cities.
USAir has begun to phase out the "wet lease" arrangements with
BA. One of the three wet leased Boeing 767-200ER aircraft was
returned to USAir in December 1995 and a second was returned in
February 1996. The remaining aircraft will be returned to USAir in
May 1996. Under the wet lease arrangements, USAir leased three
Boeing 767-200ER aircraft, along with cockpit and cabin crews, to
BA in order to serve three routes between the U.S. and London. Upon
termination of the wet lease arrangements, USAir plans to utilize
the returned aircraft as part of USAir's planned expansion of
international service, as discussed above. BA did not exercise its
right on January 21, 1996 to purchase additional preferred stock in
USAir Group, as discussed below in "British Airways Investment
Agreement Provisions Regarding Additional BA Investments, BA
Announcements Regarding No Additional Investment in USAir Group."
USAir's reduction in jet aircraft and its continuing efforts
to reduce costs and enhance revenue by eliminating less profitable
routes have resulted in the cessation of or reduction in jet flying
between certain city pairs. In some cases, existing or former jet
routes have been turned over to USAir Express with the goal of
maintaining portions of the revenue base (particularly the hub
connecting traffic) with lower cost operations.
In 1992, USAir reached an agreement with the creditors of the
Trump Shuttle to manage and operate the Trump 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 with an exclusive right to
do so until April 10, 1997. USAir believes that the USAir Shuttle
fosters traveler loyalty towards USAir because of the USAir
Shuttle's participation in USAir's Frequent Traveler Program
("FTP").
Enhanced Customer Service, Performance and Reliability
USAir has undertaken a number of initiatives to build brand
loyalty among its customers with the goal of maintaining and
enhancing its traditional unit revenue premiums over its competi-
tors. USAir also hopes to increase its market share of business
travelers and long-haul customers. The initiatives include:
Focus on Business Traveler - USAir is expanding the first-
class cabins on long-range Boeing 737-Series and 757-200 aircraft,
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expanding "business centers" in certain airports, upgrading
certain USAir Club facilities and replacing USAir's on-board phone
system to improve service. USAir also improved business passenger
accessibility to the First Class cabin through expansion of a
program which lets a passenger sit in First Class for the price of
a full fare coach ticket. This product is now in most transconti-
nental markets that USAir serves. USAir also believes that the
introduction of its personal travel software, "Priority Travel-
Works", will appeal to many high-volume business travelers by
providing users with more information and greater control over
their travel arrangements.
Technology and New Facilities - In addition to "Priority
TravelWorks," USAir is investing in technology to positively affect
its marketing, operational performance and customer services. USAir
plans to commence "ticketless travel" (i.e., electronic ticketing)
in 1996 in order to cut distribution costs and increase travelers'
convenience. In addition, USAir is exploring self-ticketing
machines which, if expanded from the test phase, could further
reduce distribution costs and save time for USAir's customers.
USAir has also implemented a new inventory management system that
allows it to better allocate seats within fare levels to maximize
revenues. USAir has created a state-of-the-art operations control
center in Pittsburgh. The center improves operational decision-
making by more closely coordinating all flight-related functions
such as dispatching, aircraft routing, maintenance and technical
support, crew scheduling and passenger services.
Improved Service Levels - USAir has improved both its
operational performance and attention to customer services. In
1994, USAir ranked ninth in on-time performance among the ten major
United States airlines. USAir improved its on-time performance to
place among the top three airlines in each of the first three
quarters of 1995. USAir is also implementing customer service
enhancements in its international operations and is investing in
the training and development of its customer service employees
through a "Core Curriculum Training Program."
Safety - USAir recently implemented several additional safety
initiatives. In November 1994, USAir created a new position of
Vice President-Corporate Safety and Regulatory Compliance. In
1995, USAir established a committee of its board of directors, the
Safety Committee, which has oversight of all corporate safety
matters. In addition, USAir retained an aviation consulting firm,
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 was being operated safely in compliance with
Federal Aviation Administration ("FAA") regulations.
Cost Reductions
Although USAir has recently demonstrated significantly
improved financial performance, USAir believes that it must
continue to lower its costs (including personnel costs) in order to
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compete effectively in a low fare environment.
Operating Costs - USAir, whose operating costs are the highest
among the major U.S. airlines, is actively pursuing several
initiatives in an effort to reduce these costs significantly. USAir
is working to achieve or has already achieved substantial cost
savings through a combination of organizational and structural
changes, reengineering and other initiatives including: centraliza-
tion of its purchasing functions; realignment of customer services;
improvements in operations performance to increase crew productivi-
ty; outsourcing of cargo and communications; and reengineering of
its maintenance operations, finance, reservations, purchasing,
accounts payable, payroll and human resources functions.
USAir has also taken other cost-cutting actions. In October
1995, USAir closed its Reno, Nevada reservations office as part of
its long-term strategy to reduce costs and improve productivity.
The closing affected approximately 260 employees. USAir believes
that the reservations office in San Diego is adequate to handle
west coast customers as well as overflow calls from the East during
irregular operations. USAir reduced the number of daily departures
at Newark International Airport from 51 as of December 31, 1994 to
14 by December 1995. The changes have resulted in lower staffing
levels in customer service and maintenance.
In February 1995, USAir and several other major U.S. carriers,
including Delta Airlines, Inc. ("Delta"), American, Northwest
Airlines, Inc. ("Northwest") and United, imposed limits on the base
commissions they pay travel agents for domestic air fares. See
"Industry Restructuring and Cost-Cutting." The new limits on
commissions are designed to reduce one of the airlines' largest
expenses. USAir has experienced cost savings due to the new
commission limits.
In March 1994, in an attempt to reduce its annual labor
personnel costs by approximately $500 million through concession
agreements involving wage and benefit reductions, improved
productivity and other cost savings, USAir Group began negotiating
with the unions that represent certain of USAir's employees.
USAir's wages and benefits are the largest single component of its
operating costs (approximately 41% for 1995). In late July 1995,
USAir Group announced that it was ending discussions with the
unions on a wage concession and restructuring package and that it
would concentrate on reducing USAir's labor costs through tradi-
tional collective bargaining. See "Employees" USAir remains
committed to obtaining labor cost reductions.
Aircraft Commitments - In an attempt to reduce aircraft
ownership costs, facilitate its capacity rationalization plan and
reduce its fleet size and number of fleet types, USAir has deferred
certain new aircraft deliveries, pursued the sale or lease of
certain jet aircraft and declined to renew leases for certain other
aircraft upon lease expiry. In 1995, USAir sold, leased, retired
or disposed of 37 operating aircraft (including the sale of
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thirteen Boeing 737-300 aircraft) and eliminated all Boeing 727-
200s from its operating fleet. USAir recorded a small financial
statement gain from the sales of the above-described 737-300
aircraft to leasing companies. USAir intends to retire or return
to the lessors additional Fokker F28-4000s and Douglas DC-9-30s in
1996 and 1997.
USAir's fleet rationalization plan has complemented its goals
to reduce commitments for new jet aircraft. USAir has no current
plans to add new aircraft to its fleet until January 1998. In May
1994, USAir reached an agreement with The Boeing Company ("Boe-
ing"), to reschedule the delivery of 40 737-Series aircraft from
the 1997 through 2000 time period to the years 2003 through 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 through 2000 time period. In June 1995, USAir
reached agreements with Boeing and Rolls Royce plc ("Rolls Royce")
to reschedule the delivery dates for eight 757-200 aircraft from
1996 to 1998. As a result, USAir's capital commitments have been
substantially reduced for the 1996 to 2000 time period. In
addition, with application of the proceeds from the sale of
Enhanced Equipment Notes in early 1996 (See Item 7. "Management's
Discussion and Analysis of Financial Condition and Results of
Operations"), USAir has committed financing for a substantial
portion of the purchase price for each of the scheduled 1998
deliveries.
In May 1991, USAir ceased operating its fleet of British
Aerospace BAe-146 ("BAe-146") aircraft and USAir has not resumed
operation of these aircraft. USAir owns one and leases 17 BAe-146
aircraft. Recently, USAir has increased its efforts to remarket
the BAe-146 aircraft. USAir has subleased one BAe-146 aircraft to
a European airline and has entered into sublease agreements with
domestic and foreign airlines for four BAe-146s to be delivered in
the first and second quarters of 1996. USAir also has preliminary
agreements to sublease five additional BAe-146s to a European
airline. USAir has continued to pay rent, insure (or cause to be
insured) the aircraft and perform its other obligations under the
BAe-146 leases, except that, for those BAe-146s that remain in
storage, USAir has not performed mandatory airworthiness directives
on some of those aircraft as required by such leases. The stored
BAe-146s are being preserved in accordance with FAA-approved
procedures and manufacturer guidelines. In the fourth quarter of
1994, USAir recorded a non-recurring charge of approximately $132.8
million for the BAe-146 aircraft. As a result of USAir's ability
to sublease some of the grounded aircraft, USAir reversed $4.1
million of the 1994 charge of $132.8 million for BAe-146s during
the fourth quarter of 1995. USAir may make additional reversals if
it sells or leases additional BAe-146 aircraft.
General Industry Conditions
Demand for air transportation historically has tended to
mirror general economic conditions. During the most recent economic
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recession in the United States, the change in industry capacity
failed to mirror the reduction in demand for domestic air transpor-
tation 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, USAir expects that the airline industry will
remain extremely competitive for the foreseeable future, primarily
due to the dramatic change which has occurred in industry pricing
and which has resulted in generally lower fares. See "Significant
Impact of Low Cost, Low Fare Competition."
In 1995, the U.S. airline industry had its best year since the
recession began in July 1990, with several airlines posting
profits, although many of the major carriers continue to be
burdened with large amounts of debt. Unlike the results of some of
its competitors, USAir's results did not improve in 1994. USAir
experienced a pre-tax loss of $716.2 million in 1994. The entire
airline industry experienced further improved results in 1995.
USAir's results improved in 1995 as well. Nonetheless, USAir
believes that for the foreseeable future, while the demand for
higher yield "business fares" will remain essentially flat and
relatively inelastic, the lower yield "leisure" market, which is
affected by the general economy, will remain highly price sensi-
tive. This trend will make it more difficult for the domestic
airlines, including USAir, to sustain meaningful yield increases in
the long run. Therefore, USAir believes it must reduce its cost
structure substantially in order to ensure its long-term financial
stability.
Significant Impact of Low Cost, Low Fare Competition
Most of USAir's operations are in competitive markets. USAir
experiences competition of 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 competition exists in the airline industry,
and competitors have frequently offered sharply reduced discount
fares in many of these markets. Airlines, including USAir, 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 discount or
promotional fares in certain markets in order to compete vigorously
in those discounted markets.
The dramatic expansion of low fare competitive service in many
of USAir's markets in the eastern United States 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 large losses in 1994. In particu-
lar, Continental Airlines, Inc. ("Continental") created a high
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frequency, low fare product called "Continental Lite." By late
1994, USAir competed with Continental in primary and secondary
markets from which USAir then generated 46% of its passenger
revenue with fare reductions of up to 70% in certain markets. As
discussed below, in 1995 the airline industry did not generally
experience the deep level of fare discounting prevalent during the
last several years. Continental abandoned its Continental Lite
strategy in 1995 and fare levels have somewhat recovered.
Nonetheless, USAir does not believe that there has been a reduction
in the public demand for generally lower air fares. The growth of
the operations of low cost, low fare carriers in USAir's markets in
domestic markets represents an intense competitive challenge for
USAir, which has higher operating costs and fewer financial
resources than many of its competitors. For example, the expansion
of Southwest Airlines, Inc. ("Southwest") into BWI, and in early
1996, Florida, and the growth of ValuJet Airlines, Inc. ("ValuJet")
at Washington, Dulles and other eastern markets (including
ValuJet's recent expansion into the Pittsburgh and Charlotte
markets) pose a competitive challenge for USAir. USAir currently
has low cost, low fare competition affecting over 45% of its
traffic base. Southwest and ValuJet both have a significant cost
advantage over USAir. USAir believes that it must reduce its
operating costs substantially if it is to ensure its long-term
financial stability and that low-cost incursions into markets
served by USAir could have a material and adverse affect on USAir's
financial condition and results of operations.
In addition, other low cost carriers may enter other USAir
markets. For example, America West Airlines, Inc. 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's low cost, low fare operation in the
western United States discussed below. Delta is negotiating for
concessions from its organized labor groups and has reportedly
reached a tentative agreement with its pilots union that would
enable Delta to start a low cost, short-haul service perhaps as
early as spring 1996 to compete with airlines such as Southwest and
ValuJet. It is possible that this service might be introduced in
markets that USAir serves, which may result in greater competition
and lower fares in those markets. USAir has stated that it will be
competitive on routes that are important to USAir and has under-
scored the necessity of cutting costs to remain competitive with
insurgents on these routes.
Industry Restructuring and Cost-Cutting
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. United initiated its low cost, low fare operation in
the western U.S. in October 1994. Delta is currently in discus
9
<PAGE>
sions with certain of its employees regarding concessions and has
announced progress in these talks. Delta has also recently turned
over several of its former routes to Delta Connection code-share
carriers that have lower cost structures. American announced a
restructuring of its non-union workforce and is still seeking
substantial concessions and productivity gains from its pilot
group. Trans World Airlines, Inc. ("TWA") has negotiated produc-
tivity improvements with its unionized employees and has recently
emerged from bankruptcy for the second time in less than two years
pursuant to a "pre-packaged" reorganization plan approved by a
bankruptcy court which reduces the carrier's debt by approximately
30%. Continental has reduced capacity and returned non-productive
aircraft to lessors. In early 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. These
actions by certain of USAir's competitors 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 "Strategy" and "Capacity and Route Rational-
ization" above for a discussion of USAir's cost reduction initia-
tives.
There are recent examples of companies in the airline industry
which have obtained employee concessions in agreements that
provided for 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 the recapitalization noted above 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 1995, various carriers, including USAir, implemented
cutbacks in service in the eastern U.S. The "intra-east coast"
area represents approximately 64% of USAir's departures and
approximately 44% of its ASMs. USAir has implemented a plan to cut
capacity throughout its system and to emphasize the strength of its
hubs in Pittsburgh, Charlotte, Philadelphia and Baltimore, as well
as other major east coast urban centers. See "Strategy" and
"Capacity and Route Rationalization" above. The major carriers
decreased service in the East by approximately 9.8% year-over-year.
However, several smaller carriers increased the number of depar-
tures in this region during the same time period or have announced
plans to introduce or increase service in this region. The net
result was a decrease in jet capacity in the intra-east coast
region of approximately 3.5% for the full year 1995 from 1994
levels.
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The trend toward globalization of the airline industry has
accelerated in recent years as certain U.S. carriers, including
USAir, have formed marketing and strategic alliances with foreign
carriers. Certain foreign carriers have made substantial invest-
ments 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 DOT and, on antitrust grounds, by the U.S. Department of
Justice (the "DOJ").
In February 1995, several major U.S. carriers, including
Delta, American, Northwest, United and USAir, imposed limits on the
base commissions they pay travel agents for domestic air fares.
Formerly, most major airlines paid a fixed base commission of
approximately 10% on the price of a ticket for the distribution of
all domestic tickets. The new cap limits base 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 the
airlines' largest expenses. USAir has experienced 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 filed lawsuits
against the airlines that imposed commission caps, including USAir,
claiming that the airlines violated antitrust laws. See Part 1,
Item 3. "Legal Proceedings."
Deferral of Dividends by USAir Group
On September 29, 1994, USAir Group announced that it was
deferring the quarterly dividend payment due September 30, 1994 on
the 358,000 outstanding shares of its 9 1/4% Series A Cumulative
Convertible Preferred Stock ("Series A Preferred Stock"). The
Series A Preferred Stock is owned by affiliates of Berkshire
Hathaway Inc. ("Berkshire"). USAir Group has also deferred
quarterly dividend payments on all of its other outstanding series
of preferred stock, including the Series F Cumulative Convertible
Senior Preferred Stock (the "Series F Preferred Stock"), the Series
T-1 Cumulative Convertible Exchangeable Senior Preferred Stock (the
"Series T-1 Preferred Stock"), the Series T-2 Cumulative
Convertible Exchangeable Senior Preferred Stock ("Series T-2
Preferred Stock") (the Series T-1 and Series T-2 Preferred Stock
are collectively referred to as the "Series T Preferred Stock"),
all three of which are owned by an affiliate of BA, as well as on
the publicly held $437.50 Series B Cumulative Convertible Preferred
Stock (the "Series B Preferred Stock"). On March 13, 1995,
Berkshire 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. On May 22, 1995, BA announced that it had made a $200
million provision against its $400 million investment in preferred
stock of USAir Group. USAir Group has not paid a dividend on its
11
<PAGE>
common stock, par value $1.00 per share (the "Common Stock"),
since the second quarter of 1990. As of March 28, 1996, the board
of directors of USAir Group had not authorized the resumption of
any dividends on USAir Group's preferred stock or Common Stock and
there can be no assurance when or if such dividend payments will
resume. See Part 1, Item 5A. "Market for USAir Group's Common
Equity and Related Stockholder Matters."
Under the terms of the Series A Preferred Stock, Berkshire has
the right to elect two additional directors to the board of
directors of USAir Group after a scheduled dividend payment has not
been paid for thirty days. Berkshire has informed USAir Group that
it does not intend to exercise this right at this time. Berkshire's
Chairman Warren E. Buffett and Vice Chairman Charles T. Munger
served as directors on USAir Group's and USAir's boards of
directors until November 1995. They did not stand for re-election
as directors in November 1995. Under the terms of the Series B
Preferred Stock, the holders of that security have the right to
elect two additional directors to the board of directors of USAir
Group if six quarterly dividends are not paid. That right became
effective on February 15, 1996. In March 1996, certain Series B
Preferred Stockholders informed the Company that they would be
pursuing the right to elect two additional directors to the
Company's board of directors. If Berkshire were to exercise its
right to elect directors and the holders of the Series B Preferred
Stock were to exercise their right to elect directors, BA would
have the right to designate an additional nominee for election as
director to the board of directors of USAir Group pursuant to the
January 21, 1993 Investment Agreement between USAir Group and BA
(as amended, the "Investment Agreement").
Likelihood of No Future Investments by British Airways
As described in greater detail in "British Airways Investment
Agreement" below, on January 21, 1993, USAir Group and BA entered
into the Investment Agreement. BA invested approximately $400
million in certain preferred stock of USAir Group in accordance
with the Investment Agreement. The deadline for BA's election to
purchase a certain series of preferred stock of USAir Group and
therefore, to elect to make any further investment in USAir Group
pursuant to the Investment Agreement, was January 21, 1996 (except
that, if the DOT shall approve all of the transactions contemplated
by the Investment Agreement on or before January 21, 1998, BA may
make additional investments in USAir Group under certain circum-
stances). BA declined to make any further investment on or before
the January 21, 1996 deadline. BA stated publicly that it was
precluded from making additional investments under existing DOT
policy and that it did not expect DOT approval to be forthcoming.
See "Provisions Regarding Additional BA Investments; BA Announce-
ment Regarding No Additional Investment in USAir Group" below.
12
<PAGE>
Executive Officers
The executive officers of USAir Group and USAir as of
March 28, 1996 are as follows:
Name Age Position
---- --- --------
Bruce R. Aubin......... 65 Senior Vice President-Maintenance
Operations, USAir
Robert L. Fornaro...... 43 Senior Vice President-Planning,
USAir
John P. Frestel, Jr.... 56 Senior Vice President-Human
Resources, USAir
Rakesh Gangwal......... 42 President and Chief Operating
Officer, USAir Group and USAir
John W. Harper......... 55 Senior Vice President-Finance and
Chief Financial Officer, USAir
Group and USAir
W. Thomas Lagow........ 54 Executive Vice President-
Marketing, USAir
John R. Long, III...... 47 Executive Vice President-Customer
Services, USAir
Lawrence M. Nagin...... 55 Executive Vice President-
Corporate Affairs and
General Counsel, USAir
Group and USAir
Robert C. Oaks......... 59 Senior Vice President-Operations,
USAir
Nancy R. Rohrbach...... 49 Vice President-Public & Community
Relations, USAir Group, Senior
Vice President-Public and
Community Relations, USAir
Stephen M. Wolf........ 54 Chairman of the Board and Chief
Executive Officer, USAir Group
and USAir
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. Messrs. Frestel and Long 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, 1991 is as
13
<PAGE>
follows:
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 Operations
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, 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, 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. Gangwal's appointment with USAir Group and USAir as
President and Chief Operating Officer became effective as of
February 19, 1996. Mr. Gangwal came to USAir from Air France where
he had been Executive Vice President-Planning and Development since
November 1994. Mr. Gangwal previously served in a variety of
management roles at United over an eleven-year period, culminating
in the role of Senior Vice President-Planning.
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 USAir in December
1991. He was elected Senior Vice President-Information Systems of
USAir in October 1992 and Senior Vice President-Finance and Chief
Financial Officer of USAir Group and USAir in 1994.
Mr. Lagow was Senior Vice President-Market Planning of
Northwest until February 1988, when he became Senior Vice Presi-
dent-Planning of United. Mr. Lagow held that position until he was
elected Executive Vice President-Marketing of USAir in February
1992.
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 was elected Senior Vice
President-Customer Services in March 1991 and Executive Vice
President-Customer Services in May 1992.
Mr. Nagin practiced law with Skadden, Arps, Slate, Meagher &
Flom from August 1994 until he joined USAir Group and USAir in
February 1996. He previously served in several executive positions
at UAL and United from September 1988 to July 1994, culminating in
the role of Executive Vice President-Corporate Affairs and General
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<PAGE>
Counsel of UAL and United. From 1980-1988, Mr. Nagin was Senior
Vice President and General Counsel of Flying Tigers.
General Oaks is a retired United States Air Force General. He
was commander of the Air Training Command, the service's organiza-
tion responsible for all initial training, including flight
training, prior to his last post in his 35-year career with the Air
Force, as commander of U.S. Air Forces in Europe. He retired from
the Air Force in 1994 and joined USAir in December 1994 as its Vice
President-Corporate Safety and Regulatory Compliance. He was
elected to his present position in February 1995.
Ms. Rohrbach served as a member of the White House legislative
liaison team (1981 to 1986) and as Assistant to the President and
Secretary to the Cabinet (1987 to 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 during 1991 and 1992 and a public
policy and communications consultant during 1993. Ms. Rohrbach was
elected Vice President-Public and Community Relations of USAir
Group and Senior Vice President-Public and Community Relations of
USAir in January 1994.
Mr. Wolf is Chairman of the Board of Directors and Chief
Executive Officer of USAir Group and USAir and was elected to those
positions in January 1996. Immediately prior to joining USAir, Mr.
Wolf was a senior advisor to the investment bank Lazard Freres &
Co. From 1987 to July 1994, Mr. Wolf was chief executive officer
of UAL and United and became Chairman of each in 1988. From 1986
to 1987, Mr. Wolf was Chief Executive Officer of Tiger Internation-
al, Inc. and Flying Tigers. From 1984 to 1986, Mr. Wolf was
President and Chief Executive Officer of Republic Airlines. Prior
to that time Mr. Wolf held senior management positions at Continen-
tal, Pan American World Airways and American. Mr. Wolf is a
Director of Philip Morris Companies, R.R. Donnelley & Sons Co. and
the Alzheimer's Disease and Related Disorders Association. He is
also a trustee of Northwestern University and Rush-Presbyterian-St.
Luke's Medical Center.
Employees
At December 31, 1995, USAir Group's various subsidiaries
employed approximately 43,100 full-time equivalent employees. USAir
employed approximately 4,900 pilots, 9,200 maintenance and related
personnel, 10,000 station personnel, 3,900 reservations personnel,
7,700 flight attendants and 4,200 personnel in other administrative
and miscellaneous job categories, while the regional and other
subsidiaries employed approximately 800 pilots, 700 maintenance and
related personnel, 900 station personnel, 400 flight attendants and
400 personnel in other administrative and miscellaneous job
categories. Approximately 28,100, or 65%, 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
15
<PAGE>
in progress.
After negotiating with the leaders of its labor groups since
March 1994 in an attempt to reduce its annual personnel costs by
approximately $500 million, USAir Group had reached an agreement in
principle on March 29, 1995 with the negotiating committee of the
Airline Pilots Association ("ALPA"), which represents USAir's
pilots. During the second quarter of 1995, USAir Group reached
agreements in principle with the International Association of
Machinists and Aerospace Workers ("IAM"), the Association of Flight
Attendants ("AFA") and the Transport Workers Union (the "TWU"). The
agreements in principle provided for wage and other concessions in
exchange for equity participation in USAir Group and representation
on USAir Group's board of directors for USAir's employees. The IAM
represents USAir's mechanical and related employees and USAir's
fleet service employees. The AFA represents USAir's flight
attendants. The TWU represents USAir's flight crew training
instructors, flight simulator engineers and dispatch employees. The
tentative agreement with the TWU was with respect to only the
flight crew training instructors. Each of the tentative agreements
was subject to many significant conditions, including union
ratification, negotiation and ratification of acceptable agreements
between USAir and its other labor groups, the restructuring of
holdings by other parties and approval of the boards of directors
of USAir Group and USAir and the stockholders of USAir Group. In
July 1995, the members of the AFA voted against ratification of
their agreement in principle. ALPA made significant additional
demands which were unacceptable and negotiations were thereafter
terminated by the Company.
USAir continues to believe that its long-term future depends
on reduced costs of operation, including especially lower personnel
costs. USAir remains committed to obtaining labor cost reductions.
The contract with the IAM covering USAir's mechanical and fleet
service employees is now open for negotiation. USAir and the IAM
have begun the bargaining process. ALPA's contract will become
open for negotiation in May 1996. The contract of the AFA will
become amendable on January 1, 1997. It is not possible to predict
whether USAir will be successful in achieving its desired personnel
cost savings. It is also not possible at this time to predict how
long it will take to conclude collective bargaining negotiations,
which are subject to procedures mandated by the Railway Labor Act,
although these negotiations traditionally take one or more years
from the date a contract becomes amendable.
Under the Railway Labor Act, a labor contract does not
"expire," but rather becomes amendable on a certain date. Thirty
days prior to that date, either party to the contract may give
notice to the other of its intention to amend the contract, at
which point the collective bargaining process begins. If, after a
period of negotiations, the parties cannot reach an agreement, a
federal mediator from the National Mediation Board ("NMB") is
brought in to assist. The process of mediation continues until the
NMB determines, at its sole discretion, that the parties have
16
<PAGE>
reached an impasse. At that point, the parties enter a thirty-day
"cooling-off" period before either party may employ so-called
"self-help" (e.g., the imposition of contract changes or a lockout
by the company or a strike by the union). While in negotiations
and mediation, both parties must observe the status quo.
Historical Cost Reduction Programs
In 1994, USAir implemented measures announced in September
1993 to reduce projected operating costs. These measures included
a workforce reduction of approximately 2,500 full time positions.
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 and the AFA, USAir may not furlough
employees covered by those agreements for specified periods of
time.
In 1992 and 1993, USAir reached agreement on new contracts
with ALPA with respect to USAir's pilot employees, the IAM with
respect to USAir's mechanics and related employees, the AFA with
respect to its flight attendant employees, and the TWU with respect
to 170 flight dispatch employees and approximately 60 USAir flight
simulator engineers. Each contract (except the contract covering
the flight dispatch employees) provided for wage reductions 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 subsequently increased in accordance with the relevant
contract. Pursuant to their contracts, the pilots, the IAM-repres-
ented employees, the flight attendants 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.
As of January 31, 1996, none of the above groups of employees,
other than a small group of flight simulator engineers, is
scheduled to receive further wage increases under the terms of its
contract. However, members of all such groups, including the
mechanics and related employees and the flight dispatch employees,
are entitled to wage increases based on longevity. 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 described above, USAir
implemented wage reductions and suspension of longevity/step
increases on its non-contract employees for the twelve-month period
17
<PAGE>
commencing in June 1992. Earlier in 1992, USAir had implemented
the contributory managed care medical and dental programs for
non-contract employees. Prior to January 1, 1992, USAir exclusive-
ly paid contributions 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 approximate-
ly $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 age
and a percentage of salary, a partial match by USAir of employee
contributions to a savings plan and a profit sharing plan.
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 provided for
productivity improvements which saved USAir approximately $55
million during the same period. All employees affected by these
changes also agreed to participate in contributory managed care
medical and dental programs which result in savings for USAir. In
exchange for the concessions agreed upon by its unionized employ-
ees, USAir included "no furlough" provisions in each of the new
labor agreements with ALPA, the IAM and the AFA, which prohibit (or
prohibited) 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 temporary wage and salary reductions and
other concessions during a twelve month period in 1992 and 1993
described above, including the freeze of the defined benefit plan
for non-contract employees, affected employees 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 approxi-
mately $23 million attributable to the suspension of longevity/step
increases will not be subject to repayment through the profit
18
<PAGE>
sharing program. Until the maximum payout has been made, annual
pre-tax profits, as defined in the program, of USAir Group would be
distributed to participating employees as follows:
25% of the first $100 million in pre-tax profits;
35% of the next $100 million in pre-tax profits; and
40% of the pre-tax profits exceeding $200 million.
Calculation of profits under the profit sharing plan excludes
charges for postretirement benefit expenses other than for pensions
(approximately $78.6 million for 1995) and certain unusual items.
This program will be in effect until USAir employees are recom-
pensed for two times salary foregone or three times for employees
who also had pension benefits foregone. The plan is independent of
the profit sharing plan which is an element of the new defined
contribution pension plan for non-contract employees discussed
above. Based on USAir Group's 1995 results and the provisions of
the profit sharing plan, USAir recognized charges of approximately
$49.7 million under this plan in 1995. Since certain amounts have
been expensed in prior years, even though 1995 was USAir's first
profitable year since the inception of the plan, the cash payout
for 1995 will be approximately $73.7 million and will be made to
employees covered by the provisions of this plan in the first
quarter of 1996. See also Note 12 to the Company's consolidated
financial statements contained in Part II, Item 8A.
Under the stock option program, employees whose pay was
reduced 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, 1995, USAir Group
had granted options to purchase approximately five million shares
of Common Stock to USAir employees under the program.
ALPA Contract: Effects of a Change of Control of USAir Group or
USAir
USAir's current labor contract with ALPA provides that in the
event of a "change of control" of USAir Group or USAir, ALPA will
have the right to extend the duration of the contract 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, exercisable
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 USAir Group or USAir, are acquired or
held by a single purchaser or a group of purchasers acting in
concert.
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Unionizing Efforts
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.
After the IAM won a runoff election, on July 22, 1994 the NMB
certified the IAM to represent the fleet service class or craft.
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 condi-
tions 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.
On June 3, 1994, after determining that the United Steel
Workers of America ("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, no union represents 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.
(this space intentionally left blank)
20
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Status of USAir's Labor Agreements
The following table presents the status of USAir's labor
agreements as of December 31, 1995:
Expiration
Approximate Date Date of
Number of Contract "No-Furlough"
Union Class or Craft Employees Amendable Clause
- ----- ----------------- ----------- --------- -----------
AFA flight attendants 7,700 1/97 12/31/96
ALPA pilots 4,900 5/96 6/30/97
IAM mechanics and
related employees 7,800 10/95 (2) 9/30/95
IAM fleet service
employees 5,400 (1) (3) -
TWU flight crew training
instructors, flight
simulator engineers
and dispatch employees 270 8/96-8/97 (4) -
(1) Estimated number of employees who will be covered under this
new contract.
(2) Currently in negotiations.
(3) Initial contract in negotiation.
(4) Separate contracts cover the flight crew training instructors,
the flight simulator engineers and the dispatch employees.
Frequent Traveler Program
Each major airline, including USAir, 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.
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.
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<PAGE>
See Part II, Item 7. "Management's Discussion and Analysis of
Financial Condition and Results of Operations".
Computerized Reservation Systems
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, 1995, 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 Japan Partnership markets CRS services in
Japan. Apollo Travel Services markets CRS services in the U.S. and
Mexico. Galileo CRS is the second largest of the four CRS systems
in the U.S. based on revenues generated by travel agency subscrib-
ers. A subsidiary of United controls 38% of the partnership, 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.
Maintenance Marketing Joint Venture with BA
USAir and an affiliate of BA jointly organized Airline
Technical Services, LLC on October 12, 1995. The goal of this
venture is the joint marketing in North America, Central America
and South America of contract maintenance, engineering and
technical services for USAir and BA. USAir hopes to enhance the
utilization of maintenance personnel by taking on outside mainte-
nance work, generating revenues associated with its excess
maintenance capacity and BA's experience with contract maintenance.
USAir also hopes that exposure to the competitive marketplace will
lead to productivity improvements by its own maintenance personnel.
Jet Fuel
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 products, continues to be
unpredictable. Because fuel costs constitute a major expenditure
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for USAir (approximately 9% of its operating costs for fiscal year
1995), significant increases in fuel costs could materially and
adversely affect USAir's results of operations.
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. 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 Company's consolidated
financial statements contained in Part II, Item 8A.
In August 1993, the United States increased taxes on domestic
fuel, including aircraft fuel used on domestic routes, by 4.3 cents
per gallon. Airlines were exempt from the tax increase until
October 1, 1995, and pending legislation in Congress would
reinstate the exemption through September 30, 1997, subject to
termination of the exemption on September 30, 1996 if certain
aviation trust funds are not extended. These aviation trust funds
expired on December 31, 1995 and have not, as of March 28, 1996,
been extended. There can be no assurance that the fuel tax
exemption will be reinstated, or if reinstated, the terms on which
and the period for which the exemption will be effective. The
additional fuel tax is currently being paid. Non-reinstatement of
the fuel tax exemption would increase the annual operating expenses
of USAir by approximately $47 million based on projected domestic
fuel consumption for 1996.
The following table sets forth statistics about USAir's jet
fuel consumption and cost for each of the last four fiscal years:
Gallons Percentage of
Fiscal Consumed Total Cost Average Cost Operating
Year (Millions) (Millions)(1) Per Gallon(1) Expenses(2)
------ -------- ----------- ----------- -----------
1995 1,137 $605.0 $0.53 9.0%
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%
(1) Cost includes the base cost of fuel and transportation
charges.
(2) Operating expenses have been adjusted to exclude non-recurring
and unusual items and expenses generated under the BA wet
lease arrangements.
Insurance
USAir Group and its subsidiaries maintain insurance of the
types and in amounts deemed adequate to protect themselves and
their property. Principal coverage includes liability for bodily
injury to or death of members of the public, including passengers;
damage to property of USAir Group, USAir and others; loss of or
damage to flight equipment, whether on the ground or in flight;
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fire and extended coverage; and workers' compensation and
employer's liability. Coverage for environmental liabilities is
expressly excluded from USAir Group's and USAir's insurance
policies. In the third quarter of 1995, USAir Group's and its
subsidiaries' liability insurance was renewed. Rates increased due
to a number of factors, including the two aircraft accidents in
1994.
Industry Regulation and Airport Access
USAir operates under a certificate of public convenience and
necessity issued by the DOT. Such certificate may be altered,
amended, modified or suspended by the DOT if the public convenience
and necessity so require, or may be revoked for intentional failure
to comply with the terms and conditions of a certificate. The
airlines are also regulated by the FAA, a division of the DOT,
under Subtitle VII of 49 U.S.C. 40101 et seq. (the "Act"),
primarily in the areas of flight operations, maintenance, ground
facilities and other technical matters. Pursuant to these
regulations, USAir has established, and the FAA has approved, a
maintenance program for each type of aircraft operated by USAir
that provides for the ongoing maintenance of such aircraft, ranging
from frequent routine inspections to major overhauls.
Recently adopted regulations require phase-out of certain
aircraft and aging aircraft modifications. Such types of
regulations can significantly increase costs and affect an
airline's ability to compete.
The DOT allows local airport authorities to implement
procedures designed to abate special noise problems, provided such
procedures do not unreasonably interfere with interstate or foreign
commerce or the national transportation system. Certain airports,
including the major airports at Boston, Washington, D.C., Chicago,
Los Angeles, San Diego and San Francisco, have established airport
restrictions to limit noise, including restrictions on aircraft
types to be used and limits on the number of hourly or daily
operations or the time of such operations. In some instances these
restrictions have caused curtailments in services or increases in
operating costs and such restrictions could limit the ability of
USAir to expand its operations at the affected airports. Local
authorities at other airports are considering adopting similar
noise regulations.
In the last several years, the FAA has issued a number of
maintenance directives and other regulations relating to, among
other things, retirement of older aircraft, collision avoidance
systems, airborne windshear avoidance systems, noise abatement and
increased inspections and maintenance procedures to be conducted on
older aircraft.
Several airports have recently sought to increase substantial-
ly the rates charged to airlines, and the ability of airlines to
contest such increases has been restricted by federal legislation,
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DOT regulations and judicial decisions. In addition, legislation
which became effective June 1, 1992 allows public airports to
impose passenger facility charges of up to $3 per departing or
connecting passenger at such airports. With certain exceptions,
these charges are passed on to the airlines' passengers.
The FAA has designated John F. Kennedy, LaGuardia, O'Hare and
Washington National airports as "high density traffic airports" and
has limited the number of departure and arrival slots at those
airports. Currently, slots at the high density traffic airports
may be voluntarily sold or transferred between carriers. The DOT
has in the past reallocated slots to other carriers and reserves
the right to withdraw slots. Various amendments to the slot
system, proposed from time to time by the FAA, members of Congress
and others, could, if adopted, significantly affect operations at
the high density traffic airports or expand slot controls to other
airports. Certain of such proposals could restrict the number of
flights, limit the ownership transferability of slots, increase the
risk of slot withdrawal, or otherwise decrease the value of USAir
slots. USAir holds a substantial number of slots at LaGuardia and
Washington National. These slots are valuable assets and important
in USAir's overall business strategy. USAir cannot predict whether
any of these proposals will be adopted.
The availability of international routes to United States
carriers is regulated by agreements between the United States and
foreign governments. The United States has in the past generally
followed the practice of encouraging foreign governments to accept
multiple carrier designation on foreign routes, although certain
countries have sought to limit the number of carriers. Foreign
route authorities may become less valuable to the extent that the
United States and other countries adopt "open skies" policies
liberalizing entry on international routes. In February 1995, the
United States and Canada reached a formal agreement which deregu-
lates airline services between Canada and the United States and
provides that Canadian airlines 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 first year. In October 1995, the DOT
granted to USAir route authority for non-stop service between
Pittsburgh and Toronto. USAir had previously operated this route
under temporary exemption authority. On May 1, 1995, the DOT
granted to USAir the temporary exemption authority to begin
twice-daily roundtrip nonstop service between Washington National
and Toronto once a Canadian carrier entered that market. Air Canada
initiated service on that route beginning in June 1995. In
February 1996, the DOT issued a show cause order awarding USAir
final certification to serve the Washington National to Toronto
route. USAir's authority will be effective pending the DOT's
determination as to which U.S. carrier will receive the final
certification to operate the route. The route will be open to all
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carriers in 1997. In addition, in October 1995, the DOT granted
USAir a two-year exemption route authority to operate between
Madrid, Spain and both Philadelphia and Boston. USAir plans to
commence service from Philadelphia to Madrid on June 15, 1996. In
February 1996, the DOT issued a show cause order awarding USAir
authority to institute service to Rome, Italy from Philadelphia
with through service from Los Angeles. Pending final approval,
USAir intends to inaugurate its service to Rome on June 1, 1996. In
February 1996, USAir received final approval from the DOT to
institute service to Munich, Germany from Philadelphia. USAir will
inaugurate its Munich service on May 23, 1996.
Many aspects of USAir's operations are subject to increasingly
stringent federal, state and local laws protecting the environment.
Future regulatory developments could affect operations and increase
operating costs in the airline industry, including for USAir.
Additional laws and regulations have been proposed or are
contemplated that could significantly affect the cost of airline
operations by, for example, raising fuel taxes, imposing additional
requirements or restrictions on operations or impairing access to
capital markets. For example, proposals are being considered that
would provide that a portion of the appropriations for the FAA and
other aviation governmental functions be funded pursuant to
additional taxes on ticket and cargo revenue or fees for use of the
air traffic control system. USAir cannot predict what laws and
regulations may be adopted or their impact, but the impact could be
significant. Certain regulatory changes, if proposed and adopted,
could materially adversely affect USAir and could require charges
to USAir's financial statements.
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 have previous-
ly been filed with the U.S. Securities and Exchange Commission. BA
has invested approximately $400 million in USAir Group preferred
stock in accordance with the Investment Agreement. On March 7,
1994, BA announced it would make no additional investments in USAir
Group until the outcome of measures by USAir Group to reduce costs
and improve its financial results was known. On January 19, 1996,
BA announced that it would not exercise its option to make any
further investment in USAir prior to the January 21, 1996 deadline
provided in the Investment Agreement. See "Provisions Regarding
Additional BA Investments; BA Announcement Regarding No Additional
Investment in USAir Group." As of December 31, 1995, BA owned
preferred stock in USAir Group constituting approximately 21.0% of
the total voting interest in USAir Group.
Terms of the Series F Preferred Stock
On January 21, 1993, USAir Group sold, pursuant to the
Investment Agreement, 30,000 shares of USAir Group's Series F
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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 "Miscellaneous" 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 7% per annum when and if declared and to share in
certain other distributions.
USAir Group has deferred quarterly dividend payments on all
its preferred stock beginning with payments due September 30, 1994.
See "Deferral of Dividends by USAir Group." 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 $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% of USAir Group'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. See
"Miscellaneous" for information regarding BA's purchase of two
additional series of preferred stock from USAir Group pursuant to
its exercise of optional and preemptive purchase rights under the
Investment Agreement.
DOT Order Regarding BA's Investment in USAir Group
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
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<PAGE>
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 "Provisions Regarding Additional BA
Investments; BA Announcement Regarding No Additional Investment in
USAir Group" and "Certain Governance Matters" below, are consummat-
ed. 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 "Provisions
Regarding Additional BA Investments; BA Announcement Regarding No
Additional Investment in USAir Group," until the DOT has completed
its review of USAir's citizenship. In any event, on March 7, 1994,
BA announced that it would make no additional investments in USAir
Group until the outcome of measures by USAir Group to reduce its
costs and improve its financial results was known and on Janu-
ary 19, 1996, BA announced that it would not proceed with the
Second Purchase.
Board Representation
USAir Group increased the size of its board of directors by
three on January 21, 1993 and the board filled the newly created
directorships with designees of BA (the size of the board of
directors was subsequently decreased to 15 in 1995). Under the
terms of the Investment Agreement, USAir Group must use its best
efforts to cause BA to be proportionally represented on the board
of directors (on the basis of its voting interest), up to a maximum
representation of 25% 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 "Provisions Regarding Additional BA
Investments; BA Announcement Regarding No Additional Investment in
USAir Group" 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, certifi-
cates and authorities for each of its routes between the U.S. and
the U.K. (the "U.K. Routes") at such time as BA and USAir imple-
mented 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 USAir
employees or communities served by the U.K. Routes and to share any
losses suffered as a result of such divestiture or relinquishment
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with due regard to their respective interests. Accordingly, BA
has been operating and marketing certain routes formerly operated
by USAir under a "wet lease." Under the wet lease arrangements,
USAir has leased three Boeing 767-200ER aircraft, along with
cockpit and cabin crews, to BA in order to serve three routes
between the U.S. and London. USAir has begun to phase out the wet
lease arrangements with BA. One of the three 767-200ER aircraft
was returned in December 1995 and a second was returned in February
1996. The third aircraft will be returned during May 1996. USAir
plans to utilize the returned aircraft as part of its planned 1996
expansion of international service (See "Capacity and Route
Rationalization" above). In conjunction with the termination of
the wet lease arrangements and related to USAir's relinquishment or
divestiture of the U.K. Routes, BA has agreed to pay USAir a total
of $47 million in the form of periodic payments commencing with the
termination of the three wet leases and continuing annually for
nine years. The first periodic payment was received by USAir in
December 1995. The route authorities 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 $45 million at December 31, 1995.
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. In June
1995, the DOT renewed its approval of USAir's and BA's authority to
operate code share service on flights serving 66 U.S. cities and
Mexico City. USAir has ceased serving Mexico City. In addition,
the DOT approved an expansion of the USAir/BA code share authority
to 65 new U.S. cities, Bermuda, Nassau and five Canadian cities.
The approval is valid for two years. As of December 31, 1995,
USAir and BA had implemented code sharing to 70 of the 138 airports
authorized by the DOT. BA has publicly stated that its relation-
ship with USAir has contributed over $100 million in annual
additional revenues and cost savings. USAir believes that the code
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share arrangements have also brought benefits to USAir through
domestic feed from international BA flights. The code share
arrangements with BA are an important part of USAir's strategic and
long-term objectives.
USAir 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. USAir
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.
Provisions Regarding Additional BA Investments; BA Announcement
Regarding No Additional Investment in USAir Group
On March 7, 1994, BA announced that it would not make any
additional investments in USAir Group until the outcome of measures
by USAir Group to reduce costs and improve its financial results
was known. Under the terms of the Investment Agreement, assuming
the Series F Preferred Stock or any shares issued upon conversion
thereof were outstanding and BA had 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 had been 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"). BA did not exercise that option.
The Investment Agreement provides that, on or prior to
January 21, 1998, assuming that BA had purchased (or was purchasing
simultaneously in accordance with the terms of the Investment
Agreement) Series C Preferred Stock, BA would have the option to
purchase 25,000 (or more in certain circumstances) shares of Series
E Cumulative Convertible Exchangeable 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").
Because BA did not elect prior to January 21, 1996, to make the
Second Purchase, it cannot make the Final Purchase, except that if
the DOT approves all the transactions and acts contemplated by the
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Investment Agreement on or prior to January 21, 1998, at the
election of either BA or USAir Group, BA's purchase of the Series C
Preferred Stock and the Series E Preferred Stock would be
consummated under certain circumstances. Because BA did not elect
to purchase the Series C Preferred Stock by January 21, 1996, USAir
Group may at its option redeem, in whole or in part, Series F
Preferred Stock and a like percentage of Series T Preferred Stock
held by BA at the higher of market value or the price of $10,000
per share, plus accrued dividends. Under Delaware law, USAir Group
may be subject to certain legal prohibitions on its ability to
repurchase or redeem its own shares of capital stock for cash or
other property. The Company cannot predict whether or when the
Second Purchase and Final Purchase will be consummated or whether
or when it will repurchase or redeem its shares of capital stock.
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 would be filed with the
Delaware Secretary of State immediately prior to the Second
Purchase, which BA has announced it will not complete, would 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
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conversion rights, the BA Common Stock would be substantially
identical to the Common Stock. Shares of BA Common Stock would
convert automatically to shares of Common Stock upon their transfer
to a third party. Subject to Foreign Ownership Restrictions, Class
B Common Stock would 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
would 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 would be required for certain matters.
Certain Governance Matters
Following the Second Purchase, which BA has announced it will
not complete, and assuming these changes are permitted under
Foreign Ownership Restrictions, the above charter amendment would
fix the size of USAir Group's board of directors at 16, one-fourth
of whom would be elected by BA. In addition, the vote of 80% of
the Entire Board of USAir Group would 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% 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 Investment 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 relinquish-
ment 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% 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
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(xiii) establishment of a board committee with power to approve
any of the foregoing. This supermajority vote requirement would
allow 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.
Following the Second Purchase, which BA has indicated it will
not complete, to the extent permitted under Foreign Ownership
Restrictions, USAir Group and BA would 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 of directors. As of the Final Purchase, which BA has
indicated it will not complete, to the extent permitted by Foreign
Ownership Restrictions, the Investment Agreement provides for the
establishment of a committee ("Appointments Committee") of the
board of directors 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 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, would be
subject to reduction if BA reduced its holding in USAir Group under
the following circumstances. If BA sold or transferred, 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") was 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 January 21,
1993 and $750 million (or $500 million if the Final Purchase had
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, would 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 would 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
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<PAGE>
Common Stock and Series C Preferred Stock would no longer apply;
and (iv) BA would no longer participate in the Appointments
Committee. In addition, if the BA Holding became 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 Janu-
ary 21, 1993 and $375 million (or $250 million if the Final
Purchase had not occurred), then the number of directors elected by
the Class B Common Stock and the Series C Preferred Stock, voting
together as a single class, would be reduced to one. If the BA
Holding became less than $100 million, then the Class B Common
Stock and the Series C Preferred Stock would no longer vote
together as a single class with respect to the election of any
directors of USAir Group, but would 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 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 USAir Group 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 USAir Group pursuant to certain USAir
Group benefit plans during 1994 and 1995.
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. These restrictions remain in effect as long as BA or any of
its affiliates or associates beneficially owns any BA Preferred
Stock, BA Notes or BA Common Stock, and for two years thereafter.
In addition, the Investment Agreement restricts BA's right to
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<PAGE>
transfer certain securities and requires that prior to
transferring 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.
Operating Statistics
USAir's operating statistics during the years 1991 through
1995 are set forth in the following table (1):
Years Ended December 31, 1995 1994 1993 1992 1991
- -----------------------------------------------------------------
Revenue Passengers
(Thousands)* 56,674 59,495 53,678 54,655 55,600
Average Passenger
Journey (Miles)* 663.7 637.7 656.2 642.2 613.7
Revenue Passenger
Miles ("RPMs")
(Millions)* 37,618 37,941 35,221 35,097 34,120
Total Available
Seat Miles** 58,678 61,540 59,841 60,052 58,574
Available Seat Miles
(Millions)* 58,163 61,027 59,485 59,667 58,261
Passenger Load
Factor (2)* 64.7% 62.2% 59.2% 58.8% 58.6%
Break Even Load
Factor (3)(5)** 64.9% 67.3% 61.7% 63.2% 62.7%
Passenger Revenue
Per ASM* 10.78c 9.70c 10.22c 9.70c 9.76c
Total Revenue Per
ASM (4)(5)** 11.80c 10.59c 11.04c 10.38c 10.33c
Cost per ASM (4)(5) 11.40c 11.02c 11.12c 10.85c 10.80c
(6)**
Yield (Revenue Per
RPM)* 16.66c 15.61c 17.27c 16.49c 16.67c
* 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) Break even 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 1995, 1994 and 1993 exclude revenue
and expense generated under the BA wet lease arrangement.
(6) Certain statistics have been recalculated to reflect expense
reclassifications.
35
<PAGE>
Item 2. Properties
Flight Equipment
At December 31, 1995, USAir operated the following jet
aircraft:
Passenger Avg. Age Owned Leased
Type Capacity (Years) (1) (2) Total
---- --------- -------- ----- ------ -----
Boeing 767-200ER(3) 214 7.1 4 5 9
Boeing 757-200 182 5.3 23 11 34
Boeing 737-400 146 6.1 19 35 54
McDonnell Douglas
MD-80 141 13.9 15 16 31
Boeing 737-300 127 8.8 11 74 85
Boeing 737-200 109 13.7 48 16 64
Douglas DC-9-30 101 22.2 48 14 62
Fokker 100 98 5.1 36 4 40
Fokker F28-4000 68 11.2 1 14 15
---- --- --- ---
11.1 205 189 394
==== === === ===
(1) Of the owned aircraft, 123 were pledged as collateral for
various secured financing obligations aggregating $2.3 billion
at December 31, 1995.
(2) The terms of the leases expire between 1996 and 2015.
(3) The above table excludes one owned and one leased 767-200ER
aircraft which USAir leased to BA under a wet lease arrange-
ment at December 31, 1995.
At December 31, 1995, USAir Group's three regional airline
subsidiaries operated the following turboprop aircraft:
Passenger Avg. Age Owned Leased
Type Capacity (Years) (1) (2) Total
---- --------- -------- ----- ------ -----
de Havilland Dash 7 50 14.4 2(3) 2 4
de Havilland Dash 8 37 6.5 29 50 79
Dornier 328-100 32 .5 - 20 20
British Aerospace
Jetstream 31 19 8.7 - 11(4) 11
---- --- --- ---
5.9 31 83 114
==== === === ===
(1) Of the owned aircraft, 11 were pledged as collateral for
various secured financing obligations aggregating $45.9
million at December 31, 1995. One turboprop aircraft was
owned by USAir.
(2) The terms of the leases expire between 1996 and 2011.
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<PAGE>
(3) One of the Company's regional airline subsidiaries is party to
an agreement under which a third party will purchase one of
the two owned Dash 7 aircraft on March 31, 1996. The regional
subsidiary has the option to require such third party to
purchase the second owned aircraft beginning in March 1997 and
extending 22 months.
(4) Two of the 11 leased Jetstream 31 aircraft were returned to
the lessor in January 1996. The remaining 9 leased Jetstream
31 aircraft were all leased to a third party and removed from
the operating fleet of one of the Company's regional airline
subsidiaries by March 25, 1996.
USAir is a party to purchase agreements with Boeing and Rolls
Royce that provide for the future acquisition of new jet aircraft
and jet engines. At December 31, 1995, USAir Group's regional
airline subsidiaries, collectively, were party to agreements or
agreements in principle related to the acquisition by lease of up
to thirty additional turboprop aircraft. Subsequent to December 31,
1995, one of these subsidiaries exercised its option to acquire 5
additional turboprop aircraft; a second subsidiary took delivery of
three turboprop aircraft during February 1996. See Note 4.(d) to
the Company's consolidated financial statements contained in Part
II, Item 8A. for additional information regarding outstanding
commitments and options for the purchase of flight equipment. The
Company's airline subsidiaries maintain inventories of spare
engines, spare parts, accessories and other maintenance supplies
sufficient to meet their operating requirements.
USAir owned or leased the following aircraft as of Decem-
ber 31, 1995, which were parked in storage facilities and not
included in the operating fleet table presented above.
Avg. Age
Type (Years) Owned Leased Total
---- -------- ----- ------ -----
British Aerospace
BAe-146-200 10.8 1 14 15
Boeing 727-200 17.1 - 6 6
Boeing 737-200 27.0 4 - 4
Boeing 767-200ER (1) 5.7 - 1 1
Douglas DC-9-30 27.3 10 - 10
Fokker F28-1000 24.0 1 - 1
Fokker F28-4000 12.1 1 1 2
---- -- -- --
17.9 17 22 39
==== == == ==
(1) The 767-200ER aircraft presented in the above table was
returned to USAir by BA during December 1995 in connection
with the phase-out of the wet lease arrangements with BA (See
Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations"). The aircraft was
returned to USAir's operating fleet in January 1996.
37
<PAGE>
In addition, as of December 31, 1995, certain subsidiaries of
USAir Group leased or subleased 16 owned F28-1000 aircraft; two
leased Embraer EMB-120 aircraft; ten owned 737-200 aircraft; one
owned and one leased 767-200ER; eight leased Jetstream 31 aircraft;
two owned F28-4000 aircraft, and; three leased BAe-146-200 ("BAe-
146") aircraft to third parties (See Note 4.(b) to the Company's
consolidated financial statements contained in Part II, Item 8A.
for additional information related to third party lease arrange-
ments).
USAir recorded substantial charges in 1994 associated with
repair parts, inventory and future lease payments for certain
parked aircraft (See Part II, Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations").
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 767-200ER 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; 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 a building and vacant
land in Fairfax, Virginia, a training facility in Winston-Salem,
North Carolina and reservations facilities in San Diego, California
and Orlando, Florida. USAir's building in Fairfax, Virginia, which
is leased to the U.S. government, and the vacant land are currently
for sale.
Terminal Construction Projects
USAir Group'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 are likely to require additional
expenditures and long-term commitments. Several significant
projects which affect large airports on USAir's route system are
38
<PAGE>
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 substantial 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 $44 million annually in 1995. 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 in 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) to the
Company's consolidated financial statements contained in Part II,
Item 8A.
The East End Terminal at LaGuardia, which cost approximately
$173 million to construct, opened in the third quarter of 1992.
USAir, USAir Express and the USAir Shuttle operations at LaGuardia
are conducted from this terminal and the adjoining USAir Shuttle
terminal. The East End Terminal has 12 jet gates. USAir recogniz-
es approximately $31 million in annual rental expense for this
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 $109 million in various
terminal renovations and a new $220 million commuter airline runway
expansion project, exclusive of financing costs. Depending on the
timing of certain federal environmental reviews, USAir expects
construction on the terminal project will be completed in 1998. The
runway expansion project is not expected to be completed until
2000. USAir 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 is currently
undertaking a $1 billion capital development project at Washington
National, which includes construction of a new terminal currently
expected to commence operation in the second quarter of 1997. Based
on current projections, USAir estimates that its annual operating
expenses at Washington National will increase by approximately $10
million to $12 million.
39
<PAGE>
Item 3. Legal Proceedings
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 ("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 the failure
of air traffic control to convey weather and windshear hazard
information and flight crew errors. The NTSB has not yet issued its
final accident investigation report for the accident near
Pittsburgh. The NTSB, Boeing, the FAA and USAir jointly conducted
flight tests in October 1995 as part of the ongoing investigation
into the cause of this accident. In this regard, USAir provided a
737-300 aircraft in the collective effort to simulate the
conditions at the time of the accident. More public hearings were
conducted in November 1995. The NTSB has indicated that a
determination of the cause of the accident is not likely until
sometime in 1996. 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. Therefore, the Company believes that
the litigation will not have a material adverse effect on the
Company's financial condition or results of operations, although
any finding of fault on USAir's part could create negative
publicity and could tarnish USAir's image.
In December 1995, USAir received a Civil Investigative Demand
("CID") from the DOJ relating to USAir's compliance with the terms
of a consent decree entered into in December 1992, as amended in
September 1994. The consent decree was entered into to resolve
litigation concerning USAir's methods of disseminating fare data to
the Airline Tariff Publishing Company. 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. The
CID issued in December 1995 seeks information concerning USAir's
use of travel dates in its fare filings, among other things.
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
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<PAGE>
discount against the cost of a ticket generally of up to a maximum
of 10% 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 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 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 9%. 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.
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 from
August 16, 1995, or until the combined discount amount reaches $40
million, whichever first occurs. On May 10, 1995, a U.S. federal
district court judge approved the settlement. 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 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 base 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. The
lawsuits have been consolidated in the federal district of
Minnesota. The plaintiffs are seeking unspecified treble damages
for restraint of trade. The case is expected to go to a jury trial
in 1996. While USAir believes that its actions in establishing a
commission cap were in full compliance with the antitrust laws, the
Company is unable to predict at this time the ultimate resolution
of the litigation or the potential impact on its financial
condition and results of operations.
41
<PAGE>
In October 1995, USAir terminated for cause an agreement with
In-Flight Phone Corporation ("IFPC"). IFPC was USAir's provider of
on-board telephone and interactive data systems (the "IFPC
System"). The agreement contemplated the eventual installation of
the IFPC System on substantially all of USAir's aircraft. The IFPC
System had been installed on approximately 80 aircraft prior to the
date of termination of the agreement. On December 6, 1995, IFPC
filed suit against USAir seeking equitable relief and damages in
excess of $186 million. USAir believes that its termination of its
agreement with IFPC was appropriate and that it is owed in excess
of $5 million by IFPC. On December 7, 1995, USAir successfully
defended IFPC's emergency motion for a temporary restraining order.
On December 13, 1995, IFPC's motion for a preliminary injunction
was denied and IFPC has relinquished its right to appeal that
decision. IFPC's claim for damages remains pending and USAir is
presently preparing a counterclaim for amounts it is owed by IFPC.
The Company is unable to predict at this time the ultimate
resolution or potential financial impact on the Company's financial
condition and results of operations of this lawsuit. USAir is
presently in negotiations with other vendors of on-board telephone
systems and currently expects to finalize an agreement in the first
quarter of 1996.
During 1995, four members of USAir's Frequent Traveler Program
("FTP") filed class action lawsuits against USAir in Illinois,
Pennsylvania, California and New Jersey state courts, alleging
breach of contract relating to changes made to USAir's FTP
effective December 31, 1989 and/or January 1, 1995. A similar
lawsuit has been pending in California state court since 1989. The
lawsuits seek unspecified damages and an injunction against the
allegedly objectionable changes to USAir's FTP and any subsequent
retroactive changes to the FTP. USAir denies the allegations made
in the lawsuits and intends to vigorously defend itself. The
ultimate resolution of these lawsuits and their potential impact on
the Company's financial condition or results of operations cannot
be predicted at this time.
In May 1995, USAir Group, USAir and the Retirement Income Plan
for Pilots of USAir, Inc. (the "Pilots' Pension Plan") were sued in
federal district court for the District of Columbia by 469 active
and retired USAir pilots. The lawsuit alleges that USAir has
breached its fiduciary duty under the Employee Retirement Income
Security Act ("ERISA") and otherwise violated ERISA by erroneously
calculating benefits under the Pilots' Pension Plan. The plaintiffs
seek, among other things, an injunction restraining USAir and the
Pilots' Pension Plan from allegedly improperly calculating benefits
under the Pilots' Pension Plan and payments to plaintiffs of
benefits allegedly improperly withheld in an amount alleged to be
equal to approximately $70 million, plus interest. USAir believes
that it has properly calculated benefits under the Pilots' Pension
Plan and intends to vigorously defend itself against the allega-
tions made in the lawsuit. Because this lawsuit is in an early
stage of litigation, the Company is unable to predict at this time
42
<PAGE>
its ultimate resolution or potential impact on USAir Group's
pension liability or future funding requirements.
The Company and several of its 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. Only two of these sites have been included on the
Superfund National Priorities List. The Company continues to
negotiate with various governmental agencies concerning known and
possible cleanup sites. USAir has made financial contributions for
the performance of remedial investigations and feasibility studies
at sites in Moira, New York; Escondido, California; and Elkton,
Maryland.
Also, USAir has been identified as a potentially responsible
party ("PRP") for environmental contamination at Boston Logan
Airport. There are a number of other PRPs at the site. The Company
is presently unable to assess its proportionate share of contribu-
tion, but does not expect any such contribution to have a material
adverse effect on its financial condition or results of operations.
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 its financial position or results of operations based on
its experience with similar environmental sites.
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. Such 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.
43
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
USAir Group's annual meeting of stockholders was held on
November 28, 1995. Proxies for the meeting were solicited by USAir
Group pursuant to Regulation 14A under the Securities Exchange Act
of 1934.
All of management's nominees for the election to the Board of
Directors as listed in USAir Group's Proxy Statement for the
meeting were elected without solicitation in opposition. In
addition, the holders of voting securities also voted on the
following proposals with the following results:
1. Management's proposal regarding ratification of the selection
of auditors of the Company for fiscal year 1995.
For 80,778,504 Against 633,027 Abstain 372,316
Broker Non-Votes None
2. Stockholder proposal concerning confidential voting.
For 23,276,514 Against 39,514,871 Abstain 1,725,816
Broker Non-Votes 17,266,646
3. Stockholder proposal relating to compensation contingent on a
change of control.
For 19,210,421 Against 43,115,575 Abstain 2,191,205
Broker Non-Votes 17,266,646
4. Stockholder proposal relating to directors' retirement
benefits.
For 20,273,111 Against 42,601,126 Abstain 1,642,964
Broker Non-Votes 17,266,646
5. Stockholder proposal relating to "High-Performance Workplace".
For 5,951,165 Against 54,478,682 Abstain 4,087,354
Broker Non-Votes 17,266,646
6. Stockholder proposal relating to political contributions.
For 4,962,028 Against 56,447,309 Abstain 3,107,864
Broker Non-Votes 17,266,646
(this space intentionally left blank)
44
<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 29, 1996, there were
approximately 63,460,000 shares of Common Stock of the Company
outstanding. The stock was held by 34,375 stockholders of record
at that date. 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 1995 and 1994:
Period High Low
------ ---- ---
1995
First Quarter 6 5/8 4 1/4
Second Quarter 14 5 5/8
Third Quarter 12 5/8 8
Fourth Quarter 15 7/8 10 3/8
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
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.
As of March 28, 1996, the Company's board of directors had not
authorized the resumption of dividends on the Company's Common
Stock and there can be no assurance when or if such dividend
payments will resume. In addition, the Company, organized under the
Laws of the State of Delaware, may be subject to certain legal
prohibitions on its ability to pay dividends on or repurchase or
redeem its own shares of capital stock for cash or other property.
At December 31, 1995, the Company believes that it was legally
prohibited from paying dividends on or repurchasing or redeeming
its capital stock due to the provisions of Section 170 of the
Delaware General Corporation Law ("Delaware Law"), which require a
company to maintain a capital surplus in order to pay dividends on
or repurchase or redeem its capital stock. In addition, as of
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<PAGE>
December 31, 1995, the Company does not believe that it can comply
with certain provisions of Delaware Law which permit a company with
a capital deficit to pay dividends on its capital stock under
special circumstances. See Note 8.(d) to the Company's consolidat-
ed financial statements contained in Part II, Item 8A. of this
report, and Part II, Item 7. "Management's Discussion and Analysis
of Financial Condition and Results of Operations", also contained
in this report, for additional information.
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.
USAir's board of directors has not authorized the payment of
dividends to USAir Group since 1988. In addition, USAir, organized
under the Laws of the State of Delaware, may be subject to certain
legal prohibitions on its ability to pay dividends on or repurchase
or redeem its own shares of capital stock for cash or other
property. At December 31, 1995, USAir believes that it was legally
prohibited from paying dividends on or repurchasing or redeeming
its capital stock due to the provisions of Section 170 of the
Delaware General Corporation Law ("Delaware Law"), which require a
company to maintain a capital surplus in order to pay dividends on
or repurchase or redeem its capital stock. In addition, as of
December 31, 1995, USAir does not believe that it can comply with
certain provisions of Delaware Law which permit a company with a
capital deficit to pay dividends on its capital stock under special
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<PAGE>
circumstances. See Note 7. to USAir's consolidated financial
statements contained in Part II, Item 8B. of this report, and Part
II, Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations", also contained in this
report, for additional information.
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>
<CAPTIONS>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(in millions except per share amounts)
<S> <C> <C> <C> <C> <C>
Consolidated Statements of Operations
Operating Revenues $ 7,474 $ 6,997 $ 7,083 $ 6,686 $ 6,514
Operating Expenses $ 7,153 $ 7,489 $ 7,179 $ 7,033 $ 6,698
Operating Income (Loss) $ 322 $ (491) $ (96) $ (347) $ (184)
Income (Loss) Before Accounting Change $ 119 $ (685) $ (349) $ (601) $ (305)
Accounting Change (1) - - (44) (628) -
------ ------ ------ ------ ------
Net Income (Loss) $ 119 $ (685) $ (393) $(1,229) $ (305)
Net Income (Loss) Applicable to Common
Stockholders $ 34 $ (763) $ (467) $(1,281) $ (350)
Income (Loss) Per Share:
Before Accounting Change $ .55 $(12.73) $ (7.68) $(13.88) $ (7.62)
Effect of Accounting Change - - (.80) (13.35) -
------ ------ ------ ------ ------
Income (Loss) Per Share $ .55 $(12.73) $ (8.48) $(27.23) $ (7.62)
Dividends Per Common Share $ - $ - $ - $ - $ -
Consolidated Balance Sheets
Total Assets $ 6,955 $ 6,808 $ 6,878 $ 6,595 $ 6,450
Long-Term Obligations and Redeemable
Preferred Stock (2) (3) $ 4,572 $ 4,699 $ 4,198 $ 3,714 $ 2,577
Series B Preferred Stock (3) 213 213 213 213 213
Common Stockholders' Equity (Deficit) (3) (1,049) (1,110) (426) (169) 1,105
------ ------ ------ ------ ------
Total Stockholders' Equity (Deficit) (3) $ (836) $ (897) $ (213) $ 44 $ 1,318
Shares of Common Stock Outstanding 63.4 61.1 59.2 47.2 46.6
Book Value Per Share (4) $(18.39) $(18.71) $ (7.19) $ (3.58) $ 23.69
47
<PAGE>
(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. to USAir Group's consolidated financial
statements contained in Part II, Item 8A. for more
information.
(2) Long-term obligations include long-term debt, capital leases
and postretirement benefits other than pensions, non-current.
(3) 1995 and 1994 do not include deferred dividends on preferred
stock. See Note 8.(d) to USAir Group's consolidated
financial statements contained in Part II, Item 8A.
(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.(d) to USAir
Group's consolidated financial statements contained in Part
II, Item 8A.
Note: Numbers may not add or calculate due to rounding.
</TABLE>
(this space intentionally left blank)
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<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. ("USAir Group" or the "Company").
USAir, Inc. ("USAir") is the Company's principal subsidiary and
accounted for approximately 93% of its operating revenues for
fiscal year 1995. USAir is a major United States air carrier whose
primary business is transporting passengers, property and mail.
USAir enplaned more than 57 million passengers during 1995 and is
currently the fifth largest domestic air carrier, as measured by
revenue passenger miles ("RPMs"). Except where noted, the following
discussion is based primarily upon USAir's financial condition,
results of operations and future prospects.
USAir Group recorded net income of $60.3 million for the
fourth quarter of 1995 and net income of $119.3 million for all of
1995. USAir Group's earnings per common share was $0.61 for the
fourth quarter of 1995 and $0.55 for all of 1995. USAir, whose
results include USAir's wholly-owned subsidiary USAM Corp.
("USAM"), recorded net income of $33.6 million for the fourth
quarter of 1995 and net income of $33.0 million for all of 1995.
The fourth quarter and full-year 1995 results for both USAir Group
and USAir represent significant improvements over the results for
the comparable periods in 1994.
The Company's and USAir's improved 1995 results are mainly
attributable to a stable domestic economic climate, favorable
capacity trends in USAir's markets, less fare discounting and low
fare competition and the positive influence of USAir's cost-
reduction and revenue enhancement initiatives. The entire domestic
airline industry has benefited from stable domestic economic and
overall favorable capacity and fare pricing factors. However, the
Company's financial condition, results of operations and future
prospects are more susceptible to an economic downturn and
competitive influences than most of its major competitors due to
USAir's high cost structure amid the growing low cost, low fare
environment of the domestic airline industry.
Factors Contributing to Improved 1995 Financial Results
The Company's airline subsidiaries realized stronger than
anticipated yields (Passenger Transportation revenue per RPM) in
1995 due in part to a decrease in industry capacity in the eastern
United States and less intense low fare competition and fare
discounting than in recent years. The eastern U.S. is the primary
operating region for USAir and its regional airline affiliates. In
1995, several major air carriers, including USAir, implemented
reductions in capacity (as measured by available seat miles or
"ASMs") in the eastern U.S. (see discussion of USAir's capacity
reductions below in "Cost-Reduction and Revenue Enhancement
Initiatives"). Most notably, Continental Airlines, Inc. ("Conti-
nental") eliminated its low fare, "no frills" pricing and marketing
strategy, "Continental Lite," in early 1995. Continental Lite was
49
<PAGE>
launched in October of 1993 on certain routes in the eastern U.S.
also served by USAir and was substantially expanded during 1994
into additional markets also served by USAir. In an effort to
maintain market share, USAir responded to Continental Lite's
competitive threat by selectively lowering its fares by as much as
70% compared to the fares in effect prior to Continental Lite's
incursion. These fare reductions affected markets where USAir had
previously generated approximately 46% of its Passenger Transporta-
tion revenues. In addition to Continental's capacity reductions,
American Airlines, Inc. ("American") and United Air Lines, Inc.
("United") also reduced service in the intra-east coast region
during 1995. Overall, during 1995, the mature, established air
carriers decreased capacity in the intra-east coast region by
approximately 9.8% versus 1994 levels. However, other air carriers
with low costs of operations and low fare structures ("low cost,
low fare" air carriers) increased capacity in this region during
the same period (see further discussion below in "Current Industry
Conditions - Continued Growth of Low Cost, Low Fare Competition").
The net result was that capacity in the intra-east coast region
decreased by approximately 3.5% year-over-year.
As discussed in further detail below, USAir's recent cost-
reduction and revenue enhancement initiatives contributed positive-
ly to the Company's improved 1995 results. The Company stated in
1994 and early 1995 that it sought to reduce its annual operating
costs by $1 billion through a combination of labor-related and
other cost reductions. During 1995, the Company achieved its goal
of reducing annual non-labor operating expenses by approximately
$500 million from otherwise expected levels. The Company believes
that these savings will approach $600 million in 1996 from
otherwise expected levels. The anticipated savings in the labor-
related areas, the other half of the targeted annual reduction in
operating costs, have not been realized. In conjunction with its
cost-reduction and revenue enhancement initiatives, the Company
announced its goal 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's pre-tax margin was approximately 1.7% for 1995. The
Company's 1995 financial results represent a significant improve-
ment over 1994 levels, but the Company believes that it will not be
able to achieve either its short-term or long-term pre-tax margin
goals without achieving significant reductions in USAir's personnel
costs.
Current Industry Conditions - Continued Growth
of Low Cost, Low Fare Competition
Demand for air transportation has historically mirrored
general economic conditions. During the most recent economic
recession in the United States, the domestic airline industry
experienced a reduction in demand for air transportation without a
corresponding decrease in capacity. The disparity between demand
and capacity was exacerbated by the continued delivery of new
aircraft to domestic air carriers and the operation of certain
major air carriers under the protection of Chapter 11 of the
50
<PAGE>
Bankruptcy Code for extended periods.
The years 1993 through 1995 included the entry and growth of
low cost, low fare air carriers into markets served by USAir and
its regional airline affiliates. Intra-east coast operations
currently represent approximately 64% of USAir's departures and
approximately 44% of its capacity (ASMs). Southwest Airlines, Inc.
("Southwest"), a low cost, low fare air carrier which had not
previously provided service to or within the eastern U.S.,
inaugurated service from Baltimore/Washington International Airport
("BWI") in September of 1993 at fares substantially below those
previously in place. BWI is one of USAir's hub airports.
Southwest expanded operations from BWI during 1994 and 1995 and
initiated service to Florida from BWI, among other locations, in
early 1996. Southwest also launched intra-Florida service during
early 1996. Southwest, which has a considerable cost advantage
over USAir, particularly with regards to personnel costs, could
continue to expand in markets served by USAir or its regional
airline affiliates.
ValuJet Airlines, Inc. ("ValuJet"), another low cost, low fare
air carrier, commenced operations in October of 1993 by offering
service within the intra-east coast region. By September 30, 1995,
ValuJet had 32 aircraft in its operating fleet and in late 1995
announced that it had signed an agreement with the McDonnell
Douglas Corporation ("McDonnell Douglas") for the purchase of 50
MD-95 aircraft with options for an additional 50 MD-95 aircraft.
Deliveries are scheduled to begin in mid-1999. ValuJet has
announced that it plans to increase its operating fleet to 60
aircraft by the end of 1996 and its target for the year 2000 is 143
aircraft. ValuJet initiated service at Boston in 1995 and has
recently inaugurated service at Pittsburgh and Charlotte. USAir
and its regional affiliates have significant operations at these
locations. The major airports at Pittsburgh and Charlotte are
USAir's largest hubs. The short-term effect of ValuJet's expansion
into these markets on the Company's financial condition and future
prospects is expected to be minimal considering the frequency of
service ValuJet currently offers.
In addition to Southwest and ValuJet, other air carriers with
a low cost, low fare strategy have also initiated or announced
intentions to offer or expand service in the intra-east coast
region. USAir currently has low cost, low fare competition
affecting over 45% of its traffic base. In an effort to preserve
market share, USAir has typically responded to the entry of a low
cost, low fare competitor into its markets by matching fares and
increasing the frequency of service in related markets, generally
with the result of diluting USAir's yield in these markets. In
some cases USAir has responded by reducing service in affected
markets.
Besides the competitive threat posed by low cost, low fare air
carriers, several of the larger, mature air carriers have developed
or indicated their intention to develop similar low cost, low fare
51
<PAGE>
service. Current industry conditions have forced the larger,
mature air carriers to seek significant cost reductions in order to
remain competitive and financially viable. For example, during
1994, United completed a transaction which traded significant
employee wage concessions and productivity improvements for a
majority ownership stake in the company and seats on its board of
directors. The agreement also allowed United to establish a low
cost, low fare operation labeled "Shuttle by United". The primary
function of this operation is to compete successfully with low
cost, low fare air carriers in mainly secondary or short-haul
markets. During 1993, Continental, Trans World Airlines, Inc.
("TWA") and Northwest Airlines, Inc., were able to obtain signifi-
cant wage concessions and productivity improvements from unionized
employees. The employee concessions achieved by Continental and
TWA were obtained in the course of bankruptcy proceedings of those
companies.
In 1994, Delta Airlines, Inc. ("Delta") launched a program
designed to reduce its unit operating costs (operating costs per
ASM) from approximately 9.30 cents at that time to 7.50 cents by June 1997.
Delta announced in early 1996 that this program to date had helped
to reduce unit costs to 8.61 cents for its fiscal quarter ended
December 31, 1995. Delta's cost reduction program has included
significant workforce reductions. USAir's unit costs were 11.40 cents
for 1995. In addition, Delta has recently announced an agreement
in principle with its pilots, its only unionized employee group,
that would include the establishment of a new low cost, low fare
operation centered on markets serviced by jet aircraft with 100
seats or less. The stated objective of this new operation,
prospectively called "Delta Express," is to compete effectively
with Southwest and ValuJet. A stated goal of Delta Express would
be wage levels approximately 10% lower than those of Southwest,
which has one of the lowest cost structures in the airline
industry. Further, a Delta spokesperson has stated that Delta
would also deploy the new operation to compete against USAir in
certain markets. The ultimate outcome of Delta's agreement in
principle with its pilot's union or its impact on USAir's ability
to obtain similar labor cost reductions is not known at this time.
The continued growth of Southwest, ValuJet and other low cost,
low fare air carriers in markets served by USAir and its regional
affiliates and the ability of certain other air carriers to lower
their costs of operations continue to pose a growing competitive
threat to USAir. Incursions by low cost, low fare air carriers in
markets served by the Company's airline affiliates are expected to
continue to have an adverse effect on the Company's results of
operations and future prospects and further emphasize the need for
the Company to achieve a significant reduction in USAir's personnel
costs.
Cost-Reduction and Revenue Enhancement Initiatives
As mentioned above, the Company realized significant savings
in non-labor costs during 1995. These savings involved various
organizational and structural changes, re-engineering, capacity
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<PAGE>
reductions and other initiatives in support of its three core
business strategies: (1) rationalize the level and geographic
distribution of USAir's capacity; (2) improve USAir's product and
delivery, and; (3) reduce capital requirements and operating costs.
USAir initiated its "right-sizing" strategy in the Spring of
1995 with the goal of reducing annual system capacity by five
percent and emphasizing the strengths of its hubs at the major
airports in Pittsburgh, Charlotte, Philadelphia and Baltimore, as
well as its operations at other major east coast urban centers.
The capacity reductions focused on either eliminating redundant or
unprofitable routes or replacing jet service on those routes with
service provided by USAir's regional affiliates using turboprop
aircraft. USAir's capacity (ASMs) for 1995 was 4.7% lower than for
1994. Capacity (ASMs) for the second half of 1995, reflecting the
full impact of right-sizing, was 10.8% lower than the comparable
period in 1994. The strengthening of hub operations was achieved
by reducing point-to-point flights (flights between cities that are
not USAir hubs) thereby increasing the utilization of equipment and
personnel at hub locations. The percentage of point-to-point
flights in USAir's schedule was reduced from approximately 18% at
the end of 1994 to about 10% by the end of 1995.
USAir also shifted its focus for transatlantic operations from
Charlotte and Pittsburgh to Boston and Philadelphia to take
advantage of better connecting traffic and the larger population
bases in those cities. Load factors (the percentage of available
seats filled by revenue passengers) for USAir's transatlantic
flights reached historical highs during the second half of 1995.
USAir increased capacity in select transatlantic and transcontinen-
tal markets during 1995 as part of its right-sizing efforts. USAir
plans to begin service to both Munich, Germany and to Madrid, Spain
from Philadelphia in mid-1996. USAir also plans to institute
service to Rome, Italy from Philadelphia in mid-1996.
The Company believes that USAir's right-sizing initiatives
have produced substantial financial benefits during 1995 and that
those financial benefits will continue.
USAir has also implemented several programs intended to
enhance its product and level of service. By the end of December
1995, USAir had expanded its code share arrangement with British
Airways plc ("BA") to include 70 of the 138 airports currently
authorized by the U.S. Department of Transportation ("DOT"). USAir
believes that its code sharing arrangement with BA has produced
financial benefits as well as enhanced USAir's image in the
marketplace. BA has publicly stated that its relationship with
USAir has contributed over $100 million in additional revenues and
cost savings. The code sharing arrangement provides USAir with
greater access to international traffic and allows better on-line
connections and coordinated check-in and baggage checking proce-
dures for its customers.
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<PAGE>
USAir has increased its level of on-time performance among the
major air carriers and has consistently ranked among the top three
air carriers during the second half of 1995, despite the fact that
USAir carried record numbers of passengers during that time period.
In October of 1995, USAir introduced, in conjunction with BA,
personal computer software called "Priority TravelWorks" and
"Executive TravelWorks" that will enable certain high-volume
customers to engage in self-service travel booking through on-line
computer services. USAir is also developing a "ticketless" travel
option for customers and plans to offer this product in early 1996.
Besides offering convenience to its customers, USAir believes that
ticketless travel will help reduce distribution costs which
currently account for approximately $1 billion of USAir's annual
operating expenses.
The Company reached an agreement with The Boeing Company
("Boeing") in 1994 which enabled USAir to reschedule the delivery
of 40 Boeing 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 Boeing aircraft
during the 1996-2000 time period. During 1995, the Company reached
agreements with Boeing and Rolls Royce plc ("Rolls Royce")
regarding the deferral of eight Boeing 757-200 aircraft deliveries
from 1996 to 1998. As part of the latter agreements, the delivery
dates for progress payments associated with the previously
scheduled 1996 deliveries were likewise rescheduled. These
agreements with Boeing and Rolls Royce have resulted in a substan-
tial reduction in USAir's expected capital expenditures for the
years 1996 through 2000 (see additional information regarding the
Boeing and Rolls Royce agreements and scheduled aircraft commit-
ments in Note 4.(d) to the Company's consolidated financial
statements contained in Part II, Item 8A.). USAir has also pursued
the sale or lease of certain jet aircraft and declined to renew
leases for certain other aircraft upon expiry. In 1995, USAir
added seven 757-200 aircraft to its operating fleet but eliminated
37 other jet aircraft, including all of its Boeing 727-200
aircraft. USAir sold thirteen Boeing 737-300 aircraft during 1995.
The other component of the targeted billion dollar reduction
in annual operating costs referred to previously is a significant
reduction in personnel costs. Accordingly, the Company began
negotiating with USAir's organized labor groups in March 1994 with
the goal of reducing annual personnel costs by approximately $500
million through voluntary concession agreements involving wage and
benefit reductions, improved productivity and other cost savings.
During the Spring of 1995, the Company reached agreements in
principle with each of USAir's major unions, but those tentative
agreements were conditioned on, among other things, ratification by
the members of each labor group and the approval of USAir Group's
stockholders and USAir Group's and USAir's boards of directors.
These agreements in principle provided for wage and other conces-
sions in exchange for equity participation in USAir Group, profit
sharing and representation on USAir Group's board of directors for
USAir's labor groups. In July 1995, the membership of the
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Association of Flight Attendants (the "AFA"), which represents
USAir's flight attendants, voted not to ratify its agreement in
principle. The Airline Pilots Association ("ALPA"), which
represents USAir's pilots, made significant additional demands
which were unacceptable and negotiations were thereafter terminated
by the Company.
USAir's contract with the employees represented by the
International Association of Machinists and Aerospace Workers (the
"IAM") became open for negotiations on October 1, 1995. USAir and
the IAM have begun the collective bargaining process. ALPA's
contract will become open for negotiation in May 1996. The
contract with the AFA becomes amendable on January 1, 1997. At this
early stage in negotiations, it is not possible to predict how long
it will take to conclude collective bargaining negotiations
although these negotiations traditionally take one or more years
from the time a contract becomes amendable, as described in the
following paragraph.
Under the Railway Labor Act, a labor contract does not
"expire," but rather becomes amendable on a certain date. Thirty
days prior to that date, either party to the contract may give
notice to the other of its intention to amend the contract, at
which point the collective bargaining process begins. If after a
period of negotiations, the parties cannot reach an agreement, a
federal mediator from the National Mediation Board is brought in to
assist. The process of mediation continues until the National
Mediation Board determines, at its sole discretion, that the
parties have reached an impasse. At that point, the parties enter
a thirty-day "cooling off" period before either party may employ
so-called self-help (e.g., the imposition of contract changes or a
lockout by the company or a strike by the union). While in
negotiations and mediation, both parties are bound by the contrac-
tual terms that were in effect prior to the commencement of the
collective bargaining process.
Personnel costs accounted for approximately 41% of USAir's
operating costs for 1995. USAir currently has the highest unit
labor costs in the domestic airline industry. The Company
continues to believe that USAir's long-term future depends on its
success in further reducing its cost of operations, including
personnel costs. The Company remains committed to obtaining a
significant reduction in USAir's unit labor costs. The Company is
also unable to predict at this time the outcome of its discussions
with USAir's unionized employee groups or the form of any potential
wage concessions and productivity improvements. As mentioned
above, the Company offered an ownership stake and seats on its
board of directors in its prior negotiations with USAir's unions.
There are recent examples of companies in the airline industry
which have obtained employee concessions in agreements that also
resulted 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
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<PAGE>
airlines have ceased operations altogether when their operating
costs remained excessive in relation to their revenues, and their
liquidity became insufficient to sustain their operations.
Further, the Company's improved financial performance in 1995 may
hinder its efforts to negotiate meaningful wage and benefit
concessions and productivity improvements from USAir's unionized
employee groups.
CEO Succession and Senior Management Changes
In early 1996, the Company's and USAir's boards of directors
elected Stephen M. Wolf as Chairman of the Board and Chief
Executive Officer of both companies. Mr. Wolf succeeded Seth E.
Schofield in these capacities. During February 1996, Rakesh
Gangwal was appointed President and Chief Operating Officer of
USAir Group and USAir and Lawrence M. Nagin was appointed Executive
Vice President of Corporate Affairs and General Counsel of both
companies. The new senior executive management team has yet to
state whether and if so, to what extent, there will be changes in
USAir's policies or strategies.
Discussions With UAL and AMR Corporations
The Company announced in early October 1995 that it was
engaged in preliminary discussions with both AMR Corporation
("AMR"), parent company of American, and UAL Corporation ("UAL"),
parent company of United, concerning possible strategic relation-
ships, up to and including acquisition of USAir or USAir Group.
UAL announced in November 1995 that it would not pursue the discus-
sions. AMR, which had previously announced that it would likely
not pursue the matter if UAL chose not to do so, likewise declined
to continue the discussions with the Company.
Deferral of Dividends
The Company announced in September 1994 that it had elected to
defer quarterly dividend payments on all outstanding series of its
preferred stock. The Company has not paid dividends on its Common
Stock since the second quarter of 1990. As of March 28, 1996, the
Company's board of directors had not authorized the resumption of
any dividends on the Company's preferred stock or Common Stock and
there can be no assurance when or if such dividend payments will
resume. The Company, organized under Delaware law, may also be
subject to certain legal prohibitions on its ability to pay
dividends or repurchase or redeem its own shares of capital stock
for cash or other property. Capital surplus, under Delaware Law,
is calculated as (i) net assets (total assets minus total liabili-
ties), less (ii) total capital (that amount of preferred and common
equity designated as capital by a company's board of directors). At
December 31, 1995, based on the Company's consolidated balance
sheet as of that date, the Company had a capital deficit of
approximately $140.5 million. The Company's net assets were in a
deficit position of approximately $77.1 million and its total
capital was approximately $63.4 million (all attributable to the
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Company's outstanding Common Stock; capital for the Company's
outstanding preferred stock issuances is a nominal amount of one
cent per share). In addition, as of December 31, 1995, the Company
does not believe that it can comply with certain provisions of
Delaware Law which permit a company with a capital deficit to pay
dividends on its capital stock under special circumstances.
Under the terms of the Company's 9 1/4 % Series A Cumulative
Convertible Redeemable Preferred Stock ("Series A Preferred
Stock"), without par value, its holders, currently affiliates of
Berkshire Hathaway, Inc. ("Berkshire"), have the right to elect two
additional directors to USAir Group's board of directors after a
scheduled dividend payment has not been made for thirty days.
Berkshire has informed the Company that it does not intend to
exercise its right at this time. Under the terms of the publicly-
held Series B Cumulative Convertible Preferred Stock ("Series B
Preferred Stock"), its holders have the right to elect two
additional directors to USAir Group's board of directors if six
quarterly dividend payments are not paid. That right became
effective on February 15, 1996. In March 1996, certain Series B
Preferred Stock holders informed the Company that they would be
pursuing the right to elect two additional directors to the
Company's board of directors. The holder of the Series F Cumula-
tive Convertible Senior Preferred Stock, without par value ("Series
F Preferred Stock"), the Series T-1 Cumulative Convertible
Exchangeable Senior Preferred Stock, without par value ("Series T-1
Preferred Stock"), and the Series T-2 Cumulative Convertible
Exchangeable Senior Preferred Stock, without par value ("Series T-2
Preferred Stock")(the Series T-1 and Series T-2 Preferred Stock are
collectively referred to as the "Series T Preferred Stock"), an
affiliate of BA, would have the right to nominate an additional
director to the Company's board of directors pursuant to its
Investment Agreement with the Company if Berkshire and the holders
of the Series B Preferred Stock were to exercise their respective
rights to elect additional directors to the Company's board of
directors.
Industry Globalization and Regulation
The trend toward globalization of the airline industry has
accelerated in recent years as certain U.S. and foreign air
carriers have formed marketing alliances. Certain foreign air
carriers have made substantial investments in U.S. air carriers
which have frequently been tied to marketing alliances or, less
frequently, reciprocal investments by the U.S. air carrier in its
foreign partner. Foreign investment in U.S. air carriers is
restricted by statute and may be subject to review by the DOT and,
on antitrust grounds, by the U.S. Department of Justice.
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. Under the Investment
Agreement, USAir and BA have entered into a code sharing arrange
57
<PAGE>
ment 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.
The deadline for BA's election to purchase 50,000 shares of
Series C Cumulative Convertible Senior Preferred Stock, without par
value (the "Series C Preferred Stock"), and therefore, subject to
the conditions specified below, to elect to make any further
investment in USAir Group pursuant to the Investment Agreement, was
January 21, 1996. Prior to this deadline BA informed the Company
that it would not exercise its right to purchase the Series C
Preferred Stock. Because BA did not elect to purchase the Series C
Preferred Stock, the Company currently has the option to redeem in
whole or in part, the Series F Preferred Stock and a like
percentage of the Series T Preferred Stock at the higher of market
value or the price of $10,000 per share, plus accrued dividends.
As mentioned above in "Deferral of Dividends", the Company elected
in late September 1994 to defer dividends on its preferred stock
and, as of March 28, 1996, the Company's board of directors had not
authorized the resumption of any dividend payments on the Company's
capital stock. If the DOT approves all the transactions as
contemplated by the Investment Agreement on or prior to January 21,
1998, BA's purchase of the Series C Preferred Stock may be
accomplished under certain circumstances. The DOT has not yet
approved all the provisions of the Investment Agreement. The
Company cannot predict whether or when the purchase of the Series C
Preferred Stock will occur or if BA will make any additional
investment in the Company.
In June 1995, the DOT renewed its approval of the Company's
and BA's authority to operate code share service on flights serving
66 U.S. cities. In addition, the DOT approved an expansion of the
USAir code share authority to 65 new U.S. cities, Bermuda, Nassau
and five Canadian cities. The approval is valid for two years. As
of December 31, 1995, USAir and BA offered code share service to
and from 70 of the 138 airports authorized by the DOT. The DOT may
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 existing 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.
During 1995, the DOT completed its 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.
The DOT has indicated that it intends to maintain the operating
limitations imposed by the rule. USAir holds a substantial number
of slots at LaGuardia and National.
58
<PAGE>
Other
USAir has announced that it will phase out the "wet lease"
arrangements with BA by the end of June 1996. Under the wet lease
arrangements, USAir leases Boeing 767-200ER aircraft, along with
cockpit and cabin crews, to BA in order for BA to serve three
routes between the U.S. and London. In conjunction with the
termination of the wet lease arrangements and related to USAir's
relinquishment or divestiture of certain routes to the U.K., BA
agreed to pay USAir a total of $47 million in periodic payments
commencing with the termination of the first of the three wet
leases and continuing annually for nine years. USAir currently
intends to utilize the aircraft returned from BA as part of its
planned 1996 expansion of international service (see "Cost-
Reduction and Revenue Enhancement Initiatives" above). The first
wet lease ended in late December 1995 and, concurrently, BA
remitted the first payment to USAir (See Note 13. to the Company's
consolidated financial statements contained in Part II, Item 8A).
A second aircraft was returned to USAir in February 1996.
In March 1996, Fokker Aircraft N.V. ("Fokker"), a Dutch
aircraft manufacturer, was declared bankrupt under the laws of The
Netherlands. As of December 31, 1995, USAir operated 55 Fokker
aircraft. Although USAir had no outstanding aircraft purchase
orders with Fokker, Fokker had certain warranty obligations to
USAir under purchase agreements and also supplied aircraft parts
and components to USAir. Although USAir has been advised that
successor entities will supply parts and technical services to
Fokker's airline customers, a disruption in the supply of parts or
components could adversely impact USAir's operations. Moreover, an
adverse market perception of Fokker products could adversely affect
market values of USAir's owned Fokker aircraft or the ability of
USAir to sell or lease retired Fokker products. As of March 28,
1996, USAir owned 57 Fokker aircraft (19 of which are operated by
lessees of USAir). See Part I, Item 2. "Properties" for additional
information.
Frequent Traveler Program
Under USAir's Frequent Traveler Program ("FTP"), participants
generally receive mileage credits equal to the greater of actual
miles flown or 500 miles, effective May 1, 1995 (750 miles before
May 1, 1995), for each paid flight segment on USAir or USAir
Express, or actual miles flown on one of USAir's FTP airline
partners. Participants generally receive a minimum of 500 mileage
credits, effective May 1, 1995, for each paid flight on USAir
Shuttle (1,000 miles prior to May 1, 1995). Participants flying on
first or business class tickets generally receive additional
credits. Participants may also earn mileage credits by utilizing
certain credit cards, staying at participating hotels or by renting
cars from participating car rental companies. Mileage credits
earned by FTP participants, which do not expire under current
program guidelines, can be redeemed for various travel awards,
including fare discounts, first class upgrades and tickets on USAir
59
<PAGE>
or other airlines participating in USAir's FTP. Certain awards
also include hotel and car rental awards. Awards 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 through inventory
management techniques. The number of seats available for frequent
travelers varies depending upon flight, day, season and destina-
tion. 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. USAir reserves the right to terminate the
FTP or portions of the program at any time, and the FTP's rules,
partners, special offers, blackout dates, awards and mileage levels
are subject to change without prior notice.
USAir accounts for its FTP under the incremental cost method,
whereby estimated future travel awards are valued at the estimated
average incremental cost of carrying one additional passenger.
Incremental costs include unit costs for passenger food, beverages
and supplies, fuel, reservations, communications, liability
insurance and denied boarding compensation expenses. No profit or
overhead margin is included in the accrual for incremental costs.
The Company periodically reviews the assumptions made to calculate
its FTP liability for reasonableness and makes adjustments to these
assumptions as necessary. 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 such 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
3,350,000 awards and 3,697,000 awards at December 31, 1995 and
1994, respectively, at the 25,000 mile level required to earn an
award. Because USAir expects that some potential awards will never
be redeemed, the calculations of the accrued liability for
incremental costs at December 31, 1995 and 1994 were based on
approximately 87% and 86%, 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. Incremental
changes in FTP liability resulting from redeemed or additional
mileage credits are recorded as part of the regular review process.
USAir's customers redeemed approximately 1,160,000, 927,000
and 841,000 awards for free travel on USAir in 1995, 1994 and 1993,
respectively, representing approximately 9.0%, 7.0% and 8.0% of
USAir's revenue passenger miles ("RPMs") in those years, respec-
tively. USAir does not believe that usage of FTP awards results in
any significant displacement of revenue passengers. 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 second quarter of 1995, the quarter when the
highest number of free frequent traveler trips were flown for the
60
<PAGE>
year, for example, fewer than 6.5% of USAir's flights departed
100% full. During this same quarterly period, approximately 5.2%
of USAir's flights departed 100% full and also had one or more
passengers on board who were traveling on FTP award tickets.
During 1995, four members of USAir's FTP filed class action
lawsuits against USAir in Illinois, Pennsylvania, California and
New Jersey state courts, alleging breach of contract relating to
changes made to USAir's FTP effective December 31, 1989 and/or
January 1, 1995. A similar lawsuit has been pending in California
state court since 1989. The lawsuits seek unspecified damages and
an injunction against allegedly objectionable changes to USAir's
FTP and any subsequent retroactive changes to the FTP. See Part I,
Item 3. "Legal Proceedings." USAir denies the allegations made in
the lawsuits and intends to vigorously defend itself. 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 ultimate resolution
of these lawsuits or potential lawsuits or possible DOT actions and
the potential impact on the Company's results of operations and
financial condition cannot be predicted at this time.
Results of Operations
1995 Compared with 1994
USAir Group recorded net income of $119.3 million for 1995
compared with a net loss of $684.9 million for 1994. USAir
recorded net income of $33.0 million for 1995 which represents an
improvement of $749.2 million over its 1994 results.
The Company's year-over-year improvement in net income
reflects a $477.2 million (6.8%) revenue increase coupled with a
decrease in operating expenses of approximately $335.9 million
(4.5%). Excluding the unusual items recognized during 1994 and
1995, as discussed further below, the Company's operating costs
decreased approximately 1.1% year-over-year.
USAir's yield was 16.66 cents for 1995, a 6.7% improvement versus
1994. The stronger than anticipated increase in yield primarily
resulted from the effects of the factors discussed in "Factors
Contributing to Improved 1995 Results" above. USAir's capacity
(ASMs) for 1995 decreased by approximately 4.7%. RPMs, however,
decreased less than 1% and USAir's load factor was 64.7% for 1995,
a historical high. USAir's unit costs increased to 11.40 cents from
1994's 11.02 cents primarily due to the capacity reductions that
occurred in 1995. USAir's capacity (ASMs) for 1996 is expected to
be approximately 3% less than for 1995 reflecting the full-year
effects of USAir's right-sizing initiatives. USAir's unit costs
are expected to increase for 1996 mainly due to higher Personnel
Costs and Aviation Fuel expenses, partially offset by decreases in
certain capacity-related expenses, applied over less capacity on a
61
<PAGE>
year-over-year basis. USAir's pilot and flight attendant
employees received contractual wage increases in early 1996 and
certain USAir non-contract employees received salary increases
effective January 1, 1996.
The Company believes that for the foreseeable future, while
demand for higher yield "business fares" will remain essentially
flat and relatively inelastic, the lower yield "leisure" market
will remain highly price sensitive. The leisure market, which is
affected by general economic conditions, is also the primary target
market for low cost, low fare carriers. The Company expects that
low fares offered by its airline affiliates in response to low
cost, low fare competition in their markets will increase during
1996 and such competitive actions may have an adverse effect on the
Company's results of operations, liquidity and financial condition.
The Company has stated that its January 1996 revenues were
adversely affected by the severe winter weather along the eastern
seaboard and the effects of the partial United States government
shutdown by approximately $30 million and $10 million, respective-
ly. In addition, the Company estimates that the weather and
government shutdown adversely affected operating expenses by
approximately $2 million. Although a competitive strength,
concentration of significant operations in the eastern U.S. leaves
the Company's airline subsidiaries susceptible to certain regional
conditions that may have an adverse affect on the Company's results
of operations and financial condition.
In August 1993, the United States increased taxes on domestic
fuels, including aircraft fuel used on domestic routes, by 4.3 cents per
gallon. Airlines were exempt from the tax increase until Octo-
ber 1, 1995. Pending legislation in Congress would reinstate the
exemption through September 30, 1997, subject to termination of the
exemption on September 30, 1996 if excise taxes relating to certain
aviation trust funds are not extended. These excise taxes expired
on December 31, 1995 and have not, as of March 28, 1996, been
extended. There can be no assurance that an airline jet fuel tax
exemption will be reinstated, or if reinstated, the terms under and
the period for which the exemption will be effective. The
additional fuel tax is currently being collected. USAir's 1995
results include expenses related to this tax of approximately $11.9
million, recognized as an operating expense, in Other Expense, Net.
The lack of an airline jet fuel tax exemption would increase
USAir's annual operating expenses by approximately $47 million
based on projected domestic fuel consumption for 1996.
The financial results for 1994 include: (i) a $172.9 million
charge related to USAir's grounded BAe-146 fleet (see below for
additional information related to the reserve for the BAe-146
fleet) and to USAir's decision to cease operations of its remaining
Boeing 727-200 aircraft in 1995 (the last operational 727-200
aircraft was retired from service in September 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
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<PAGE>
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 lost in
the September 1994 accident; and (v) a $1.7 million charge related
to the sale of certain assets to Mesa. The following table
indicates where these items appear in the Company's consolidated
statement of operations which is found in Part II, Item 8A. of this
report ($ 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 Company recognized a $4.1 million unusual item during the
fourth quarter of 1995. This amount, a reduction of Aircraft Rent
expense, reflects a partial reversal of the unusual item recorded
in the fourth quarter of 1994 related to USAir's grounded BAe-146
fleet (see discussion of 1994 unusual items above). The $4.1
million reflects USAir's success subleasing three leased BAe-146
aircraft during the fourth quarter of 1995. The Company expects to
reverse additional amounts previously accrued for dependent on
USAir's success remarketing these aircraft.
Operating Revenues - The Company's Passenger Transportation
revenues increased $391.0 million (6.2%), $345.5 million of which
is attributable to USAir and the remainder to the Company's wholly-
owned regional airlines. The Company estimates that its Passenger
Transportation revenues were adversely affected during 1994 by
approximately $50 million due to unfavorable weather during the
first quarter and approximately $150 million as the result of the
two accidents that occurred during the third quarter. By early
1995, USAir's traffic had recovered from the effects of the
accidents and approached a level more normally associated with
USAir's capacity in the marketplace. USAir's 6.7% yield improve-
ment was sufficient to offset the effects on revenues of a 4.7%
decrease in both revenue passengers and capacity (see related
discussion in "Factors Contributing to Improved 1995 Results"
63
<PAGE>
above).
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. The class action suit, which was
filed in July 1990, alleged that the airlines used the Airline
Tariff Publishing Company to signal and communicate air 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 the
results of operations in the second quarter of 1992. Incremental
cost associated with the settlement will not be material based on
the nominal equivalent free trips associated with the settlement.
The travel certificates may be applied towards travel purchased
between January 1995 and December 1998.
On October 11, 1994, USAir and seven other air 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 air carriers and will be available for 18
months from August 16, 1995, or until the combined discount amount
reaches $40 million, whichever first occurs. On May 10, 1995, a
U.S. federal district court judge approved this settlement. USAir
does not expect that this settlement will have a material adverse
effect on its financial condition or results of operations.
The Company's Cargo and Freight revenue decreased $6.3 million
(3.9%) primarily due to USAir's $6.7 million (4.2%) decrease. The
U.S. Postal Service's increased emphasis on truck movement of mail
in the Northeastern U.S. has resulted in lower mail volumes and
yields. The $92.5 million (19.4%) increase in the Company's Other
Revenue ($67.5 million or 13.6% increase for USAir) is mainly
attributed to an increase in fees received from participants in
USAir's frequent traveler program and increased revenues from
higher volumes and rates for cancellation and rebooking fees.
Revenues from third party aircraft lease and sublease arrangements
also increased during 1995. Overall, increases in the Other
Revenue category were largely offset by increases in related
expenses recognized as Other Expenses, Net (see below). Revenues
associated with USAir's wet lease arrangements with BA, recognized
as Other Revenue, are expected to decrease in 1996 in conjunction
with the phase-out of the wet lease program (see "Wet Lease
Arrangements" above). USAir's results include certain transactions
that are eliminated at the USAir Group level. See additional
information related to the Company's third party lease and sublease
arrangements in Note 4(b) to the Company's consolidated financial
statements contained in Part II, Item 8A. of this report.
64
<PAGE>
Operating Expenses - The Company's and USAir's Personnel Costs
were relatively unchanged. USAir recognized approximately $49.7
million of expense in 1995 associated with the profit share
component of the 1992 Salary Reduction Program (see further
discussion of this profit share plan in "Liquidity and Capital
Resources" below). Profit share expense during 1994 was approxi-
mately $4.1 million, resulting from employees receiving certain
guaranteed profit share payments upon termination. Overall, profit
share expense and the contractual wage increases that USAir's
pilots, flight attendants and mechanics received during 1995 were
offset by lower personnel levels. USAir's workforce had approxi-
mately 2,500 fewer employees at December 31, 1995 than at Decem-
ber 31, 1994. Aviation Fuel expense decreased $37.6 million
(5.6%), primarily due to USAir's $37.3 million (5.8%) decrease.
Year-over-year, the average cost of fuel per gallon was relatively
unchanged but USAir's capacity (ASMs) decreased approximately 4.7%.
The decreased capacity contributed to a 5.6% reduction in fuel
consumption. Jet fuel prices have increased during the first
quarter of 1996. The cost of jet fuel per gallon is expected to be
higher during 1996 than 1995, however, the price of jet fuel is
dependent on market factors generally outside of the Company's
control. See discussion above related to jet fuel tax legislation.
The Company's Commissions expense decreased $20.1 million (3.5%)
and $22.1 million (4.0%) at USAir despite an increase in Passenger
Transportation revenues primarily due to the effects of a change in
the rate structure for travel agency commissions that went into
effect during early 1995. See Note 4.(b) to the Company's consoli-
dated financial statements contained in Part II, Item 8A. for
information regarding litigation involving travel agency commis-
sions. The Company's Aircraft Rent decreased $125.9 million (22.3%)
primarily due to USAir's $123.3 million (23.7%) decrease.
Excluding the unusual items recognized during 1994 and 1995, as
discussed above, USAir's Aircraft Rent decreased $3.7 million
(0.9%) mainly due to fewer leased aircraft year-over-year. The
Company's Other Rent and Landing Fees expense decreased $32.4
million (7.4%) and $33.3 million (7.9%) at USAir primarily due to
USAir's capacity reductions and credits totaling approximately $6.0
million received from various airport authorities during 1995
related to 1994 activity. The Company's Aircraft Maintenance
decreased $45.3 million (11.6%) primarily due to USAir's $40.2
million (12.0%) decrease which resulted from fewer operating
aircraft year-over-year and the positive impact of USAir's re-
engineering efforts in the maintenance areas. Excluding the
effects of the unusual items recognized during 1994, as discussed
above, USAir's Depreciation and Amortization expense increased $7.8
million (2.4%) in 1995 compared with 1994. Excluding the effect of
the unusual items recognized in 1994, as discussed above, the
Company's Other Expenses, Net increased approximately $68.5 million
(4.7%) largely due to increases in expenses associated with
increased sales activity and increased taxes on jet fuel (see
discussion above related to jet fuel tax legislation). Increased
third party lease and sublease arrangements have also contributed
to the increase in this expense category (see related discussion
above in "Other Revenues"). Decreases in certain capacity-related
65
<PAGE>
expenses partially offset increases in other components of the
Other Expense, Net. Expenses associated with USAir's wet lease of
aircraft to BA, recognized as Other Expenses, Net, are expected to
decrease in 1996 in conjunction with the phase-out of the wet lease
program (see "Wet Lease Arrangements" above). USAir's results
include certain transactions that are eliminated at the USAir Group
level.
Other Income (Expense) - The Company's Interest Income
improved by $24.5 million (90.6%) mainly as a result of signifi-
cantly higher cash levels during 1995. The Company's Interest
Expense increased $18.6 million (6.5%) primarily as a result of
interest incurred on debt associated with new aircraft deliveries
during 1994 and 1995. Interest Capitalized decreased $5.0 million
(36.2%) mainly due to USAir's agreement with Boeing to defer the
delivery of certain 757-200 aircraft from 1996 to 1998 (see Note
4.(d) to the Company's consolidated financial statements contained
in Part II, Item 8A.). Other, Net was relatively unchanged as the
effects of the $28.3 million gain recognized in 1994 (discussed
above) was offset by USAir's improved equity results in USAM and
gains of approximately $10.7 million associated with the sale of 13
737-300 aircraft during 1995. USAM owns 11% of the Galileo
International Partnership, which owns and operates the Galileo
Computerized Reservation System ("CRS"), and 21% of the Apollo
Travel Services Partnership, which markets the Galileo CRS in the
U.S. and Mexico. On a consolidated basis, USAM recorded pre-tax
income of $34.5 million for 1995.
Income Tax Provision (Credit) - The Company was subject to
Federal alternative minimum tax for 1995 as well as income taxes in
certain states. The Company was not subject to regular Federal
income tax for 1995 as the result of using Federal net operating
loss carryforwards. The results for 1994 do not include any income
tax credit due to Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes" ("FAS 109") limitations in
recognizing a current benefit for net operating losses. See Note
6. to the Company's consolidated financial statements contained in
Part II, Item 8A. for additional information.
The Company implemented Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and Long-Lived Assets to Be Disposed Of" as of January 1,
1995. The effects, which were negligible, are included in the
Company's results of operations for 1995. In October 1995, the
Financial Accounting Standards Board adopted Statement No. 123
"Accounting for Stock-Based Compensation" ("FAS 123"). This
statement establishes the fair value based method of accounting for
stock compensation. The Company has elected to continue using the
intrinsic value based method of accounting prescribed in Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees."
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<PAGE>
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 were factors that had a
negative effect on the Company's results of operations during 1994.
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
quarter of 1994 produced a revenue shortfall of approximately $150
million from forecast amounts.
The Company's 1994 financial results contain the $226.2
million of unusual items discussed in "1995 compared with 1994"
above. The Company's 1993 financial results contain $153.2 million
of unusual items, including (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 Post-employment Benefits;" (ii) a $68.8 million charge for
severance, early retirement, and other personnel-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 reserva-
tions 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):
<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>
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<PAGE>
Operating Revenues - The Company's Passenger Transportation
revenues decreased $197.4 million (3.0%), $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% additional capacity
(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% due to several factors including lower
fares resulting from increased competition from low cost, low fare
air carriers in USAir's markets and industry fare discounting
promotions.
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.
Operating Expenses - The Company's Personnel Costs increased
$48.4 million (1.7%) primarily due to USAir's $55.2 million (2.0%)
increase. 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. 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. 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 facili-
ties. 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%)
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
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<PAGE>
Company's Depreciation and Amortization expense increased $56.1
million (15.9%) due to USAir's $62.0 million (19.1%) increase.
Excluding the effect of the unusual charges discussed and presented
in the tables above, USAir's depreciation and amortization expense
increased $17.6 million (5.6%) in 1994 compared with 1993 primarily
due to the delivery of new Boeing 757-200 aircraft. The $157.0
million (11.3%) increase in the Company's Other Expenses, Net is
due to USAir's $145.1 million (10.8%) increase. Excluding the
effect of the unusual charges discussed and presented in the tables
above, USAir's other expenses, net increased $65.8 million (4.9%)
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.
Other Income (Expense) - 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 USAir's improved equity results in USAM.
Effective January 1, 1993, the Company adopted 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 contained in Part II, Item 8A. 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 the fair
market value of the assets on May 29, 1987. In the case of
Piedmont 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
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<PAGE>
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 $576.6 million
in 1995. Cash provided by (used for) operations totaled approxi-
mately $1.1 million and ($2.6) million for 1994 and 1993, respec-
tively. The significant improvement in cash flows from operating
activities during 1995 was driven by the same factors that
contributed to the Company's improved 1995 financial results (see
"Factors Contributing to Improved 1995 Financial Results" above).
At December 31, 1995, cash and cash equivalents and short-term
investments totaled approximately $901.7 million.
During December 1995, USAir completed a transaction which
enabled it to substitute previously unencumbered aircraft in-lieu
of cash deposits as collateral for certain workers' compensation
liabilities. As a result of the arrangement, approximately $67.2
million of previously restricted cash and security deposits were
returned to USAir. The Company's cash and cash equivalents and
short-term investments balance of $901.7 million as of December 31,
1995, excludes approximately $100.0 million which was deposited in
trust accounts to collateralize certain other workers' compensation
liabilities and letters of credit which are classified as "Other
Assets" on the Company's consolidated balance sheet at that date.
See also Note 1(f) to the Company's consolidated financial
statements contained in Part II, Item 8A.
Investing activities during 1995 included cash inflows from
asset sales of approximately $222.3 million (primarily from the
sale of 13 737-300 aircraft) offset by a $146.7 million cash
outflow for the acquisition of assets ($61.7 million cash payments
related to new 757-200 aircraft and $85.0 million cash payments
related to the purchase of aircraft rotables, hush kits, computer
equipment and various ground support equipment). Net cash provided
by investing activities for 1995 was $148.9 million.
Financing activities during 1995 included $283.2 million of
debt payments, including the redemption of USAir's remaining
outstanding 12 7/8% Unsecured Senior Notes ("12 7/8% Notes"),
partially offset by $8.7 million in cash proceeds from the sale of
the Company's stock to an employee benefit plan stock fund and new
debt of $1.2 million incurred at one of the Company's regional
airline subsidiaries. In addition, the Company incurred debt of
$169.7 million associated with the delivery of seven new 757-200
aircraft and scheduled progress payments for the future aircraft
deliveries during 1995. In connection with the deferral of eight
757-200 deliveries to 1998, USAir rescheduled the due date of $70.8
million of previously satisfied aircraft purchase deposits into the
future resulting in a reduction of both debt and equipment deposits
(see Note 4.(d) to the Company's consolidated financial statements
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<PAGE>
contained in Part II, Item 8A.). The $169.7 million and $70.8
million are reflected as non-cash activity in the Company's
Consolidated Statements of Cash Flows found in Part II, Item 8A. of
this report because USAir experienced an increase or decrease in
fixed assets or equipment deposits concurrently with the increase
or decrease in debt. USAir made early debt payments, including the
redemption of the 12 7/8% Notes, totaling approximately $202.1
million during 1995. Further steps by USAir to prepay debt and
lease obligations are possible.
Certain USAir employees whose wages and/or benefits were
temporarily reduced during 1992 and 1993 currently participate in a
profit sharing plan (a component of the 1992 Salary Reduction
Program) designed to recompense them for the concessions made
during that time period. The plan will cease to exist after these
employees have been recompensed to the extent permitted under the
provisions of the plan. 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. This profit sharing plan is distinct from two other
profit sharing plans that USAir currently offers in conjunction
with certain of its defined contribution plans and its Employee
Stock Ownership Plan. Additional information related to this plan
can be found in Note 12 to the Company's consolidated financial
statements contained in Part II, Item 8A. Payouts are determined
based on USAir Group's pre-tax results for a year, less charges
associated with postretirement benefit expenses other than for
pensions. Certain unusual items are also excluded from the
calculation. Based on USAir Group's 1995 results and the provi-
sions of the profit sharing plan, USAir recognized charges of
approximately $49.7 million for this plan in 1995. USAir made a
cash payment of approximately $73.7 million to plan participants in
March 1996 for 1995 activity. The maximum remaining pay-out under
this plan after the March 1996 payment, the timing of which is
dependent on USAir Group's future profitability, among other
factors, is currently estimated to be no more than $134.3 million.
As discussed above in "Deferral of Dividends", the Company
has deferred dividend payments on all series of its outstanding
preferred stock. The aggregate annual dividend requirements
related to the Company's outstanding preferred stock issuances,
each of which has a cumulative dividend feature, currently amount
to approximately $79.2 million. Accordingly, aggregate dividends-
in-arrears as of December 31, 1995, including additional dividends
(interest) on deferred dividends, of approximately $117.7 million
represent a future obligation of the Company. In addition, the
Company's Series A Preferred Stock is mandatorily redeemable on
August 7, 1999 at $1,000 per share plus accrued dividends (inter-
est). The Series F Preferred Stock and Series T Preferred Stock
are mandatorily redeemable in the year 2008. As of December 31,
1995, the redemption values of the Series A Preferred Stock,
Series F Preferred Stock and Series T Preferred Stock were
approximately $412.1 million, $329.1 million, and $109.6 million,
respectively.
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<PAGE>
The Company and USAir are party to certain financial contracts
to reduce exposure to fluctuations in the price of jet fuel and
changes in the U.S. dollar to Japanese Yen conversion rate. 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.
Decreases in the market cost of jet fuel below the rates specified
in the contracts require the Company and USAir to make cash
payments. 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 duration. The Company and USAir
have reviewed the financial condition of each of the counterparties
to these financial contracts and believe that the potential for
default by any of the current counterparties is negligible. In
prior years, USAir participated in contracts to reduce its exposure
to interest rate changes but these contracts expired during 1995
and were not renewed. See Note 2. to the Company's consolidated
financial statements contained in Part II, Item 8A. 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. Negotiations with various governmental
agencies continue concerning known and possible cleanup sites.
USAir has made financial contributions for the performance of
remedial investigations and feasibility studies at sites in Moira,
New York; Escondido, California; and Elkton, Maryland. The
contributions totaled approximately $200 thousand for 1995, 1994
and 1993 combined. The Company believes that the ultimate
resolution of known environmental contingencies should not have a
material adverse effect on its results of operations and financial
condition based on the Company's experience with similar environ-
mental sites.
Also, USAir has been identified as a potentially responsible
party ("PRP") for environmental contamination at Boston Logan
Airport. There are a number of other PRPs at the site. The
Company is presently unable to assess its proportionate share of
contribution, but does not expect any such contribution to have a
material adverse effect on its financial condition or results of
operations.
The Company terminated its revolving credit facility with a
group of banks during 1994. The Company had historically utilized
such a facility to supplement its liquidity from time to time. In
addition, USAir's revolving accounts receivable sale program
expired in December 1994. USAir was unable to sell receivables
under the agreement during 1994 because of failure to comply with
certain financial covenants required to be maintained in connection
with that agreement. USAir had engaged in discussions with respect
72
<PAGE>
to a replacement receivables sale facility but has elected not to
pursue such a financing at this time.
The Company's liquidity and capital resources improved
considerably during 1995. However, the Company and USAir are
highly leveraged and 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. Developments
may occur that are beyond the control of the Company and USAir
which could have a material adverse effect on the Company's future
prospects, liquidity and financial condition, including a downturn
in the economy, intensified fare pricing wars, adverse regulatory
changes, substantial increases in jet fuel prices or fuel taxes,
adverse weather conditions, negative public perception regarding
safety, and the further growth and expansion of low cost, low fare
air carriers into markets served by USAir and its regional
affiliates.
The Company anticipates that its 1996 capital expenditures,
primarily related to USAir's operations, will be approximately $257
million. Of this amount, approximately $67 million relates to
progress payments for future aircraft deliveries and $35 million
relates to the purchase of hush kits for certain aircraft in order
to comply with federal noise and pollution mandates. The Company
expects that it will satisfy its liquidity requirements for 1996
through a combination of cash flow from operations and cash on
hand. As a result of the recent aircraft delivery deferral
agreements with Boeing, the Company's capital commitments have been
substantially reduced for the 1996-2000 time period (see "Cost-
Reduction and Revenue Enhancement Initiatives" above). USAir
currently has committed financing for a significant portion of the
purchase price for each of the scheduled 1998 deliveries.
Except for the Enhanced Equipment Notes ("Enhanced Notes")
sold in 1996 (see below), 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"). The ratings of the Company's and USAir's debt and
equity securities make it more difficult and costly for the Company
and USAir to effect additional financing, particularly unsecured
debt financing.
In February 1996, USAir sold $263 million principal amount of
Enhanced Notes through a private placement offering under Securi-
ties and Exchange Commission Regulation 144A. The offering netted
proceeds of approximately $259 million which were used as part of
the funds necessary to repay in full the indebtedness incurred in
connection with certain 757-200 aircraft delivered to USAir in 1994
and 1995. The Enhanced Notes are secured by nine 757-200 aircraft.
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 consolidated
statement of cash flows since debt was incurred upon delivery of
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<PAGE>
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 hush kits, 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 the 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 757-
200 aircraft and to satisfy equipment deposit progress payments.
During 1993, the Company's investment in new aircraft
acquisitions and purchase deposits totaled $545.3 million (which
includes $343.2 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). USAir took delivery of 11 Boeing 757-200, one Boeing
767-200ER and six McDonnell Douglas 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 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).
On January 21, 1993, a wholly-owned subsidiary of BA purchased
30,000 shares of the 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.
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 Series T-2
Preferred Stock for approximately $99.2 million and exercised its
optional purchase right by purchasing 152.1 shares of T-1 Preferred
Stock for approximately $1.5 million.
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<PAGE>
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-1 and Series
T-2 Preferred Stock and the sale of the 10% Notes and 9 5/8% Notes
were added to the working capital of the Company for general
corporate purposes.
At December 31, 1995, USAir Group's ratio of current assets to
current liabilities was .64 to 1 and the debt component of USAir
Group's capitalization structure was greater than 100% (also
greater than 100% if the Company's 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 ("USAir Group") as of December 31, 1995 and
1994, 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, 1995. These
consolidated financial statements are the responsibility of USAir
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,
1995 and 1994, and the results of their operations and their cash
flows for the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
As discussed in Note 11 to the consolidated financial statements,
effective January 1, 1993, USAir Group changed its method of
accounting for postemployment benefits.
KPMG Peat Marwick LLP
Washington, D. C.
February 28, 1996
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<PAGE>
<TABLE>
USAir Group, Inc.
Consolidated Statements of Operations
Years Ended December 31, (in thousands except per share amounts)
=====================================================================================================
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating Revenues
Passenger transportation $6,748,564 $6,357,547 $ 6,554,926
Cargo and freight 157,262 163,598 173,824
Other 568,522 476,049 354,458
--------- --------- ----------
Total operating revenues 7,474,348 6,997,194 7,083,208
Operating Expenses
Personnel costs 2,887,115 2,889,764 2,841,344
Aviation fuel 634,320 671,926 710,109
Commissions 563,037 583,158 596,779
Other rent and landing fees 404,158 436,540 445,797
Aircraft rent 437,649 563,572 472,622
Aircraft maintenance 346,854 392,181 374,084
Depreciation and amortization 352,447 408,587 352,467
Other, net 1,527,081 1,542,822 1,385,798
--------- --------- ----------
Total operating expenses 7,152,661 7,488,550 7,179,000
--------- --------- ----------
Operating income (loss) 321,687 (491,356) (95,792)
Other Income (Expense)
Interest income 51,624 27,088 12,632
Interest expense (302,593) (284,034) (249,916)
Interest capitalized 8,781 13,760 17,763
Other, net 48,773 49,619 (34,054)
--------- --------- ----------
Other income (expense), net (193,415) (193,567) (253,575)
--------- --------- ----------
Income (loss) before taxes and cumulative
effect of accounting change 128,272 (684,923) (349,367)
Income tax provision (credit) 8,985 - -
--------- --------- ----------
Income (loss) before cumulative effect of
accounting change 119,287 (684,923) (349,367)
Cumulative effect of change in method of
accounting for postemployment benefits
in 1993 - - (43,749)
--------- --------- ----------
Net income (loss) 119,287 (684,923) (393,116)
Preferred dividend requirement (84,904) (78,036) (73,651)
--------- --------- ----------
Net income (loss) applicable to common
stockholders $ 34,383 $ (762,959) $ (466,767)
========= ========= ==========
Income (loss) per common share
Before accounting change $ 0.55 $ (12.73) $ (7.68)
Effect of accounting change - - (0.80)
--------- --------- ----------
Income (loss) per common share $ 0.55 $ (12.73) $ (8.48)
========= ========= ==========
Shares used for computation (000) 62,430 59,915 55,070
See accompanying Notes to consolidated financial statements.
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<PAGE>
USAir Group, Inc.
Consolidated Balance Sheets
December 31, (dollars in thousands except per share amounts)
=====================================================================================================
<CAPTION>
1995 1994
ASSETS ---- ----
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 881,854 $ 429,538
Short-term investments 19,831 22,133
Receivables, net 322,122 324,539
Materials and supplies, net 248,144 258,664
Prepaid expenses and other 111,131 81,642
--------- ---------
Total current assets 1,583,082 1,116,516
Property and Equipment
Flight equipment 5,251,742 5,162,599
Ground property and equipment 1,073,720 1,059,027
Less accumulated depreciation and amortization (2,301,059) (2,085,499)
--------- ---------
4,024,403 4,136,127
Purchase deposits 17,026 195,701
--------- ---------
Property and equipment, net 4,041,429 4,331,828
Other Assets
Goodwill, net 510,562 526,615
Other intangibles, net 312,786 319,711
Other assets, net 507,149 513,372
--------- ---------
Total other assets 1,330,497 1,359,698
--------- ---------
$6,955,008 $6,808,042
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt $ 80,721 $ 85,538
Accounts payable 325,330 275,847
Traffic balances payable and unused tickets 607,170 568,215
Accrued expenses 1,471,475 1,330,453
--------- ---------
Total current liabilities 2,484,696 2,260,053
Long-Term Debt, Net of Current Maturities 2,717,085 2,895,378
Deferred Credits and Other Liabilities
Deferred gains, net 386,947 413,961
Postretirement benefits other than pensions, non-current 1,015,623 958,956
Non-current employee benefit liabilities and other 427,726 417,878
--------- ---------
Total deferred credits and other liabilities 1,830,296 1,790,795
Commitments and Contingencies
Redeemable Cumulative Convertible Preferred Stock
Series A, 358,000 shares issued, no par value 358,000 358,000
(redemption value of $412,124 at December 31, 1995)
Series F, 30,000 shares issued, no par value 300,000 300,000
(redemption value of $329,094 at December 31, 1995)
Series T, 10,000 shares issued, no par value 100,719 100,719
(redemption value of $109,550 at December 31, 1995)
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 $238,798 at December 31, 1995)
Common stock, par value $1 per share, authorized
150,000,000 shares, issued and outstanding
63,449,000 and 61,088,000 shares, respectively 63,449 61,088
Paid-in capital 1,362,756 1,344,336
Retained earnings (deficit) (2,298,211) (2,417,498)
Common stock held in treasury - -
Deferred compensation (98,847) (90,965)
Adjustment for minimum pension liability (78,088) (7,017)
--------- ---------
Total stockholders' equity (deficit) (835,788) (896,903)
--------- ---------
$6,955,008 $6,808,042
========= =========
See accompanying Notes to consolidated financial statements.
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<PAGE>
USAir Group, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, (in thousands)
=====================================================================================================
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents beginning of year $ 429,538 $ 368,347 $ 296,038
Cash flows from operating activities
Net income (loss) 119,287 (684,923) (393,116)
Adjustments to reconcile net income (loss) to cash
provided by (used for) operating activities
Depreciation and amortization 352,447 408,587 352,467
Loss (gain) on disposition of property (17,043) (24,099) 10,328
Amortization of deferred gains and credits (27,817) (27,396) (27,309)
Other 6,294 (11,605) 24,635
Changes in certain assets and liabilities
Decrease (increase) in receivables 2,417 41,101 (180,152)
Decrease (increase) in materials, supplies,
prepaid expenses and intangible pension assets (74,980) 74,663 24,234
Increase (decrease) in traffic balances payable
and unused tickets 38,955 (61,932) 35,517
Increase (decrease) in accounts payable and
accrued expenses 120,422 235,105 84,787
Increase (decrease) in postretirement benefits
other than pensions, non-current 56,667 51,613 65,967
------- ------- -------
Net cash provided by (used for) operating
activities 576,649 1,114 (2,642)
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (61,689) (46,022) (202,085)
Additions to other property (84,980) (134,086) (159,031)
Proceeds from disposition of property 222,325 75,075 178,387
Change in short-term investments 2,430 (21,994) -
Change in restricted cash and investments 71,980 2,578 (14,221)
Other (1,134) 1,110 (4,378)
------- ------- -------
Net cash provided by (used for) investing
activities 148,932 (123,339) (201,328)
Cash flows from financing activities
Issuance of debt 1,162 308,856 597,834
Reduction of debt (283,160) (87,073) (889,872)
Issuance of common stock 8,733 52 230,891
Issuance of preferred stock - - 400,719
Sale of treasury stock - 11,244 8,273
Dividends paid - (49,663) (71,566)
------- ------- -------
Net cash provided by (used for) financing
activities (273,265) 183,416 276,279
------- ------- -------
Net increase (decrease) in cash and cash equivalents 452,316 61,191 72,309
------- ------- -------
Cash and cash equivalents end of year $ 881,854 $ 429,538 $ 368,347
======= ======= =======
Noncash investing and financing activities
Issuance of debt for aircraft acquisitions, net $ 169,725 $ 224,614 $ 343,188
Issuance of debt for additions to other property $ - $ - $ 669
Reduction of debt - aircraft purchase deposits $ 70,837 $ - $ -
Reduction of debt - aircraft related $ - $ - $ 47,685
Supplemental Information
Cash paid during the year for interest, net of
amounts capitalized $ 299,871 $ 251,943 $ 236,122
======= ======= =======
Net cash received (paid) during the year for
income taxes $ (6,637) $ 317 $ (967)
======= ======= =======
See accompanying Notes to consolidated financial statements.
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<PAGE>
USAir Group, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Three Years Ended December 31, 1995 (dollars in thousands except per share amounts)
=====================================================================================================================
<CAPTION>
Adjustments
Retained Deferred For 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, 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)
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)
(Continued on next page)
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<PAGE>
USAir Group, Inc.
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Three Years Ended December 31, 1995 (dollars in thousands except per share amounts)
=====================================================================================================================
<CAPTION>
Adjustments
Retained Deferred For 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, 1994 213,153 61,088 1,344,336 (2,417,498) - (90,965) (7,017) (896,903)
Sale of 1,384,000 shares
of common stock - 1,384 6,929 - - - - 8,313
Exercise of 42,775 options - 43 377 - - - - 420
Grant of 934,600 shares of
restricted stock - 934 10,982 - - (11,916) - -
Amortization of deferred
compensation - - 132 - - 4,034 - 4,166
Equity reduction for minimum
pension liability - - - - - - (71,071) (71,071)
Net income (loss) - - - 119,287 - - - 119,287
------- ------- --------- ---------- -------- ------ ------ --------
Balance December 31, 1995 $213,153 $63,449 $1,362,756 $(2,298,211) $ - $(98,847) $(78,088) $ (835,788)
======= ======= ========= ========= ======== ====== ====== =======
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 and Nature of Operations
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"), PSA Airlines, Inc. ("PSA") (formerly
Jetstream International Airlines, Inc.), Allegheny Airlines, Inc.
("Allegheny") (formerly Pennsylvania Commuter Airlines, Inc.
("PCA")), USAir Leasing and Services, Inc. ("Leasing"), USAir Fuel
Corporation ("Fuel Corp.") and Material Services Company, Inc.
("MSC"). All significant intercompany accounts and transactions
have been eliminated.
USAir is the Company's principal subsidiary and accounted for
approximately 93% of its operating revenues in 1995. USAir's
results include the results of its subsidiary USAM Corp. ("USAM").
USAir is a major U.S. air carrier whose primary business is trans-
porting passengers, property and mail. USAir enplaned more than 57
million passengers during 1995 and is currently the fifth largest
domestic air carrier, as measured by revenue passenger miles
("RPMs"). USAir operates predominantly in the eastern United
States with primary hubs at the major airports in Pittsburgh,
Pennsylvania, Charlotte, North Carolina, Philadelphia, Pennsylvania
and at Baltimore/Washington International Airport. USAir also
maintains significant operations at the major airports in Boston,
Massachusetts, New York, New York and Washington, D.C.
Piedmont, PSA and Allegheny are regional air carriers that,
along with eight non-affiliated regional airline franchisees, form
"USAir Express". USAir Express also has a majority of its
operations in the eastern U.S. USAir Express air carriers enplaned
approximately 9.6 million passengers in 1995 (approximately 5.3
million passengers enplaned by Piedmont, PSA, and Allegheny), over
half of whom connected to USAir flights.
Fuel Corp. was established in 1987 primarily to serve as a
fuel wholesaler to USAir, in certain circumstances. MSC performs a
function similar to Fuel Corp., selling aviation fuel to USAir
Express carriers and also assisting the USAir Express carriers with
major maintenance and procurement contracts. Leasing's main
function is remarketing USAir's surplus or inactive aircraft.
In the fourth quarter of 1995, USAir and a subsidiary of
British Airways plc ("BA") formed Airline Technical Services, LLC
("ATS"), a Delaware limited liability company, offering joint
aviation maintenance, and technical and engineering expertise in
the Americas. ATS will receive a commission on the contracts it
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<PAGE>
brokers for USAir and BA. USAir accounts for ATS using the equity
method because it is owned equally by each parent company. No
material activity occurred in 1995.
At December 31, 1992, 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.
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
USAir Group's principal operating subsidiary, USAir, and the
three regional airline subsidiaries, Piedmont, PSA and Allegheny,
operate within one industry (air transportation); therefore, no
segment information is provided.
Certain 1994 and 1993 amounts have been reclassified to
conform with 1995 classifications.
(b) Cash and Cash Equivalents and Short-Term Investments
For financial statement purposes, the Company considers all
highly liquid investments purchased within three months of maturity
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 purchased
with 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 and
repairable parts.
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<PAGE>
(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. Estimated depreciable lives and residual values are
periodically reviewed for reasonableness and estimates are revised,
if necessary.
Depreciable
Assets Lives Residual Values
------ ----------- ---------------
(years) (in millions)
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 F28-4000 8 2.0
Fokker F28-1000 6 1.0
Turboprop aircraft 11-17 1.2-1.5
Improvements to leased aircraft life of lease -
Ground property, equipment and 1-10 or
leasehold improvements life of lease -
Buildings 25-30 -
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. When property and equipment
is sold or retired, the cost and accumulated depreciation is
removed from the accounts and any gain or loss recognized as Other
Income (Expense).
(e) Goodwill and Other Intangibles
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 ("Pacific Southwest") and Piedmont
Aviation, Inc. ("Piedmont Aviation"), both in 1987, is being
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<PAGE>
amortized as Depreciation and Amortization Expense. Accumulated
amortization at December 31, 1995 and 1994 related to the Pacific
Southwest and Piedmont Aviation acquisitions was $128 million and
$113 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 related accumulated amortization
at December 31, 1995 and 1994 was approximately $2 million. 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 Pacific
Southwest 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
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.
Accumulated amortization related to intangible assets at
December 31, 1995 and 1994 was $105 million and $81 million,
respectively.
Based on the most recent analyses, USAir believes that
goodwill and other intangible assets were not impaired at Decem-
ber 31, 1995.
(f) Other Assets, net
Other Assets, net consists primarily of non-current pension
assets, restricted cash and investments and a long-term receivable
from BA. Restricted cash and investments are deposits in trust
accounts to collateralize letters of credit and workers' compensa-
tion policies and the long-term receivable from BA resulted from
the relinquishment by USAir of two U.S. to London routes.
In November 1995, USAir entered into a five-year transaction
with a third party pursuant to which USAir agreed to pledge to such
third party from time to time certain flight equipment and
simulators as collateral for up to $70 million aggregate principal
amount of letters of credit to be issued by the third party with
respect to certain workers' compensation obligations of USAir. On
December 15, 1995, USAir pledged ten aircraft to the third party,
resulting in the release of $67.2 million in cash and securities
that had been previously pledged by USAir to letter of credit
providers.
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<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 or the ticket otherwise expires.
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 ("FTP") when participants accumulate sufficient
miles to be entitled to claim award certificates for travel.
(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 1995, 1994 and 1993 was $67
million, $63 million and $59 million, respectively.
(l) Income (Loss) Per Common Share
Income (loss) per common share is computed by dividing net
income or loss, after deducting preferred stock dividend require-
ments, by the weighted average number of shares of USAir Group,
Inc. Common Stock ("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, dividends continue to be deducted from net income or loss
in order to calculate income (loss) per common share (see Note 8. -
Redeemable Preferred Stock and Deferral of Dividends and Note 9. -
Stockholders' Equity). The 1995 and 1994 preferred dividend
requirements include dividends deferred (including interest) of
$84.9 million or $1.36 per common share and $32.8 million, or $0.55
per common share, respectively. Stock option common stock
equivalents were anti-dilutive for the years ended 1994 and 1993,
but are dilutive for the year ended 1995. Therefore, stock option
common stock equivalents were added to the weighted average common
shares outstanding in the 1995 income (loss) per common share
calculation. None of the Company's outstanding preferred stock
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<PAGE>
issuances, all of which are convertible under certain conditions
into Common Stock, are considered common stock equivalents;
therefore, they are excluded from the Company's primary income
(loss) per common share calculation for each year presented. For
the years ended 1995, 1994 and 1993, fully diluted income (loss)
per common share is not presented since the effect of assuming
conversion of each of the outstanding preferred stock issuances
would be antidilutive. See Note 10. regarding the Common Stock
held in a trust for USAir's Employee Stock Ownership Plan.
2. Financial Instruments
(a) Terms of Certain Financial Instruments
USAir has entered into hedging arrangements designed 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
38 million and 86 million at December 31, 1995 and 1994, respec-
tively. Under these arrangements, the Company will pay $0.499 to
$0.548 per notional gallon in 1996 and receive a floating rate per
notional gallon based on current market prices. In 1995, the
Company paid $0.496 to $0.521 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
represented approximately 8% of USAir's actual 1995 fuel consump-
tion. USAir is party to such hedging arrangements with several
entities. Although the agreements, which expire in 1996, 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. The Company may continue to enter
into such arrangements, depending on market conditions.
In August 1995, the Company's interest rate swap agreements
expired and as of December 31, 1995 there were no such agreements
in effect. The Company had entered into interest rate swap
transactions to manage interest rate exposure. Net settlements
were recorded as adjustments to interest expense. The Company was
party to such agreements with banks and other financial institu-
tions. The notional principal amount of these agreements was $150
million at December 31, 1994. Under the agreements, the Company
paid interest at fixed rates averaging 9.8% at December 31, 1994,
and received floating rate interest payments based on three-month
LIBOR.
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. Net settle-
ments will be recorded as adjustments to interest expense. Although
the Company is exposed to credit loss in the event of non-
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<PAGE>
performance by the counterparty to the contracts, the Company does
not anticipate such non-performance because of the favorable
creditworthiness status of the other party.
(b) Fair Value of Financial Instruments
Unless a quoted market price indicates otherwise, the fair
values of cash and cash equivalents, short-term investments and
other investments generally approximates carrying values because of
the short maturity of these instruments. The 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 Company's outstanding redeemable preferred stock
issuances (See Note 8. - Redeemable Preferred Stock and Deferral of
Dividends and Note 9. - Stockholders' Equity for information
regarding the Company's outstanding preferred stock issuances) are
obtained by consulting with an independent external valuation
source. The fair values of interest rate swap agreements, 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 a liability):
December 31,
--------------------------------------------
1995 1994
--------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- -----------
(in thousands)
Cash and cash
equivalents $ 881,854 $ 881,854 $ 429,538 $ 429,538
Short-term
investments 19,831 19,822 22,133 22,078
Restricted cash
and investments* 98,742 98,539 170,686 170,581
Long-term note
receivable* 45,433 33,277 47,000 31,537
Other long-term
investments* 4,607 4,008 1,633 1,144
Long-term debt (ex-
cludes capital
lease obliga-
tions) (2,732,310) (2,543,340) (2,898,203) (2,484,390)
Redeemable pre-
ferred stock (758,719) (604,478) (758,719) (242,341)
(table continued on next page)
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Interest rate swap
agreements:
In a net payable
position - - - (3,221)
Energy swap agree-
ments:
In a net receivable
position - 1,845 - 259
Foreign currency
contracts:
In a net receivable
position - 4,050 - 5,352
* Amounts included in Other Assets on the Company's consolidated
balance sheets.
3. Long-Term Debt
Details of long-term debt are as follows:
December 31,
----------------------
1995 1994
---- ----
(in thousands)
Senior Debt:
12 7/8% Senior Debentures due 2000 $ - $ 77,000
10% Senior Notes due 2003 300,000 300,000
9 5/8% Senior Notes due 2001 175,000 175,000
12.15% to 15.23% U.S. Government
Guaranteed Obligations - 3,090
5.7% to 12% Equipment Financing
Agreements, Installments due 1996
to 2016 2,226,318 2,140,387
8.6% Airport Facility Revenue Bond
due 2022 27,620 27,620
4.0% to 7.1% Aircraft Purchase
Deposit Financing - 172,301
Other 3,372 2,805
--------- ---------
2,732,310 2,898,203
Capital Lease Obligations 65,496 82,713
--------- ---------
Total 2,797,806 2,980,916
Less Current Maturities 80,721 85,538
--------- ---------
$2,717,085 $2,895,378
========= =========
(this space intentionally left blank)
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<PAGE>
Maturities of long-term debt and debt under capital leases for
the next five years are as follows:
(in thousands)
1996 $ 80,721
1997 91,903
1998 160,979
1999 84,907
2000 130,540
Thereafter 2,248,756
Interest rates on $537 million principal amount of long-term
debt at December 31, 1995 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
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, the maximum amount of Credit Agreement borrowings
outstanding at any month end was $250 million. 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%, respec-
tively.
Equipment financings totaling $2.3 billion were collateralized
by aircraft and engines with a net book value of approximately $2.4
billion at December 31, 1995.
In February 1996, USAir sold $263 million principal amount of
Enhanced Equipment Notes ("Enhanced Notes") through a private
placement offering under Securities and Exchange Commission
Regulation 144A. The Enhanced Notes are secured by nine 757-200
aircraft. The Enhanced Notes are not reflected in the above table
because they were sold after December 31, 1995.
4. Commitments and Contingencies
(a) Operating Environment
The Company's financial results for 1995 represent a signifi-
cant improvement over 1994 results. The improvement is mainly
attributable to a stable domestic economic climate, favorable
capacity trends in USAir's markets, less fare discounting and low
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<PAGE>
fare competition and the positive influence of USAir's cost-
reduction efforts. However, the Company's financial condition,
results of operations and future prospects are more susceptible to
an economic downturn and competitive influences than most of its
major competitors due to USAir's high cost structure amid the low
cost, low fare environment which characterizes the domestic airline
industry.
Most of the Company's airline subsidiaries operate in
competitive markets, predominantly in the Eastern United States. In
recent years, air carriers with low costs of operations and fare
structures have initiated and or expanded into markets served by
the Company's airline subsidiaries. In addition, several of the
larger, mature air carriers have developed or indicated their
intention to develop similar low cost, low fare service. In an
effort to preserve market share, USAir has typically responded to
the entry of a low cost, low fare competitor into its markets by
matching fares and increasing the frequency of service in related
markets, generally with the result of diluting USAir's yield in
these markets. USAir currently has the highest operating costs
among the major domestic air carriers and the growth and expansion
of low cost, low fare carriers in USAir's markets has put consider-
able pressure on USAir to reduce operating costs in order to
maintain competitiveness.
USAir was able to reduce certain non-labor related operating
costs during 1995 through re-engineering efforts, structural
changes and reducing or eliminating capacity in unprofitable
markets, however, USAir has not been successful to date in
achieving meaningful reductions in personnel costs. The Company
believes that USAir's long-term future depends on its success in
further reducing its cost of operations, including personnel costs.
At December 31, 1995, USAir Group's various subsidiaries
employed approximately 43,100 full-time equivalent employees.
Approximately 28,100, or 65%, of the employees of USAir Group's
subsidiaries are covered by collective bargaining agreements with
various unions, or will be covered by collective bargaining
agreements for which initial negotiations are in progress. USAir's
contract with the International Association of Machinists and
Aerospace Workers ("IAM"), which represents USAir's machinists
group, is currently open for negotiation and USAir and the IAM have
commenced the collective bargaining process. USAir's contract with
the unions which represent its pilot's and flight attendant's
groups become open for negotiations within the next year. The
Company cannot predict the ultimate outcome of USAir's negotiations
with the IAM or if USAir will be successful in achieving meaningful
wage and benefit concessions from the IAM and its other organized
labor groups.
Although a competitive strength, the concentration of
significant operations in the eastern U.S. leaves the Company's
airline subsidiaries susceptible to certain regional conditions
that may have an adverse affect on the Company's results of
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<PAGE>
operations and financial condition. For example, geographically
isolated inclement weather and the recent partial Federal govern-
ment shutdowns adversely effected operating revenues and expenses
to a greater degree than some of the Company's competitors.
The nature of operations of the Company's airline subsidiaries
results in reliance on the availability of aviation fuel. The
availability and price of aviation fuel is largely dependent on the
actions of the countries which compose the Oil Producing and
Exporting Countries ("OPEC") cartel. OPEC, which currently controls
a significant amount of the world's known crude oil reserves, can
effect the availability and price of jet fuel through its
production and price-targeting actions. In addition, jet fuel
prices are affected by political events seasonal factors and other
factors generally outside of the Company's control. USAir has a
diversified fuel supplier network and participates in fuel hedging
transactions (see Note 2. - Fair Value of Financial Instruments for
additional information related to USAir's participation in fuel
hedging contracts) in order to ensure fuel availability and
partially protect USAir from temporary jet fuel price fluctuations.
(b) Leases
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. Some
leases also include renewal and purchase options.
In addition, the Company subleases certain leased aircraft and
ground facilities under noncancelable operating leases expiring in
various years through 2021.
The following amounts applicable to capital leases are
included in property and equipment:
December 31,
---------------------
1995 1994
---- ----
(in thousands)
Flight equipment $192,775 $218,881
Ground property and equipment 4,767 10,961
------- -------
197,542 229,842
Less accumulated amortization 140,212 153,341
------- -------
$ 57,330 $ 76,501
======= =======
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At December 31, 1995, obligations under capital and noncancel-
able operating leases for future minimum lease payments were as
follows:
Capital Operating
Leases Leases
------- ---------
(in thousands)
1996 $ 21,886 $ 761,281
1997 21,697 770,230
1998 10,687 735,035
1999 10,687 694,591
2000 7,586 666,841
Thereafter 20,094 6,651,858
------- ----------
Total minimum lease payments 92,637 10,279,836
Less sublease rental receipts - 90,133
----------
Total minimum operating lease
payments $10,189,703
==========
Less amount representing interest 27,141
-------
Present value of future minimum
capital lease payments 65,496
Less current obligations under
capital leases 14,085
-------
Long-term obligations under
capital leases $ 51,411
=======
One of USAir Group's regional airline subsidiaries entered
into an agreement subsequent to December 31, 1995 to lease five
additional turboprop aircraft beginning in 1996. The payments
under this agreement are (in millions): $1.4, $3.3, $3.3, $3.3,
$3.3 and $8.6 for the years 1996, 1997, 1998, 1999, 2000 and
thereafter, respectively.
Rental expense under operating leases for 1995, 1994 and 1993
was $726 million, $748 million and $781 million, respectively. The
$726 million rental expense for 1995 excludes a credit of $4.1
million related to the leasing of three of USAir's parked BAe-146
aircraft, recorded in the fourth quarter of 1995. 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. See Note 16. - Non-Recurring and Unusual
Items.
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The Company's airline subsidiaries also lease certain owned
aircraft under noncancelable operating leases which expire in
various years through the year 2000. The minimum future rentals to
be received by the Company on these leases are: $13.0 million -
1996; $9.4 million - 1997; $3.6 million - 1998; $1.9 million -
1999; and $1.1 million - 2000. The following amounts are applica-
ble to aircraft leased under such agreements as reflected in flight
equipment:
December 31,
---------------------
1995 1994
---- ----
(in thousands)
Flight equipment $192,198 $152,956
Less accumulated depreciation 75,089 43,283
------- -------
$117,109 $109,673
======= =======
(c) Legal Proceedings
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 ("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 the failure
of air traffic control to convey weather and windshear hazard
information and flight crew errors. The NTSB has not yet issued its
final accident investigation report for the accident near
Pittsburgh. The NTSB, The Boeing Company ("Boeing"), the Federal
Aviation Administration ("FAA") and USAir jointly conducted flight
tests in October 1995 as part of the ongoing investigation into the
cause of this accident. In this regard, USAir provided a 737-300
aircraft in the collective effort to simulate the conditions at the
time of the accident. More public hearings were conducted in
November 1995. The NTSB has indicated that a determination of the
cause of the accident is not likely until sometime in 1996. 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. Therefore, USAir believes that the litigation will not
have a material adverse effect on USAir's financial condition or
results of operations, although any finding of fault on USAir's
part could create negative publicity and could tarnish USAir's
image.
In 1989 and 1990, a number of U.S. air carriers, including
USAir, received two Civil Investigative Demands ("CIDs") from the
Department of Justice ("DOJ") related to investigations of price
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<PAGE>
fixing in the domestic airline industry. 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.
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 contemporane-
ously in the United States 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. USAir has
recently received a CID from the DOJ relating to USAir's compliance
with the terms of the consent decree.
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-fordollar
discount against the cost of a ticket generally of up to a maximum
of 10% 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 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 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
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<PAGE>
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 9%. 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.
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 from
August 16, 1995, or until the combined discount amount reaches $40
million, whichever first occurs. On May 10, 1995, a U.S. federal
district court judge approved the settlement. USAir 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 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 base 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. The
lawsuits have been consolidated in the federal district of
Minnesota. The plaintiffs are seeking unspecified treble damages
for restraint of trade. The case is expected to go to a jury trial
in 1996. While USAir believes that its actions in establishing a
commission cap were in full compliance with the antitrust laws,
USAir is unable to predict at this time the ultimate resolution of
the litigation or the potential impact on USAir's financial
condition and results of operations.
In March 1995, a number of U.S. carriers, including USAir,
received CIDs from the DOJ related to an investigation of incen-
tives paid to travel agents over and above the base commission
payments. USAir responded to an earlier CID on this topic during
1994. USAir has complied with the requirements of the CID by
producing documents and responding to interrogatories. Because
this matter is in the investigatory stage, USAir is unable to
predict at this time its ultimate resolution or potential impact on
USAir's financial condition or results of operations.
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<PAGE>
In May 1995, a number of U.S. air carriers, including USAir,
received CIDs from the DOJ relating to its investigation of
incentive payments to travel agencies and a possible agreement
among these carriers to implement a cap on travel agent base
commissions, which is the subject matter of the suits recently
brought by travel agencies, as discussed above. One of the CIDs
received by USAir sought the production of transcripts of deposi-
tions of any USAir employees taken in connection with the private
litigation relating to the commission caps, together with annexed
exhibits. USAir has complied with the requirements of the CIDs.
USAir does not expect these investigations to have a material
impact on its financial condition and results of operations.
In October 1995, USAir terminated for cause an agreement with
In-Flight Phone Corporation ("IFPC"). IFPC was USAir's provider of
on-board telephone and interactive data systems (the "IFPC
System"). The agreement contemplated the eventual installation of
the IFPC System on substantially all of USAir's aircraft. The IFPC
System had been installed on approximately 80 aircraft prior to the
date of termination of the agreement. On December 6, 1995, IFPC
filed suit against USAir seeking equitable relief and damages in
excess of $186 million. USAir believes that its termination of its
agreement with IFPC was appropriate and that it is owed in excess
of $5 million by IFPC. On December 7, 1995, USAir successfully
defended IFPC's emergency motion for a temporary restraining order.
On December 13, 1995, IFPC's motion for a preliminary injunction
was denied and IFPC has relinquished its right to appeal that
decision. IFPC's claim for damages remains pending and USAir is
presently preparing a counterclaim for amounts it is owed by IFPC.
USAir is unable to predict at this time the ultimate resolution or
potential financial impact on USAir's financial condition and
results of operations of this lawsuit. USAir is presently in
negotiations with other vendors of on-board telephone systems and
currently expects to finalize an agreement in the first quarter of
1996.
During 1995, four members of USAir's FTP filed class action
lawsuits against USAir in Illinois, Pennsylvania, California and
New Jersey state courts, alleging breach of contract relating to
changes made to USAir's FTP effective December 31, 1989 and/or
January 1, 1995. A similar lawsuit has been pending in California
state court since 1989. The lawsuits seek unspecified damages and
an injunction against the allegedly objectionable changes to
USAir's FTP and any subsequent retroactive changes to the FTP.
USAir denies the allegations made in the lawsuits and intends to
vigorously defend itself. The ultimate resolution of these
lawsuits and their potential impact on USAir's financial condition
or results of operations cannot be predicted at this time.
In May 1995, USAir Group, USAir and the Retirement Income Plan
for Pilots of USAir, Inc. (the "Pilots' Pension Plan") were sued in
federal district court for the District of Columbia by 469 active
and retired USAir pilots. The lawsuit alleges that USAir has
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<PAGE>
breached its fiduciary duty under the Employee Retirement Income
Security Act ("ERISA") and otherwise violated ERISA by erroneously
calculating benefits under the Pilots' Pension Plan. The plaintiffs
seek, among other things, an injunction restraining USAir and the
Pilots' Pension Plan from allegedly improperly calculating benefits
under the Pilots' Pension Plan and payments to plaintiffs of
benefits allegedly improperly withheld in an amount alleged to be
equal to approximately $70 million, plus interest. USAir believes
that it has properly calculated benefits under the Pilots' Pension
Plan and intends to vigorously defend itself against the allega-
tions made in the lawsuit. Because this lawsuit is in an early
stage of litigation, USAir is unable to predict at this time its
ultimate resolution or potential impact on USAir Group's pension
liability or future funding requirements.
The Company and various 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. Only
two of these sites have been included on the Superfund National
Priorities List. The Company continues to negotiate with various
governmental agencies concerning known and possible cleanup sites.
USAir has made financial contributions for the performance of
remedial investigations and feasibility studies at sites in Moira,
New York; Escondido, California; and Elkton, Maryland.
Also, USAir has been identified as a potentially responsible
party ("PRP") for environmental contamination at Boston Logan
Airport. There are a number of other PRPs at the site. The
Company is presently unable to assess its proportionate share of
contribution, but do not expect any such contribution to have a
material adverse effect on its financial condition or results of
operations.
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 its financial position or results of operations based on
its experience with similar environmental sites.
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
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<PAGE>
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. Such 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.
(d) Aircraft Commitments
In June 1995, USAir entered into agreements with Boeing and
Rolls Royce plc ("Rolls Royce") deferring the delivery of eight
757-200 aircraft from 1996 to 1998. As part of the agreements, the
due dates for progress payments associated with the 1996 deliveries
were likewise rescheduled. Accordingly, approximately $71 million
of progress payments that had been paid by USAir were refunded to
USAir in the third quarter of 1995. The related long-term debt
which financed the deposits was dissolved.
The following schedule of USAir's new aircraft deliveries and
scheduled payments at December 31, 1995 (including progress
payments, payments at delivery, buyer furnished equipment, spares,
and capitalized interest) reflects USAir's agreements with Boeing
and Rolls Royce discussed above:
Delivery Period - Firm Orders
--------------------------------------------
There-
1996 1997 1998 1999 2000 after Total
---- ---- ---- ---- ---- ------ -----
Boeing
757-200 - - 8 - - - 8
737-Series - - - - - 40 40
--- --- --- --- --- ----- -----
Total - - 8 - - 40 48
=== === === === === ===== =====
Payments
(millions) $ 63 $ 74 $254 $ - $ - $1,855 $2,246
=== === === === === ===== =====
In addition, USAir has a commitment to purchase hush kits for
certain of its McDonnell Douglas DC-9-30 aircraft and a substantial
portion of its Boeing 737-200 aircraft. The installation of these
hush kits will bring the aircraft into compliance with FAA Stage 3
noise level requirements. The projected payments associated with
the purchase of the hush kits are: $43 million - 1996; $30 million
- - 1997; $30 million - 1998; and $17.0 million - 1999.
USAir has the option of purchasing any other Boeing commercial
aircraft type in satisfaction of its obligation to purchase forty
737-Series aircraft. Such satisfaction would be accomplished on an
"equivalent-seat" basis.
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<PAGE>
(e) Concentration of Credit Risk
The Company invests available cash in money market securities
of various banks, commercial paper of financial institutions and
other companies with high credit ratings and securities backed by
the United States government.
At December 31, 1995, most of the Company's receivables
related to tickets sold to individual passengers through the use of
major credit cards (44%) or to tickets sold by other airlines (16%)
and used by passengers on USAir or the Company's regional airline
subsidiaries. These receivables are short-term, generally being
settled within 14 days after sale. Bad debt losses, which have
been minimal in the past, have been considered in establishing
allowances for doubtful accounts. The Company does not believe it
is subject to any significant concentration of credit risk.
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 expiry. The average dollar amount of
outstanding sales during 1993 was approximately $100 million. USAir
has engaged in discussions to arrange a replacement facility but
has elected not to pursue such a financing at this time.
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.
(this space intentionally left blank)
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<PAGE>
The components of the provision for income taxes are as
follows:
1995 1994 1993
---- ---- ----
(in thousands)
Current provision:
Federal $6,081 $ - $ -
State 831 - -
----- --- ---
Total current provision 6,912 0 0
----- --- ---
Deferred provision:
Federal - - -
State 2,073 - -
----- --- ---
Total deferred provision 2,073 0 0
----- --- ---
Provision for income taxes $8,985 $ 0 $ 0
===== === ===
In 1995, the Company was not subject to regular Federal income
tax as a result of using $109 million in Federal net operating loss
carryforwards. However, the Company was subject to Federal
alternative minimum tax ("AMT") and environmental tax. Approxi-
mately $171 million in AMT net operating loss carryforwards and
approximately $56 million in state net operating loss carryforwards
were utilized to reduce the Federal and state liabilities.
The significant components of deferred income tax expense
(benefit) for the years ended December 31, 1995, 1994 and 1993, are
as follows:
1995 1994 1993
---- ---- ----
(in thousands)
Deferred tax expense (benefits)
(exclusive of the other
components listed below) $ 51,511 $(240,336) $(136,191)
Adjustments to deferred tax
assets and liabilities for
enacted changes in tax laws
and rates - - (8,880)
Increase (decrease) for the
year in the valuation
allowance for deferred tax
assets (49,438) 240,336 145,071
------- -------- -------
Total $ 2,073 $ 0 $ 0
======= ======== =======
A reconciliation of taxes computed at the statutory Federal
tax rate on earnings before income taxes to the provision for
income taxes is as follows:
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<PAGE>
1995 1994 1993
---- ---- ----
(in thousands)
Tax provision (credit)
computed at Federal
statutory rate $ 44,895 $(239,723) $(137,591)
Book expenses not deduct-
ible for tax purposes 16,064 17,257 10,390
Limitation in recognizing
unused net operating
loss/credits - 222,466 136,081
Utilization of Federal Net
Operating Loss which
reduced valuation
allowance (38,177) - -
State income tax provision,
net 1,888 - -
Adjustments to deferred tax
assets and liabilities
for enacted changes in
tax laws and rates - - (8,880)
Current year temporary
differences which
reduced valuation
allowance (22,492) - -
Alternative minimum tax
which increased
valuation allowance 3,794 - -
Other 3,013 - -
------- ------- -------
Provision for income taxes $ 8,985 $ 0 $ 0
======= ======= ========
Effective tax rate 7% 0% 0%
======= ======= ========
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at
December 31, 1995, 1994 and 1993 are presented below:
1995 1994 1993
---- ---- ----
(in thousands)
Deferred tax assets:
Leasing transactions $ 169,840 $ 167,772 $ 132,551
Tax benefits purchased
/sold 55,284 63,557 79,434
Gain on sale and lease-
back transactions 147,930 156,127 164,613
Employee benefits 489,405 487,236 430,257
Net operating loss carry-
forwards 685,597 723,275 557,494
(table continued on next page)
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<PAGE>
Alternative minimum tax
credit carryforwards 24,940 21,146 21,146
Investment tax credit
carryforwards 49,802 49,802 49,802
Other deferred tax assets 84,754 82,081 62,615
--------- --------- ---------
Total gross deferred
tax assets 1,707,552 1,750,996 1,497,912
Less valuation allowance (755,766) (805,204) (564,838)
--------- --------- ---------
Net deferred tax assets 951,786 945,792 933,074
Deferred tax liabilities:
Equipment depreciation
and amortization 908,917 909,353 874,640
Other deferred tax
liabilities 44,942 36,439 58,434
--------- --------- ---------
Total deferred tax
liabilities 953,859 945,792 933,074
--------- --------- ---------
Net deferred
tax liabilities $ 2,073 $ 0 $ 0
========= ========= =========
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, and
decreased $49 million in 1995.
At December 31, 1995, the Company had unused net operating
losses of $1.8 billion for Federal tax purposes, which expire in
the years 2005 to 2009. The Company also has available, to reduce
future taxes payable, $644 million alternative minimum tax net
operating losses expiring in 2007 to 2009, $50 million of invest-
ment tax credits expiring in 2002 to 2003, and $25 million of
alternative 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 redeem-
able convertible preferred stock during 1993 (see Note 8. -
Redeemable Preferred Stock and Deferral of Dividends) and BA
entered into code sharing and wet lease arrangements with USAir
contemplated by the Investment Agreement.
At December 31, 1995, the preferred stock held by BA con-
stituted approximately 21.0% 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
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<PAGE>
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.
On March 15, 1993, the DOT issued an order ("DOT Order")
stating, among other things, that BA's initial investment of $300
million 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 Cumulative Convertible
Senior Preferred Stock, without par value ("Series C Preferred
Stock"), and Series E Cumulative Convertible Exchangeable Preferred
Stock, without par value ("Series E Preferred Stock") to BA, are
consummated. The DOT has indefinitely suspended the period for
comments from interested parties 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
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.
On March 7, 1994, BA announced it would not make any addition-
al investments in the Company until the outcome of measures by the
Company to reduce costs and improve financial results was known.
Under the terms of the Investment Agreement, BA was entitled to
purchase, on or prior to January 21, 1996, 50,000 shares of 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 payment
of $200 million. BA did not exercise this option. The Investment
Agreement provides that, on or prior to January 21, 1998, assuming
that BA had purchased (or was purchasing simultaneously in accor-
dance with the terms of the Investment Agreement) Series C
Preferred Stock, BA would have the option to purchase 25,000 shares
of Series E Preferred Stock, at a purchase price of $10,000 per
share. Because BA did not elect prior to January 21, 1996, to
purchase the Series C Preferred Stock, BA cannot purchase the
Series E Preferred Stock, except that 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 and Series E
Preferred Stock must be consummated under certain circumstances.
Because BA did not elect to purchase the Series C Preferred Stock
by January 21, 1996, the Company may at its option redeem, in whole
or in part, Series F Preferred Stock and a like percentage of
Series T Preferred Stock (both held by BA) at the higher of market
value or the price of $10,000 per share, plus accrued dividends.
Under Delaware law, the Company may be subject to certain legal
prohibitions on its ability to repurchase or redeem its own shares
of capital stock for cash or other property. The Company cannot
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<PAGE>
predict the outcome of the proceedings, if further transactions
contemplated under the Investment Agreement, including the sale of
Series C and Series E Preferred Stock to BA, will be consummated,
or whether or when the Company will repurchase or redeem its own
shares of capital stock.
The sale of additional preferred stock to BA on June 10, 1993
(see Note 8.(c) below) 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.
See also Notes 8.(b), 8.(c) and 8.(d).
8. Redeemable Preferred Stock and Deferral of Dividends
(a) Series A Preferred Stock
At December 31, 1995, 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, the Series T-1 Cumulative Convertible
Exchangeable Senior Preferred Stock ("Series T-1 Preferred Stock"),
without par value, the Series T-2 Cumulative Convertible Exchange-
able Senior Preferred Stock ("Series T-2 Preferred Stock"), without
par value (the Series T-1 and Series T-2 Preferred Stock are
collectively referred to as the "Series T Preferred Stock"), and
senior to the Series B Cumulative Convertible Preferred Stock
("Series B Preferred Stock"), without par value, Junior Participat-
ing 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, 1995, 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 mandatorily redeemable on
August 7, 1999 at $1,000 per share, plus accrued dividends. 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.
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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 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 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, 1995 is
$412.1 million (the face amount of the issuance of $358.0 million
plus unpaid dividends and interest of $54.1 million).
Under the terms of the Series A Preferred Stock, Berkshire has
the exclusive right to elect two additional directors to the
Company's board of directors 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 did not stand for re-election to the Company's
and USAir's boards of directors in 1995.
See further discussion of deferred dividends in Note 8.(d).
(b) Series F Preferred Stock
At December 31, 1995, 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-
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, 1995, 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 airline
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
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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 at $10,000 per share,
plus accrued dividends. The deadline for BA's election to purchase
the Series C Preferred Stock and therefore, to elect to make any
further investment in the Company pursuant to the investment
agreement, was January 21, 1996. BA declined to make any further
investment on or before January 21, 1996. Because BA declined to
exercise its right to purchase the Series C Preferred Stock before
this date, the Company may at its option redeem, in whole or in
part, the Series F Preferred Stock and a like percentage of Series
T Preferred Stock at the higher of market value or the price of
$10,000 per share, plus accrued dividends. 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, 1995 was
$329.1 million (the face amount of the issuance of $300.0 million
plus unpaid dividends and interest of $29.1 million).
See Note 7. for additional information related to BA's
investment in USAir Group and Note 8.(d) for further discussion of
deferred dividends.
(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, 1995, 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 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-1 Preferred Stock for approxi-
mately $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
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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-1 Preferred
Stock triggered by the Company's issuance of Common Stock pursuant
to certain employee benefit plans and the exercise of options and
grant of restricted Common Stock under various employee stock
option and incentive plans that have occurred between March 31,
1993 and December 31, 1995.
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 both 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. Both series of the
Series T Preferred Stock are mandatorily redeemable on June 10,
2008 at $10,000 per share, plus accrued dividends. 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.
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 consistent
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 $6.4 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
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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, 1995 was $109.6 million (the face amount of
the issuance of $100.7 million plus unpaid dividends and interest
of $8.9 million).
See Note 7. for additional information related to BA's investment
in USAir Group and Note 8.(d) for further discussion of deferred
dividends.
(d) Deferral of Dividends
On September 29, 1994, the Company announced that it was
deferring the quarterly dividend payment due September 30, 1994 to
Berkshire related to the Company's Series A Preferred Stock. The
Company also deferred quarterly dividend payments on all its other
outstanding series of preferred stock, including the Series F and
Series T Preferred Stock owned by BA and the publicly-held Series B
Preferred Stock. USAir Group has not paid a dividend on its Common
Stock since the second quarter of 1990. As of February 28, 1996,
the Company's board of directors had not authorized the resumption
of dividends on the Company's preferred stock or Common Stock and
there can be no assurance when or if such dividend payments will
resume. In addition, the Company, organized under the Laws of the
State of Delaware, may be subject to certain legal prohibitions on
its ability to pay dividends on or repurchase or redeem its own
shares of capital stock for cash or other property.
At December 31, 1995, the Company believes that it was legally
prohibited from paying dividends on or repurchasing or redeeming
its capital stock due to the provisions of Section 170 of the
Delaware General Corporation Law ("Delaware Law"), which require a
company to maintain a capital surplus in order to pay dividends on
or repurchase or redeem its capital stock. In addition, as of
December 31, 1995, the Company does not believe that it can comply
with certain provisions of Delaware Law which permit a company with
a capital deficit to pay dividends on its capital stock under
special circumstances. 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.
So long as preferred dividends are deferred, the Series A,
Series F, Series T and Series B Preferred Stock will each cumulate
dividends at their stated rate. In addition, the Series A, Series
F and Series T Preferred Stock cumulate additional dividends
(interest) on the balance of deferred dividends. See Notes 8.(a),
8.(b) and 8.(c).
Under the terms of the Series A Preferred Stock, Berkshire has
the exclusive right to elect two additional directors to the
Company's board of directors after a scheduled dividend payment has
not been paid for thirty days. Berkshire has informed the Company
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that it does not intend to exercise this right at this time.
Berkshire's Chairman Warren E. Buffet and Vice Chairman Charles T.
Munger served as directors on the Company's and USAir's boards of
directors until November 1995. They did not stand for re-election
as Directors in November 1995. Under the terms of the Series B
Preferred Stock, the holders of that security have the exclusive
right to elect two additional directors to the Company's board of
directors if six quarterly dividends were not paid. That right
became effective on February 15, 1996. In March 1996, certain
holders of the Series B Preferred Stock informed the Company that
they intend to exercise this right. If Berkshire were to exercise
its right and the holders of the Series B Preferred Stock were to
exercise their right to elect additional directors, BA would have
the right to nominate an additional director to the Company's board
of directors pursuant to its Investment Agreement with the Company.
9. Stockholders' Equity
(a) Common Stock
The Company had 150,000,000 authorized shares of Common Stock,
par value $1, at December 31, 1995 and 1994. 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, 1995,
approximately 49,423,000 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 has deferred the dividend payments on all series of its
preferred stock and has not paid dividends on its Common Stock
since the second quarter of 1990. There can be no assurance when
or if dividend payments will resume. See discussion of deferred
dividends above in Note 8.(d).
(b) Preferred Stock and Senior Preferred Stock
At December 31, 1995, 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-
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, 1995, 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 shares were issued as Series T Preferred Stock.
The Company has deferred dividends on all its preferred stock.
There can be no assurance when or if preferred dividend payments
will resume. See discussion of deferred dividends above in Note
8.(d).
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(c) Series B Preferred Stock
At December 31, 1995, 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 at a redemption price
currently equal to approximately $52.63 per 1/100 of a Depositary
Share and thereafter at prices declining to $50.00 per 1/100 of a
Depositary 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, 1995 is $238.8 million
(the face amount of the issuance of $213.2 million plus unpaid
dividends of $25.6 million). Under the terms of the Series B
Preferred Stock, the holders of that security have the exclusive
right to elect two additional directors to the board of directors
of the Company if six quarterly dividend payments are not paid.
That right became effective on February 15, 1996. Certain holders
of the Series B Preferred Stock have informed the Company that they
would be pursuing this right.
As of February 28, 1996, the Company's board of directors had
not authorized the resumption of any dividends on the Company's
preferred stock and there can be no assurance when or if dividend
payments will resume. Under Delaware law, the Company may be
subject to certain legal prohibitions on its ability to repurchase
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or redeem its own shares of capital stock for cash or other
property. See further discussion of deferred dividends above in
Note 8.(d).
(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
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 of directors 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 approximate
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ly 1,864,000 and 500,000 treasury shares during 1994 and 1993,
respectively, and had expended its treasury stock balance prior to
December 31, 1994. The Company has not repurchased shares of its
Common Stock since 1989 and may be subject to certain legal
prohibitions on its ability to repurchase its Common Stock under
Delaware law.
(f) Employee Stock Option and Purchase Plans
At December 31, 1995, 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, 1995.
At December 31, 1995, 4.4 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 1993, 1994 and 1995 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 934,600 shares and 15,800 shares were
outstanding at December 31, 1995 and 1994, respectively. Deferred
compensation related to the restricted stock, which vests over
periods of up to three years, amounted to approximately $11.6
million and $16 thousand as of December 31, 1995 and 1994,
respectively.
As of December 31, 1995, options to acquire approximately 8.5
million shares under all three plans, including 48,600 options with
tandem SARs, were outstanding at a weighted average exercise price
of $17.52. The exercise prices for these options range from $4.25
to $46.38. Of those outstanding, approximately 8.1 million options
were exercisable at December 31, 1995. Options were exercised to
purchase 42,775 shares and 5,000 shares of Common Stock at average
exercise prices of $9.82 and $9.63 during 1995 and 1994, respec-
tively.
In October 1995, the Financial Accounting Standards Board
adopted Statement No. 123 "Accounting for Stock-Based Compensation"
("FAS 123"). This statement establishes the fair value based
method of accounting for stock-based compensation. The Company has
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elected to continue using the intrinsic value based method of
accounting prescribed in Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," as permitted by FAS
123.
(g) Adjustment for Minimum Pension Liability
The provisions of Statement of Accounting Standards No. 87,
"Employers' Accounting for Pensions," require the recognition of an
additional minimum liability for each defined benefit plan for
which the accumulated benefit obligation exceeds plan assets. This
amount has been recognized by the Company as a long-term liability
with an offsetting intangible asset (see Note 1.(e)). Because the
intangible asset recognized may not exceed the amount of unrecog-
nized prior service cost on an individual plan basis, the balance
is reported as a separate reduction of Stockholders' Equity
(Deficit) at December 31, 1995 and 1994. See also Note 11.(a).
10. 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 (the "Trust") to hold on
behalf of USAir's employees, exclusive of officers, in accordance
with the terms of the Trust and the ESOP. The trustee placed those
shares in a suspense account pending their release and allocation
to employees. USAir provided financing to the Trust in the form of
a 9 3/4% loan for $111.4 million for its purchase of shares and
USAir contributed an additional $2.2 million to the Trust. USAir
makes a yearly contribution to the Trust sufficient to cover the
Trust's debt service requirement. The contributions are made in
amounts equal to the periodic loan payments as they come due, less
dividends available for loan payment. Since the Company did not
pay dividends on any shares held by the Trust for the years ended
December 31, 1995, 1994 and 1993, the Trust did not utilize
dividends to service its debt during those periods. The initial
maturity of the loan is 30 years. As the loan is repaid over time,
the trustee systematically releases shares of the common stock from
the suspense account and allocates them to participating employees.
Each participant's allocation is based on the participant's
compensation, the total compensation of all ESOP participants and
the total number of shares being released. For each year after
1989, a minimum of 71,933 shares are released from the suspense
account and allocated to participant accounts. If USAir's return
on sales equals or exceeds four percent in a given year, more
shares are released and repayment of the loan is accelerated.
Annual contributions made by USAir, and therefore loan repayments
made by the Trust, were $11.4 million in each of 1995, 1994 and
1993. The interest portion of these contributions was $10.4
million in 1995, $10.5 million in 1994 and $10.5 million in 1993.
Approximately 510,000 shares of Common Stock have been released or
committed to be released as of December 31, 1995. USAir recognized
approximately $4 million of compensation expense related to the
ESOP in each of 1995, 1994 and 1993 based on shares allocated to
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employees (the "shares allocated" method). Deferred compensation
related to the ESOP amounted to approximately $87 million, $91
million and $95 million at December 31, 1995, 1994 and 1993,
respectively. All shares of Common Stock sold to the Trust are
considered issued and outstanding for computing the weighted
average common shares outstanding for the income (loss) per common
share calculation.
See also Note 9.(f) regarding the Company's accounting
treatment for stock-based compensation.
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 specified amounts based on 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 the minimum funding 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.
The funded status of the qualified defined benefit plans at
December 31, 1995 and 1994 was as follows:
1995 1994
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)
Fair value of plan assets $1,009 $1,419 $1,703 $ 183
(table continued on next page)
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Actuarial present value of:
Vested benefit obligation 940 1,603 1,521 242
Nonvested benefit obliga-
tion 30 22 28 17
----- ----- ----- -----
Accumulated benefits
based on salaries to
date 970 1,625 1,549 259
Additional benefits
based on estimated
future salary levels 143 598 477 -
----- ----- ----- -----
Projected benefit
obligation 1,113 2,223 2,026 259
----- ----- ----- -----
Projected benefit obligation
in excess of fair value
of plan assets (104) (804) (323) (76)
Unrecognized net transition
asset (2) (34) (29) (12)
Unrecognized prior service
cost 2 66 (14) 69
Unrecognized net loss 317 571 358 15
----- ----- ----- -----
Pension (liability) prepaid
before adjustment 213 (201) (8) (4)
Adjustment to recognize
minimum liability* - (149) - (72)
----- ----- ----- -----
Pension (liability) prepaid
as adjusted and recognized
in consolidated balance
sheets $ 213 $ (350) $ (8) $ (76)
===== ===== ===== ======
* See Note 9.(g)
The weighted average discount rate used to determine the
actuarial present value of the projected benefit obligation was
7.25% and 9.00% as of December 31, 1995 and 1994, respectively. The
expected long-term rate of return on plan assets used in 1995 was
9.0% to 9.5% and 9.5% in 1994. Rates of 3% to 6% were used to
estimate future salary levels. As of December 31, 1995, plan
assets consisted of approximately 7% in cash equivalents and short-
term debt investments, 26% in equity investments, and 67% in fixed
income and other investments. As of December 31, 1994, plan assets
consisted of approximately 10% in cash equivalents and short-term
debt investments, 27% in equity investments, and 63% in fixed
income and other investments. Plan assets as of December 31, 1995
included 205 shares of USAir Group Common Stock. Plan assets as of
December 31, 1994 did not include shares of USAir Group Common
Stock.
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The following items are the components of the net periodic
pension cost for the qualified defined benefit plans:
1995 1994 1993
---- ---- ----
(in millions)
Service cost (benefits
earned during the period) $ 94 $ 127 $ 93
Interest cost on projected
benefit obligation 218 217 189
Actual return on plan assets (541) 48 (226)
Net amortization and deferral 371 (254) 40
---- ---- ----
Net periodic pension cost $ 142 $ 138 $ 96
==== ==== ====
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 1995 or 1994.
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 Federal
income tax regulations.
The following table sets forth the non-qualified plans' status
at December 31, 1995 and 1994:
1995 1994
---- ----
(in millions)
Fair value of plan assets $ - $ -
Actuarial present value of:
Vested benefit obligation 33 32
Nonvested benefit obligation 2 2
----- -----
Accumulated benefit obligation
based on salaries to date 35 34
Additional benefits based on
estimated future salary levels 2 2
---- ----
Projected benefit obligation 37 36
---- ----
Projected benefit obligation in excess
of fair value of plan assets (37) (36)
(table continued on next page)
117
<PAGE>
Unrecognized net transition asset - -
Unrecognized prior service cost 3 1
Unrecognized net loss 9 3
---- ----
Pension (liability) prepaid before
adjustment (25) (32)
Adjustment to recognize minimum liability* (11) (5)
---- ----
Unfunded accrued supplementary costs
as adjusted and recognized in
consolidated balance sheets $ (36) $ (37)
==== ====
* See Note 9.(g)
Net periodic supplementary pension cost for the non-qualified
supplemental pension plans included the following components:
1995 1994 1993
---- ---- ----
(in millions)
Service cost (benefits
earned during the period) $ - $ - $ -
Interest cost on projected
benefit obligation 2 3 2
Actual return on plan assets - - -
Net amortization and deferral (1) 21 12
--- --- ---
Net periodic supplementary
pension cost $ 1 $ 24 $ 14
=== === ===
The discount rate used to determine the actuarial present
value of the projected benefit obligation was 7.25% and 9.00% as of
December 31, 1995 and 1994, respectively. Rates of 3% to 5% were
used to estimate future salary levels.
In addition to the qualified and non-qualified defined benefit
plans described above, USAir also contributes to certain defined
contribution plans. Company contributions are based on a formula
which considers the age and pre-tax earnings of each employee and
the amount of employee contributions. In addition, certain
qualified defined contribution plans contain a component for profit
sharing contributions if USAir Group achieves certain pre-tax
margin levels. The Company's expense related to the defined
contribution plans, excluding expense for the ESOP plan, was $64
million, $43 million and $42 million for 1995, 1994 and 1993,
respectively. The 1995 contribution expense reflects a new
employer match contribution for certain collective bargaining
groups. The Company made no contributions to its defined contribu-
tion plans related to profit sharing in 1995, 1994 and 1993 since
the Company did not achieve the prescribed pre-tax margin level.
118
<PAGE>
(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.
The following table sets forth the financial status of the
plans as of December 31, 1995 and 1994:
1995 1994
---- ----
(in millions)
Accumulated Postretirement Benefit
Obligation (APBO):
Retirees $ 338 $ 245
Fully eligible active plan participants 176 144
Other plan participants 482 306
----- ----
Total APBO 996 695
Unrecognized prior service credit 155 167
Unrecognized net gain (loss) (112) 123
----- ----
Accrued postretirement benefit cost $1,039 $ 985
===== ====
The components of net periodic postretirement benefit cost are
as follows:
1995 1994 1993
---- ---- ----
(in millions)
Service cost (benefits attributed to
employee service during the period) $ 29 $ 36 $ 31
Interest cost on APBO 65 60 56
Net amortization and deferral (15) (12) (12)
--- --- ---
Net periodic postretirement
benefit cost $ 79 $ 84 $ 75
=== === ===
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 1995 or 1994.
119
<PAGE>
The discount rate used to determine the APBO was 7.25%, 9.00%
and 7.75% at December 31, 1995, 1994 and 1993, respectively. The
average rates of annual compensation increase used to calculate the
APBO ranged from 3% to 6% at December 31, 1995, 1994 and 1993. The
assumed health care cost trend rate used in measuring the APBO was
8.5% in 1995, declining by 1% per year after 1995 to an ultimate
rate of 4.5%. If the assumed health care cost trend rates were
increased by one percentage point, the APBO at December 31, 1995
would be increased by 10% and 1995 periodic postretirement benefit
costs 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. Profit Sharing
In exchange for temporary wage and salary reductions and other
concessions during a twelve month period in 1992 and 1993,
including certain ongoing work rule and medical benefits conces-
sions and the freeze of the defined benefit plan for non-contract
employees, certain USAir employees 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 USAir employees whose pay had been reduced in an amount equal
to (i) two times salary forgone plus (ii) one time salary forgone
(subject to a minimum of $1,000) for the freeze of the pension
plans for non-contract employees. Until the maximum payout has been
made, annual pre-tax profits, as defined in the program, of USAir
Group will be distributed to participating employees as follows:
25% of the first $100 million in pre-tax profits; 35% of the next
$100 million in pre-tax profits; and 40% of the pre-tax profits
exceeding $200 million.
The calculation of pre-tax profits under the profit sharing
plan excludes FAS 106 charges (approximately $78.6 million for
1995) and certain unusual items. This program will be in effect
until affected employees are recompensed for salary and pension
benefits foregone. Because USAir Group recorded a pre-tax profit
for 1995, USAir recognized charges of approximately $49.7 million
under this plan in 1995 (certain amounts have been expensed in
prior years even though 1995 was USAir's first profitable year
since inception of the plan). Under the terms of the plan, the
cash payout for 1995 of approximately $73.7 million was made to
employees covered by the provision of this plan in the first
quarter of 1996.
120
<PAGE>
USAir's ESOP and Defined Contribution Retirement Program each
have profit sharing components. Under the ESOP, each eligible
USAir employee receives a certain number of USAir Group Common
Stock shares based on each participant's compensation relative to
the total compensation of all participants and the number of USAir
Group Common Stock shares in the allocation pool. When USAir's
return on sales equals or exceeds certain prescribed levels, USAir
increases its contribution, which effectively increases the number
of USAir Group Common Stock shares in the allocation pool (see Note
10. - Employee Stock Ownership Plan). Under the Defined Contribu-
tion Retirement Program, USAir makes additional contributions to a
participant's account when USAir Group achieves certain prescribed
pre-tax margin levels (see Note 11. - Employee Benefit Plans).
USAir did not make any profit sharing contributions in connection
with the profit sharing components of the ESOP or the Defined
Contribution Retirement Program in 1995, 1994 or 1993.
13. Related Party Transactions
USAir wet leases 767-200ER aircraft, including cockpit and
cabin crews, to BA in order to serve three routes between the U.S.
and London. The wet lease arrangements are scheduled to end by May
31, 1996 (the first of the three wet lease arrangements ended in
December 1995 and a second arrangement ended in February 1996).
USAir recognized other operating revenues of approximately $63.6
million, $60.7 million and $17.1 million for the years 1995, 1994,
and 1993, respectively, related to the wet lease arrangements.
These revenues were offset by an equal amount of other operating
expense.
USAir also has various agreements with BA for ground handling
at certain airports, contract training and other services. USAir
recognized other operating revenues of approximately $4.9 million,
$6.4 million and $2.4 million for the years 1995, 1994 and 1993,
respectively, related to the services USAir performed for BA.
USAir's current receivables from and payables to BA were
approximately $11.5 million and $5.3 million, respectively, at
December 31, 1995 and $11.0 million and $4.5 million, respectively,
at December 31, 1994.
USAir also had a long-term receivable from BA related to two
U.S. to London routes that USAir relinquished at the time of
implementation of a code sharing arrangement with BA. The balance
of the receivable was approximately $45.4 million and $47.0 million
at December 31, 1995 and 1994, respectively. Payments began in
December 1995 in conjunction with the termination of the first wet
lease arrangement and continue annually for nine years.
See also Note 7. - British Airways plc Investment and Note 8.
- - Redeemable Preferred Stock and Deferral of Dividends.
121
<PAGE>
14. Selected Quarterly Financial Data (Unaudited)
The following table presents selected quarterly financial data
for 1995 and 1994:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in millions except per share amounts)
1995
Operating revenues $1,763 $1,983 $1,873 $1,855
Operating income (loss) $ (42) $ 163 $ 93 $ 108
Net income (loss) $ (97) $ 113 $ 43 $ 60
===== ===== ===== =====
Net income (loss)
applicable to
common stockholders $ (117) $ 92 $ 22 $ 38
Income (loss) per common
share
Primary $(1.91) $ 1.47 $ .35 $ .61
Fully Diluted $(1.91) $ 1.11 $ .35 $ .54
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)
See Note 16. - Non-Recurring and Unusual Items.
Note:
Fully Diluted Income (loss) per common share is not presented
for any period in 1994 because the calculations were antidilu-
tive in each of those periods.
The sum of the four quarters may not equal yearly totals due
to rounding of quarterly results.
(this space intentionally left blank)
122
<PAGE>
15. Supplemental Balance Sheet Information
The components of certain accounts in the accompanying balance
sheets are as follows:
December 31,
-----------------
1995 1994
---- ----
(in thousands)
(a) Cash and cash equivalents:
Cash $ 13,539 $ 17,559
Cash equivalents, at cost which
approximates market 868,315 411,979
------- -------
$881,854 $429,538
======= =======
(b) Receivables, net:
Accounts receivable $334,462 $334,010
Less allowance for doubtful
accounts 12,340 9,471
-------- --------
$322,122 $324,539
======= =======
(c) Materials and supplies, net:
Materials and supplies $412,230 $431,455
Less allowance for obsolescence 164,086 172,791
------- -------
$248,144 $258,664
======= =======
(d) Accrued expenses:
Salaries and wages $ 345,710 $ 262,326
Rents 495,611 494,202
All other 630,154 573,925
--------- ---------
$1,471,475 $1,330,453
========= =========
Note:
Certain 1994 amounts have been reclassified to conform with
1995 classifications.
16. Non-Recurring and Unusual Items
(a) 1995
In the fourth quarter of 1995, USAir reversed $4.1 million of
the $132.8 million non-recurring charge related to its grounded
BAe-146 fleet that was recorded in the fourth quarter of 1994 (see
Note 16.(b) below). The reversal reflects the successful re-
marketing by USAir of three of these aircraft. USAir will reverse
additional amounts related to the 1994 non-recurring charge in
future periods dependent upon its success and the terms at which
the remaining 15 grounded BAe-146 aircraft are subleased or
otherwise disposed.
123
<PAGE>
(b) 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 727-200 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
lost 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.
(c) 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;
(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.
(this space intentionally left blank)
124
<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, 1995 and 1994, 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, 1995. 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, 1995 and
1994, and the results of their operations and their cash flows for
the three-year period ended December 31, 1995 in conformity with
generally accepted accounting principles.
As discussed in Note 9 to the consolidated financial statements,
effective January 1, 1993, USAir changed its method of accounting
for postemployment benefits.
KPMG Peat Marwick LLP
Washington, D. C.
February 28, 1996
125
<PAGE>
<TABLE>
USAir, Inc.
Consolidated Statements of Operations
Years Ended December 31, (in thousands)
====================================================================================================
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Operating Revenues
Passenger transportation $6,267,762 $5,922,223 $ 6,081,788
Cargo and freight 153,651 160,364 170,500
Other 563,463 496,006 370,760
--------- --------- ----------
Total operating revenues 6,984,876 6,578,593 6,623,048
Operating Expenses
Personnel costs 2,751,437 2,753,269 2,698,039
Aviation fuel 605,027 642,305 677,859
Commissions 527,058 549,192 559,793
Aircraft rent 398,063 521,395 431,616
Other rent and landing fees 388,866 422,190 431,591
Aircraft maintenance 295,594 335,791 308,890
Depreciation and amortization 337,066 387,211 325,214
Other, net 1,447,114 1,484,212 1,339,152
--------- --------- ----------
Total operating expenses 6,750,225 7,095,565 6,772,154
--------- --------- ----------
Operating income (loss) 234,651 (516,972) (149,106)
Other Income (Expense)
Interest income 51,122 28,044 24,794
Interest expense (301,923) (285,846) (238,628)
Interest capitalized 8,781 13,760 17,754
Other, net 44,767 44,831 (29,862)
--------- --------- ----------
Other income (expense), net (197,253) (199,211) (225,942)
--------- --------- ----------
Income (loss) before taxes and cumulative
effect of accounting changes 37,398 (716,183) (375,048)
Income tax provision (credit) 4,408 - -
--------- --------- ----------
Income (loss) before cumulative effect
of accounting changes 32,990 (716,183) (375,048)
Cumulative effect of change in method of
accounting for postemployment benefits
in 1993 - - (43,749)
--------- --------- ----------
Net income (loss) $ 32,990 $ (716,183) $ (418,797)
========= ========= ==========
See accompanying Notes to consolidated financial statements.
126
<PAGE>
USAir, Inc.
Consolidated Balance Sheets
December 31, (dollars in thousands except per share amount)
====================================================================================================
<CAPTION>
1995 1994
---- ----
ASSETS
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 879,613 $ 428,925
Short-term investments 19,831 22,133
Receivables, net 321,755 326,012
Materials and supplies, net 222,245 238,481
Prepaid expenses and other 97,922 77,111
--------- ----------
Total current assets 1,541,366 1,092,662
Property and Equipment
Flight equipment 5,021,520 4,914,776
Ground property and equipment 1,052,706 1,040,329
Less accumulated depreciation and amortization (2,222,814) (2,006,041)
--------- ---------
3,851,412 3,949,064
Purchase deposits 17,026 195,701
--------- ---------
Property and equipment, net 3,868,438 4,144,765
Other Assets
Goodwill, net 510,562 526,615
Other intangibles, net 312,539 319,229
Other assets, net 590,622 592,689
--------- ---------
Total other assets 1,413,723 1,438,533
--------- ---------
$6,823,527 $6,675,960
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current Liabilities
Current maturities of long-term debt $ 77,496 $ 80,714
Accounts payable 325,079 263,243
Payable to parent company 100,344 85,175
Traffic balances payable and unused tickets 638,019 591,154
Accrued expenses 1,435,194 1,297,574
--------- ---------
Total current liabilities 2,576,132 2,317,860
Long-Term Debt, Net of Current Maturities
Long-term debt 2,674,376 2,849,488
Note payable - parent company 67,556 -
--------- ---------
Total long-term debt, net of current maturities 2,741,932 2,849,488
Deferred Credits and Other Liabilities
Deferred gains, net 382,995 409,091
Postretirement benefits other than pensions, non-current 1,015,373 958,706
Non-current employee benefit liabilities and other 418,268 414,000
--------- ---------
Total deferred credits and other liabilities 1,816,636 1,781,797
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) (2,649,310) (2,682,300)
Adjustment for minimum pension liability (77,995) (7,017)
--------- ---------
Total stockholder's equity (deficit) (311,173) (273,185)
--------- ---------
$6,823,527 $6,675,960
========= =========
See accompanying Notes to consolidated financial statements.
127
<PAGE>
USAir, Inc.
Consolidated Statements of Cash Flows
Years Ended December 31, (in thousands)
===================================================================================================
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash and cash equivalents beginning of year $ 428,925 $ 367,835 $ 295,432
Cash flows from operating activities
Net income (loss) 32,990 (716,183) (418,797)
Adjustments to reconcile net income (loss) to cash
provided by (used for) operating activities
Depreciation and amortization 337,066 387,211 325,214
Loss (gain) on disposition of property (16,654) (16,671) 10,405
Amortization of deferred gains and credits (26,411) (26,382) (26,439)
Other (2,787) (8,080) 26,052
Changes in certain assets and liabilities
Decrease (increase) in receivables 4,257 127,902 (59,916)
Decrease (increase) in materials, supplies,
prepaid expenses and intangible pension assets (68,415) 70,750 32,069
Increase (decrease) in traffic balances payable
and unused tickets 46,865 (68,452) 37,178
Increase (decrease) in accounts payable and
accrued expenses 214,707 326,855 80,838
Increase (decrease) in postretirement benefits
other than pensions, non-current 56,667 51,613 65,833
-------- -------- --------
Net cash provided by (used for) operating activities 578,285 128,563 72,437
Cash flows from investing activities
Aircraft acquisitions and purchase deposits, net (61,689) (46,022) (125,981)
Additions to other property (80,644) (128,874) (150,793)
Proceeds from disposition of property 219,762 55,540 176,019
Change in short-term investments 2,430 (21,994) -
Change in restricted cash and investments 71,980 2,578 (14,221)
Other (1,134) 1,110 (4,378)
-------- -------- --------
Net cash provided by (used for) investing
activities 150,705 (137,662) (119,354)
Cash flows from financing activities
Issuance of debt - 172,156 329,556
Reduction of debt (278,302) (101,967) (210,236)
-------- -------- --------
Net cash provided by (used for) financing
activities (278,302) 70,189 119,320
-------- -------- --------
Net increase (decrease) in cash and cash equivalents 450,688 61,090 72,403
-------- -------- --------
Cash and cash equivalents end of year $ 879,613 $ 428,925 $ 367,835
======== ======== ========
Noncash investing and financing activities
Issuance of debt for aircraft acquisitions, net $ 169,725 $ 224,614 $ 343,188
Issuance of parent company debt for aircraft acquisitions $ 68,640 $ - $ 76,094
Issuance of debt for other property acquisitions $ - $ - $ 669
Reduction of debt-aircraft purchase deposits $ 70,837 $ - $ -
Reduction of debt-aircraft related $ - $ - $ 47,685
Reduction of parent company debt applied to inter-
company receivable $ - $ - $ 79,539
Aircraft acquisitions-transfer from affiliated company $ - $ 3,569 $ 70,700
Other property acquisitions-transfer from affiliated
company $ - $ 7,925 $ -
Aircraft dispositions - transfer to affiliated company $ - $ 81,913 $ -
Supplemental Information
Cash paid during the year for interest, net of amounts
capitalized $ 290,560 $ 254,199 $ 221,811
======== ======== ========
Cash received during the year for income tax refunds,
net of taxes paid $ (6,329) $ - $ -
======== ======== ========
See accompanying Notes to consolidated financial statements.
128
<PAGE>
USAir, Inc.
Consolidated Statements of Changes in Stockholder's Equity (Deficit)
Three Years Ended December 31, 1995 (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, 1992 $ 1 $2,416,131 $(1,547,320) $ (6,820) $ 861,992
Net income (loss) - - (418,797) - (418,797)
Adjustment 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)
Adjustment for minimum
pension liability - - - 34,947 34,947
--- --------- ---------- ------- -------
Balance December 31, 1994 1 2,416,131 (2,682,300) (7,017) (273,185)
Net income (loss) - - 32,990 - 32,990
Adjustment for minimum
pension liability - - - (70,978) (70,978)
--- --------- ---------- ------- -------
Balance December 31, 1995 $ 1 $2,416,131 $(2,649,310) $(77,995) $(311,173)
=== ========= ========= ====== =======
See accompanying Notes to consolidated financial statements.
</TABLE>
129
<PAGE>
USAir, Inc.
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
(a) Basis of Presentation and Nature of Operations
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.
USAir is a major United States air carrier whose primary
business is transporting passengers, property and mail. USAir
operates predominantly in the eastern United States with primary
hubs at the major airports in Pittsburgh, Pennsylvania, Charlotte,
North Carolina, Philadelphia, Pennsylvania and at Baltimore/-
Washington International Airport. USAir also maintains significant
operations at the major airports in Boston, Massachusetts, New
York, New York and Washington, D.C. USAir enplaned more than 57
million passengers during 1995 and is currently the fifth largest
domestic air carrier, as measured by revenue passenger miles
("RPMs").
In the fourth quarter of 1995, USAir and a subsidiary of
British Airways plc ("BA") formed Airline Technical Services, LLC
("ATS"), a Delaware limited liability company, offering joint
aviation maintenance, and technical and engineering expertise in
the Americas. ATS will receive a commission on the contracts it
brokers for USAir and BA. USAir accounts for ATS using the equity
method because it is owned equally by each parent company. No
material activity occurred in 1995.
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 partnerships and therefore
participates in policy making processes.
130
<PAGE>
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Certain 1994 and 1993 amounts have been reclassified to
conform with 1995 classifications.
(b) Cash and Cash Equivalents and Short-Term Investments
For financial statement purposes, USAir considers all highly
liquid investments purchased within three months of maturity 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 purchased with
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 and
repairable 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. USAir
periodically reviews estimated depreciable lives and residual
values for reasonableness and revises its estimates, if necessary.
(this space intentionally left blank)
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Depreciable
Assets Lives Residual Values
------ ----------- ---------------
(years) (in millions)
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 F28-4000 8 2.0
Fokker F28-1000 6 1.0
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 -
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. When property and equipment
is sold or retired, the cost and accumulated depreciation is
removed from the accounts and any gain or loss recognized as Other
Income (Expense).
(e) Goodwill and Other Intangibles
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 ("Pacific Southwest") and Piedmont
Aviation, Inc. ("Piedmont Aviation"), both in 1987, is being
amortized as Depreciation and Amortization Expense. Accumulated
amortization at December 31, 1995 and 1994 related to the Pacific
Southwest and Piedmont Aviation acquisitions was $128 million and
$113 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 related accumulated amortization
at December 31, 1995 and 1994 was approximately $2 million. 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
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rights, valued at purchase cost or appraised value if acquired
from Pacific Southwest 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 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. Accumulated amortization related to intangible assets at
December 31, 1995 and 1994 was $104 million and $80 million,
respectively.
Based on the most recent analyses, USAir believes that
goodwill and other intangible assets were not impaired at Decem-
ber 31, 1995.
(f) Other Assets, net
Other Assets, net consists primarily of non-current pension
assets, the unamortized balance of deferred compensation, restrict-
ed cash and investments and a long-term receivable from BA.
Deferred compensation resulted mainly from USAir's establishment of
an Employee Stock Ownership Plan in 1989 (see Note 8.). Restricted
cash and investments are deposits in trust accounts to collateral-
ize letters of credit and workers' compensation policies and the
long-term receivable from BA resulted from the relinquishment by
USAir of two U.S. to London routes.
In November 1995, USAir entered into a five-year transaction
with a third party pursuant to which USAir agreed to pledge to such
third party from time to time certain flight equipment and
simulators as collateral for up to $70 million aggregate principal
amount of letters of credit to be issued by the third party with
respect to certain workers' compensation obligations of USAir. On
December 15, 1995, USAir pledged ten aircraft to the third party,
resulting in the release of $67.2 million in cash and securities
that had been previously pledged by USAir to letter of credit
providers.
(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 or the ticket otherwise expires.
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 $31 million and $23 million of amounts owed to
wholly-owned subsidiaries of USAir Group for passenger transporta
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tion revenue are included in Traffic Balances Payable and Unused
Tickets at December 31, 1995 and 1994, respectively.
(i) Frequent Traveler Awards
USAir accrues the estimated incremental cost of providing
outstanding travel awards earned by participants in its Frequent
Traveler Program ("FTP") when participants accumulate sufficient
miles to be entitled to claim award certificates for travel.
(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 1995, 1994 and 1993 was
$67 million, $63 million and $59 million, respectively.
2. Financial Instruments
(a) Terms of Certain Financial Instruments
USAir has entered into hedging arrangements designed 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 38
million and 86 million at December 31, 1995 and 1994, respectively.
Under these arrangements, USAir will pay $0.499 to $0.548 per
notional gallon in 1996 and receive a floating rate per notional
gallon based on current market prices. In 1995 USAir paid $0.496
to $0.521 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 represented approximately 8% of
USAir's actual 1995 fuel consumption. USAir is party to such
hedging arrangements with several entities. Although the agree-
ments, which expire in 1996, expose USAir to credit loss in the
event of non-performance by the other parties to the agreements,
USAir does not anticipate such non-performance because of the
favorable creditworthiness status of the other parties. USAir may
continue to enter into such arrangements, 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.
Net settlements will be recorded as adjustments to interest
expense. Although USAir is exposed to credit loss in the event of
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non-performance by the counterparty to the contracts, USAir does
not anticipate such non-performance because of the favorable
creditworthiness status of the other party.
(b) Fair Value of Financial Instruments
Unless a quoted market price indicates otherwise, the fair
values of cash and cash equivalents, short-term investments and
other investments generally approximates 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 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 a liability):
December 31,
-------------------------------------------
1995 1994
-------------------- --------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(in thousands)
Cash and cash
equivalents $ 879,613 $ 879,613 $ 428,925 $ 428,925
Short-term
investments 19,831 19,822 22,133 22,078
Restricted cash
and investments* 98,742 98,539 170,686 170,581
Long-term note
receivable* 45,433 33,277 47,000 31,537
Other long-term
investments* 4,607 4,008 1,633 1,144
Long-term debt
(excludes
capital lease
obligations) (2,753,932) (2,564,514) (2,847,878) (2,435,786)
Energy swap agree-
ments:
In a net receiv-
able position - 1,845 - 259
Foreign currency
contracts:
In a net receiv-
able position - 4,050 - 5,352
* Amounts are included in Other Assets on USAir's consolidated
balance sheets.
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3. Long-Term Debt
Details of long-term debt are as follows:
December 31,
----------------------
1995 1994
---- ----
(in thousands)
Senior Debt:
12 7/8% Senior Debentures due 2000 $ - $ 77,000
10% Senior Notes due 2003 300,000 300,000
9 5/8% Senior Notes due 2001 175,000 175,000
12.15% to 15.23% U.S. Government
Guaranteed Obligations - 3,090
5.7% to 12% Equipment Financing
Agreements, Installments due
1996 to 2016 2,180,430 2,090,064
8.4% Intercompany Aircraft Loan with
USAir Group due 1996 to 2014 68,640 -
8.6% Airport Facility Revenue Bond
due 2022 27,620 27,620
4.0% to 7.1% Aircraft Purchase
Deposit Financing - 172,301
Other 2,242 2,803
--------- ---------
2,753,932 2,847,878
Capital Lease Obligations 65,496 82,324
--------- ---------
Total 2,819,428 2,930,202
Less Current Maturities 77,496 80,714
--------- ---------
$2,741,932 $2,849,488
========= =========
Maturities of long-term debt and debt under capital leases for
the next five years are as follows:
(in thousands)
1996 $ 77,496
1997 88,637
1998 157,287
1999 80,732
2000 125,820
Thereafter 2,289,456
Interest rates on $492 million principal amount of long-term
debt at December 31, 1995 are subject to adjustment to reflect
prime rate and other rate changes.
Equipment financings totaling $2.3 billion were collateralized
by aircraft and engines with a net book value of approximately $2.4
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billion at December 31, 1995.
In February 1996, USAir sold $263 million principal amount of
Enhanced Equipment Notes ("Enhanced Notes") through a private
placement offering under Securities and Exchange Commission
Regulation 144A. The Enhanced Notes are secured by nine 757-200
aircraft. The Enhanced Notes are not reflected in the above table
because they were sold after December 31, 1995.
4. Commitments and Contingencies
(a) Operating Environment
USAir's financial results for 1995 represent a significant
improvement over 1994 results. The improvement is mainly attribut-
able to a stable domestic economic climate, favorable capacity
trends in USAir's markets, less fare discounting and low fare
competition and the positive influence of USAir's cost-reduction
efforts. However, USAir's financial condition, results of
operations and future prospects are more susceptible to an economic
downturn and competitive influences than most of its major
competitors due to USAir's high cost structure amid the low cost,
low fare environment which characterizes the domestic airline
industry.
Most of USAir's operations are in competitive markets,
predominately in the Eastern United States. In recent years, air
carriers with low costs of operations and fare structures have
initiated and or expanded into markets served by USAir. In
addition, several of the larger, mature air carriers have developed
or indicated their intention to develop similar low cost, low fare
service. In an effort to preserve market share, USAir has
typically responded to the entry of a low cost, low fare competitor
into its markets by matching fares and increasing the frequency of
service in related markets, generally with the result of diluting
USAir's yield in these markets. USAir currently has the highest
operating costs among the major domestic air carriers and the
growth and expansion of low cost, low fare carriers in USAir's
markets has put considerable pressure on USAir to reduce operating
costs in order to maintain competitiveness.
USAir was able to significantly reduce certain non-labor
related operating costs during 1995 through re-engineering efforts,
structural changes and reducing or eliminating capacity in
unprofitable markets, however, USAir has not been successful to
date in achieving meaningful reductions in personnel costs. USAir
believes that its long-term future depends on its success in
further reducing its cost of operations, including personnel costs.
At December 31, 1995, USAir employed approximately 39,900
full-time equivalent employees. Approximately 65% of USAir's
workforce is covered by collective bargaining agreements with
various unions, or will be covered by collective bargaining
agreements for which initial negotiations are in progress. USAir's
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contract with the International Association of Machinists and
Aerospace Workers ("IAM"), which represents USAir's machinists
group, is currently open for negotiation and USAir and the IAM have
commenced the collective bargaining process. USAir's contract with
the unions which represent its pilot's and flight attendant's
groups become open for negotiations within the next year. USAir
cannot predict the ultimate outcome of its negotiations with the
IAM or if it will be successful in achieving meaningful wage and
benefit concessions from the IAM and its other organized labor
groups.
Although a competitive strength, the concentration of
significant operations in the eastern U.S. leaves USAir susceptible
to certain regional conditions that may have an adverse affect on
the USAir's results of operations and financial condition. For
example, geographically isolated inclement weather and the recent
partial Federal government shutdowns adversely effected operating
revenues and expenses to a greater degree than some of USAir's
competitors.
The nature of USAir's operations results in reliance on the
availability of aviation fuel. The availability and price of
aviation fuel is largely dependent on the actions of the countries
which compose the Oil Producing and Exporting Countries ("OPEC")
cartel. OPEC, which currently controls a significant amount of the
world's known crude oil reserves, can effect the availability and
price of jet fuel through its production and price-targeting
actions. In addition, jet fuel prices are affected by political
events, seasonal factors and other factors that are generally
outside of USAir's control. USAir has a diversified fuel supplier
network and participates in fuel hedging transactions (see Note 2.
Fair Value of Financial Instruments for additional information
related to USAir's participation in fuel hedging contracts) in
order to ensure fuel availability and partially protect USAir from
temporary jet fuel price fluctuations.
(b) Leases
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. Some leases also include
renewal and purchase options.
In addition, USAir subleases certain leased aircraft and
ground facilities under noncancelable operating leases expiring in
various years through 2021.
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The following amounts applicable to capital leases are
included in property and equipment:
December 31,
---------------------
1995 1994
---- ----
(in thousands)
Flight equipment $192,775 $216,600
Ground property and equipment 4,767 10,961
------- -------
197,542 227,561
Less accumulated amortization 140,212 151,217
------- -------
$ 57,330 $ 76,344
======= =======
At December 31, 1995, obligations under capital and noncancel-
able operating leases for future minimum lease payments were as
follows:
Capital Operating
Leases Leases
------- ---------
(in thousands)
1996 $ 21,886 $ 712,087
1997 21,697 724,473
1998 10,687 689,645
1999 10,687 655,665
2000 7,586 645,943
Thereafter 20,094 6,621,172
------- ----------
Total minimum lease payments 92,637 10,048,985
Less sublease rental receipts - 178,901
----------
Total minimum operating lease
payments $9,870,084
==========
Less amount representing interest 27,141
-------
Present value of future minimum
capital lease payments 65,496
Less current obligations under
capital leases 14,085
-------
Long-term obligations under
capital leases $ 51,411
=======
Rental expense under operating leases for 1995, 1994 and 1993
was $680 million, $703 million and $739 million, respectively. The
$680 million rental expense for 1995 excludes a credit of $4.1
million related to the leasing of three of USAir's parked BAe-146
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aircraft, recorded in the fourth quarter of 1995. 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 727-200 aircraft in 1995. See Note 14. - Non-Recurring and
Unusual Items.
USAir also leases certain owned aircraft under noncancelable
operating leases which expire in various years through 2002 to both
third and related parties, primarily subsidiaries of USAir Group.
See Note 11. - Related Party Transactions. The minimum future
rentals to be received by USAir on these leases are: $24.4 million
- - 1996; $16.1 million - 1997; $8.0 million - 1998; $6.2 million -
1999; $5.4 million - 2000; and $6.0 million - thereafter. The
following amounts are applicable to aircraft leased under such
agreements as reflected in flight equipment:
December 31,
-------------------------
1995 1994
---- ----
(in thousands)
Flight equipment $192,198 $152,956
Less accumulated depreciation 75,089 43,283
------- -------
$117,109 $109,673
======= =======
(c) Legal Proceedings
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 ("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 the failure
of air traffic control to convey weather and windshear hazard
information and flight crew errors. The NTSB has not yet issued its
final accident investigation report for the accident near
Pittsburgh. The NTSB, The Boeing Company ("Boeing"), the Federal
Aviation Administration ("FAA") and USAir jointly conducted flight
tests in October 1995 as part of the ongoing investigation into the
cause of this accident. In this regard, USAir provided a 737-300
aircraft in the collective effort to simulate the conditions at the
time of the accident. More public hearings were conducted in
November 1995. The NTSB has indicated that a determination of the
cause of the accident is not likely until sometime in 1996. 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. Therefore, USAir believes that the litigation will not
have a material adverse effect on USAir's financial condition or
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results of operations, although any finding of fault on USAir's
part could create negative publicity and could tarnish USAir's
image.
In 1989 and 1990, a number of U.S. air carriers, including
USAir, received two Civil Investigative Demands ("CIDs") from the
Department of Justice ("DOJ") related to investigations of price
fixing in the domestic airline industry. 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.
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 contemporane-
ously in the United States 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. USAir has
recently received a CID from the DOJ relating to USAir's compliance
with the terms of the consent decree.
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 maximum
of 10% 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 certificates among
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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 9%. 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.
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 from
August 16, 1995, or until the combined discount amount reaches $40
million, whichever first occurs. On May 10, 1995, a U.S. federal
district court judge approved the settlement. USAir 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 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 base 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. The
lawsuits have been consolidated in the federal district of
Minnesota. The plaintiffs are seeking unspecified treble damages
for restraint of trade. The case is expected to go to a jury trial
in 1996. While USAir believes that its actions in establishing a
commission cap were in full compliance with the antitrust laws,
USAir is unable to predict at this time the ultimate resolution of
the litigation or the potential impact on USAir's financial
condition and results of operations.
In March 1995, a number of U.S. carriers, including USAir,
received CIDs from the DOJ related to an investigation of incen-
tives paid to travel agents over and above the base commission
payments. USAir responded to an earlier CID on this topic during
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1994. USAir has complied with the requirements of the CID by
producing documents and responding to interrogatories. Because
this matter is in the investigatory stage, USAir is unable to
predict at this time its ultimate resolution or potential impact on
USAir's financial condition or results of operations.
In May 1995, a number of U.S. air carriers, including USAir,
received CIDs from the DOJ relating to its investigation of
incentive payments to travel agencies and a possible agreement
among these carriers to implement a cap on travel agent base
commissions, which is the subject matter of the suits recently
brought by travel agencies, as discussed above. One of the CIDs
received by USAir sought the production of transcripts of deposi-
tions of any USAir employees taken in connection with the private
litigation relating to the commission caps, together with annexed
exhibits. USAir has complied with the requirements of the CIDs.
USAir does not expect these investigations to have a material
effect on its financial condition and results of operations.
In October 1995, USAir terminated for cause an agreement with
In-Flight Phone Corporation ("IFPC"). IFPC was USAir's provider of
on-board telephone and interactive data systems (the "IFPC
System"). The agreement contemplated the eventual installation of
the IFPC System on substantially all of USAir's aircraft. The IFPC
System had been installed on approximately 80 aircraft prior to the
date of termination of the agreement. On December 6, 1995, IFPC
filed suit against USAir seeking equitable relief and damages in
excess of $186 million. USAir believes that its termination of its
agreement with IFPC was appropriate and that it is owed in excess
of $5 million by IFPC. On December 7, 1995, USAir successfully
defended IFPC's emergency motion for a temporary restraining order.
On December 13, 1995, IFPC's motion for a preliminary injunction
was denied and IFPC has relinquished its right to appeal that
decision. IFPC's claim for damages remains pending and USAir is
presently preparing a counterclaim for amounts it is owed by IFPC.
USAir is unable to predict at this time the ultimate resolution or
potential financial impact on USAir's financial condition and
results of operations of this lawsuit. USAir is presently in
negotiations with other vendors of on-board telephone systems and
currently expects to finalize an agreement in the first quarter of
1996.
During 1995, four members of USAir's FTP filed class action
lawsuits against USAir in Illinois, Pennsylvania, California and
New Jersey state courts, alleging breach of contract relating to
changes made to USAir's FTP effective December 31, 1989 and/or
January 1, 1995. A similar lawsuit has been pending in California
state court since 1989. The lawsuits seek unspecified damages and
an injunction against the allegedly objectionable changes to
USAir's FTP and any subsequent retroactive changes to the FTP.
USAir denies the allegations made in the lawsuits and intends to
vigorously defend itself. The ultimate resolution of these
lawsuits and their potential impact on USAir's financial condition
and results of operations cannot be predicted at this time.
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In May 1995, USAir Group, USAir and the Retirement Income Plan
for Pilots of USAir, Inc. (the "Pilots' Pension Plan") were sued in
federal district court for the District of Columbia by 469 active
and retired USAir pilots. The lawsuit alleges that USAir has
breached its fiduciary duty under the Employee Retirement Income
Security Act ("ERISA") and otherwise violated ERISA by erroneously
calculating benefits under the Pilots' Pension Plan. The plaintiffs
seek, among other things, an injunction restraining USAir and the
Pilots' Pension Plan from allegedly improperly calculating benefits
under the Pilots' Pension Plan and payments to plaintiffs of
benefits allegedly improperly withheld in an amount alleged to be
equal to approximately $70 million, plus interest. USAir believes
that it has properly calculated benefits under the Pilots' Pension
Plan and intends to vigorously defend itself against the allega-
tions made in the lawsuit. Because this lawsuit is in an early
stage of litigation, USAir is unable to predict at this time its
ultimate resolution or potential impact on USAir Group's pension
liability or future funding requirements.
USAir has received notices from the U.S. Environmental
Protection Agency and various state agencies that it is a poten-
tially 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
continues to negotiate with various governmental agencies
concerning known and possible cleanup sites. USAir has made
financial contributions for the performance of remedial investiga-
tions and feasibility studies at sites in Moira, New York;
Escondido, California; and Elkton, Maryland.
Also, USAir has been identified as a potentially responsible
party ("PRP") for environmental contamination at Boston Logan
Airport. There are a number of other PRPs at the site. USAir is
presently unable to assess its proportionate share of contribution,
but do not expect any such contribution to have a material adverse
effect on its financial condition or results of operations.
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
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 or results of operations based
on USAir's experience with similar environmental sites.
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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. Such 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.
(d) Aircraft Commitments
In June 1995, USAir entered into agreements with Boeing and
Rolls Royce plc ("Rolls Royce") deferring the delivery of eight
757-200 aircraft from 1996 to 1998. As part of these agreements,
the due dates for progress payments associated with the 1996
deliveries were likewise rescheduled. Accordingly, approximately
$71 million of progress payments that had been paid by USAir were
refunded to USAir in the third quarter of 1995. The related long-
term debt which financed the deposits was dissolved.
The following schedule of USAir's new aircraft deliveries and
scheduled payments at December 31, 1995 (including progress
payments, payments at delivery, buyer furnished equipment, spares,
and capitalized interest) reflects USAir's agreements with Boeing
and Rolls Royce discussed above:
Delivery Period - Firm Orders
--------------------------------------------
There-
1996 1997 1998 1999 2000 after Total
---- ---- ---- ---- ---- ------ -----
Boeing
757-200 - - 8 - - - 8
737-Series - - - - - 40 40
--- --- --- --- --- ----- -----
Total - - 8 - - 40 48
=== === === === === ===== =====
Payments
(millions) $ 63 $ 74 $254 $ - $ - $1,855 $2,246
=== === === === === ===== =====
In addition, USAir has a commitment to purchase hush kits for
certain of its DC-9-30 aircraft and a substantial portion of its
737-200 aircraft. The installation of these hush kits will bring
the aircraft into compliance with FAA Stage 3 noise level require-
ments. The projected payments associated with the purchase of the
hush kits are: $43 million - 1996; $30 million - 1997; $30 million
- - 1998; and $17.0 million - 1999.
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<PAGE>
USAir has the option of purchasing any other Boeing commercial
aircraft type in satisfaction of its obligation to purchase forty
737-Series aircraft. Such satisfaction would be accomplished on an
"equivalent-seat" basis.
(e) Concentration of Credit Risk
USAir invests available cash in money market securities of
various banks, commercial paper of financial institutions and other
companies with high credit ratings and securities backed by the
United States government.
At December 31, 1995, most of USAir's receivables related to
tickets sold to individual passengers through the use of major
credit cards (44%) or to tickets sold by other airlines (16%) and
used by passengers on USAir or its regional airline affiliates.
These receivables are short-term, generally being settled within 14
days after sale. Bad debt losses, which have been minimal in the
past, have been considered in establishing allowances for doubtful
accounts. USAir does not believe it is subject to any significant
concentration of credit risk.
(f) Guarantees
At December 31, 1995, USAir guaranteed payments of debt and
lease obligations of Piedmont Airlines, Inc. and PSA Airlines,
Inc., wholly-owned subsidiaries of USAir Group, amounting to $103
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 expiry. The average dollar
amount of outstanding receivable sales during 1993 was approximate-
ly $100 million. USAir has engaged in discussions to arrange a
replacement facility but has elected not to pursue such a financing
at this time.
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
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<PAGE>
losses. USAir files a consolidated Federal income tax return with
its parent USAir Group. USAir Group and its wholly-owned subsid-
iaries have executed a tax sharing agreement which allocates tax
and tax items, such as net operating losses and tax credits between
members of the group based on their proportion of taxable income
and other items. This tax sharing and allocation impacts the
deferred tax assets and liabilities reported by each corporation on
a separate company basis. Accordingly, USAir's tax expense is
based on its taxable income (loss), taking into consideration its
allocated tax loss carryforwards and tax credit carryforwards.
The components of the provision for income taxes are as
follows:
1995 1994 1993
---- ---- ----
(in thousands)
Current provision:
Federal $4,107 $ - $ -
State 301 - -
----- --- ---
Total current provision 4,408 0 0
----- --- ---
Deferred provision:
Federal - - -
State - - -
----- --- ---
Total deferred provision 0 0 0
----- --- ---
Provision for income taxes $4,408 $ 0 $ 0
===== === ===
In 1995, USAir was not subject to regular Federal income tax
as a result of using $22 million in Federal net operating loss
carryforwards. However, USAir was subject to Federal alternative
minimum tax ("AMT") and environmental tax. Approximately $88
million in AMT net operating loss carryforwards and approximately
$17 million in state net operating loss carryforwards were utilized
to reduce the Federal and state tax liabilities.
The significant components of deferred income tax expense
(benefit) for the years ended December 31, 1995, 1994, and 1993,
are as follows:
1995 1994 1993
---- ---- ----
(in thousands)
Deferred tax expense (benefit)
(exclusive of the other
components listed below) $ 17,779 $(234,269) $(121,847)
Adjustments to deferred tax
assets and liabilities for
enacted changes in tax laws
and rates - - (9,429)
(table continued on next page)
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<PAGE>
Increase (decrease) for the
year in the valuation
allowance for deferred
tax assets (17,779) 234,269 131,276
------- -------- -------
Total $ 0 $ 0 $ 0
======= ======== =======
A reconciliation of taxes computed at the statutory Federal
tax rate on earnings before income taxes to the provision (cred-
it) for income taxes is as follows:
1995 1994 1993
---- ---- ----
Tax provision (credit) (in thousands)
computed at Federal
statutory rate $ 13,089 $(250,664) $(146,579)
State income tax expense,
net of Federal tax benefit 196 - -
Book expenses not deductible
for tax purposes 15,088 15,691 9,348
Limitation in recognizing
tax benefit of net operating
loss/credits - 234,973 146,660
Utilization of Federal Net
Operating Loss which reduced
valuation allowance (7,778) - -
Adjustments to deferred tax
assets and liabilities
for enacted changes in
tax laws and rates - - (9,429)
Current year temporary differ-
ences which reduced
valuation allowance (20,293) - -
Alternative Minimum tax which
increased valuation allowance 3,384 - -
Other 722 - -
------- ------- --------
Provision for Income Taxes $ 4,408 $ 0 $ 0
======= ======= ========
Effective Tax Rate 12% 0% 0%
======= ======= ========
(this space intentionally left blank)
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<PAGE>
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 1995, 1994 and 1993 are presented
below:
1995 1994 1993
---- ---- ----
(in thousands)
Deferred tax assets:
Leasing transactions $ 168,813 $ 164,513 $ 129,276
Tax benefits purchased
/sold 67,348 76,784 79,434
Gain on sale and lease-
back transactions 146,387 154,246 162,400
Employee benefits 487,050 484,347 429,312
Net operating loss carry-
forwards 627,357 657,870 508,240
Alternative minimum tax
credit carryforwards 25,819 20,881 20,881
Investment tax credit
carryforwards 48,720 47,880 47,880
Other deferred tax assets 118,521 99,368 61,210
--------- --------- ---------
Total gross deferred
tax assets 1,690,015 1,705,889 1,438,633
Less valuation allowance (785,306) (803,085) (568,816)
--------- --------- ---------
Net deferred tax assets 904,709 902,804 869,817
Deferred tax liabilities:
Equipment depreciation
and amortization 871,056 866,356 840,584
Other deferred tax
liabilities 33,653 36,448 29,233
--------- --------- ---------
Total deferred tax
liabilities 904,709 902,804 869,817
--------- --------- ---------
Net deferred tax
liabilities $ 0 $ 0 $ 0
========= ========= =========
Included in "Other Deferred Tax Assets" above for 1995, 1994
and 1993 are approximately $22 million, $16 million and $0,
respectively, of tax assets which originate from subsidiaries of
USAir Group in accordance with USAir's Tax Sharing Agreement.
The valuation allowance for deferred tax assets as of
January 1, 1993, was $438 million. The valuation allowance
increased $131 million in 1993, $234 million in 1994 and decreased
$18 million in 1995.
At December 31, 1995, USAir had unused net operating losses of
$1.6 billion for Federal tax purposes, which expire in the years
2005 to 2009. USAir also has available, to reduce future taxes
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<PAGE>
payable, $653 million alternative minimum tax net operating losses
expiring in the years 2007 to 2009, $49 million of investment tax
credits expiring in the years 2002 to 2003, and $26 million of
alternative minimum tax credits which do not expire. The Federal
income tax returns of USAir 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's board of directors has not authorized the payment of
dividends to USAir Group since 1988. In addition, USAir, organized
under the Laws of the State of Delaware, may be subject to certain
legal prohibitions on the payment of dividends on its capital
stock. At December 31, 1995, USAir believes that it was legally
prohibited from paying dividends to USAir Group due to the
provisions of Section 170 of Delaware General Corporation Law
("Delaware Law"), which require a company to maintain a capital
surplus in order to pay dividends on its capital stock. In
addition, as of December 31, 1995, USAir does not believe that it
can comply with certain provisions of Delaware Law which permit a
company with a capital deficit to pay dividends under special
circumstances. In order to 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 addition
common stock.
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.
The provisions of Statement of Accounting Standards No. 87,
"Employers' Accounting for Pensions," require the recognition of an
additional minimum liability for each defined benefit plan for
which the accumulated benefit obligation exceeds plan assets. This
amount has been recognized by USAir as a long-term liability with
an offsetting intangible asset (see Note 1.(e)). Because the
intangible asset recognized may not exceed the amount of unrecog-
nized prior service cost on an individual plan basis, the balance
is reported as a separate reduction of Stockholder's Equity
(Deficit) at December 31, 1995 and 1994. See also Note 9.
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 (the "Trust") to hold on
behalf of USAir's employees, exclusive of officers, in accordance
with the terms of the Trust and the ESOP. The trustee placed those
shares in a suspense account pending their release and allocation
to employees. USAir provided financing to the Trust in the form
of a 9 3/4% loan for $111.4 million for its purchase of shares and
USAir contributed an additional $2.2 million to the Trust. USAir
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<PAGE>
makes a yearly contribution to the Trust sufficient to cover the
Trust's debt service requirement. The contributions are made in
amounts equal to the periodic loan payments as they come due, less
dividends available for loan payment. Since the Company did not
pay dividends on any shares held by the Trust for the years ended
December 31, 1995, 1994 and 1993, the Trust did not utilize
dividends to service its debt during those periods. The initial
maturity of the loan is 30 years. As the loan is repaid over time,
the trustee systematically releases shares of the common stock from
the suspense account and allocates them to participating employees.
Each participant's allocation is based on the participant's
compensation, the total compensation of all ESOP participants and
the total number of shares being released. For each year after
1989, a minimum of 71,933 shares are released from the suspense
account and allocated to participant accounts. If USAir's return
on sales equals or exceeds four percent in a given year, more
shares are released and repayment of the loan is accelerated.
Annual contributions made by USAir, and therefore loan repayments
made by the Trust, were $11.4 million in each of 1995, 1994 and
1993. The interest portion of these contributions was $10.4
million in 1995, $10.5 million in 1994 and $10.5 million in 1993.
Approximately 510,000 shares of Common Stock have been released or
committed to be released as of December 31, 1995. USAir recognized
approximately $4 million of compensation expense related to the
ESOP in each of 1995, 1994 and 1993 based on shares allocated to
employees (the "shares allocated" method). Deferred compensation
related to the ESOP amounted to approximately $87 million, $91
million and $95 million at December 31, 1995, 1994 and 1993,
respectively.
In October 1995, the Financial Accounting Standards Board
adopted Statement No. 123 "Accounting for Stock-Based Compensation"
("FAS 123"). This statement establishes the fair value based
method of accounting for stock-based compensation. USAir has
elected to continue using the intrinsic value based method of
accounting prescribed in Accounting Principles Board opinion
No. 25, "Accounting for Stock Issued to Employees", as permitted by
FAS 123.
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 specified
amounts based on 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 the minimum
funding requirements of the Employee Retirement Income Security Act
of 1974.
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<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, 1995 and 1994 was as follows:
1995 1994
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)
Fair value of plan assets $ 993 $1,419 $1,690 $ 183
Actuarial present value of:
Vested benefit obligation 929 1,603 1,513 242
Nonvested benefit obliga-
tion 29 22 27 17
----- ----- ----- -----
Accumulated benefit
obligation based
on salaries to date 958 1,625 1,540 259
Additional benefits
based on estimated
future salary levels 130 598 470 -
----- ----- ----- -----
Projected benefit
obligation 1,088 2,223 2,010 259
----- ----- ----- -----
Projected benefit obliga-
tion in excess of fair
value of plan assets (95) (804) (320) (76)
Unrecognized net transition
asset (2) (34) (29) (12)
Unrecognized prior service
cost - 66 (15) 69
Unrecognized net loss 312 571 358 15
----- ----- ----- -----
(table continued on next page)
152
<PAGE>
Pension (liability) pre-
paid before adjustment 215 (201) (6) (4)
Adjustment to recognize
minimum liability* - (149) - (72)
----- ----- ----- -----
Pension (liability) pre-
paid as adjusted and
recognized in consoli-
dated balance sheets $ 215 $ (350) $ (6) $ (76)
===== ===== ===== =====
* See Note 7.
The weighted average discount rate used to determine the
actuarial present value of the projected benefit obligation was
7.25% and 9.00% as of December 31, 1995 and 1994, respectively. The
expected long-term rate of return on plan assets used in 1995 was
9.0% to 9.5% and 9.5% in 1994. Rates of 3% to 6% were used to
estimate future salary levels. As of December 31, 1995, plan
assets consisted of approximately 7% in cash equivalents and short-
term debt investments, 26% in equity investments, and 67% in fixed
income and other investments. As of December 31, 1994, plan assets
consisted of approximately 10% in cash equivalents and short-term
debt investments, 27% in equity investments, and 63% in fixed
income and other investments. Plan assets as of December 31, 1995
included 205 shares of USAir Group Common Stock. Plan assets as of
December 31, 1994 did not include shares of USAir Group Common
Stock.
The following items are the components of the net periodic
pension cost for the qualified defined benefit plans:
1995 1994 1993
---- ---- ----
(in millions)
Service cost (benefits
earned during the period) $ 92 $ 124 $ 90
Interest cost on projected
benefit obligation 216 216 188
Actual return on plan assets (539) 48 (224)
Net amortization and deferral 371 (254) 40
---- ---- ----
Net periodic pension cost $ 140 $ 134 $ 94
==== ==== ====
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 1995 or 1994.
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
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<PAGE>
if it were not for limitations imposed by Federal income tax
regulations.
The following table sets forth the non-qualified plans' status
at December 31, 1995 and 1994:
1995 1994
---- ----
(in millions)
Fair value of plan assets $ - $ -
Actuarial present value of:
Vested benefit obligation 30 30
Nonvested benefit obligation 2 2
--- ---
Accumulated benefits based on
salaries to date 32 32
Additional benefits based on
estimated future salary levels 2 1
---- ----
Projected benefit obligation 34 33
---- ----
Projected benefit obligation in
excess of fair value of plan assets (34) (33)
Unrecognized prior service cost 3 1
Unrecognized net loss 8 2
---- ----
Pension (liability) prepaid
before adjustment (23) (30)
Adjustment to recognize minimum
liability* (11) (5)
---- ----
Unfunded accrued supplementary costs
as adjusted and recognized in
consolidated balance sheets $ (34) $ (35)
==== ====
* See Note 7.
Net periodic supplementary pension cost for the non-qualified
supplemental pension plans included the following components:
1995 1994 1993
---- ---- ----
(in millions)
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 (1) 21 12
--- --- ---
Net periodic supplementary pension
cost $ 1 $ 23 $ 14
=== === ===
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<PAGE>
The discount rate used to determine the actuarial present
value of the projected benefit obligation was 7.25% and 9.00% as of
December 31, 1995 and 1994, respectively. A rate of 3% was used to
estimate future salary levels.
In addition to the qualified and non-qualified defined benefit
plans described above, USAir also contributes to certain defined
contribution plans. USAir contributions are based on a formula
which considers the age and pre-tax earnings of each employee and
the amount of employee contributions. In addition, certain
qualified defined contribution plans contain a component for profit
sharing contributions if USAir Group achieves certain pre-tax
margin levels. USAir's expense related to the defined contribution
plans, excluding expense for the ESOP Plan, was $64 million, $43
million and $42 million for 1995, 1994 and 1993, respectively. The
1995 contribution expense reflects a new employer match contribu-
tion for certain collective bargaining groups. USAir made no
contributions to its defined contribution plans related to profit
sharing in 1995, 1994 or 1993, since USAir Group did not achieve
the prescribed pre-tax margin level.
(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.
The following table sets forth the financial status of the
plans as of December 31, 1995 and 1994:
1995 1994
---- ----
(in millions)
Accumulated Postretirement Benefit
Obligation (APBO):
Retirees $ 338 $ 245
Fully eligible active plan participants 176 144
Other plan participants 482 306
----- ----
Total APBO 996 695
Unrecognized prior service credit 155 167
Unrecognized net gain (loss) (112) 123
----- ----
Accrued postretirement benefit cost $1,039 $ 985
===== ====
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<PAGE>
The components of net periodic postretirement benefit cost are
as follows:
1995 1994 1993
---- ---- ----
(in millions)
Service cost (benefits attributed to
employee service during the period) $ 29 $ 36 $ 31
Interest cost on APBO 65 60 56
Net amortization and deferral (15) (12) (12)
--- --- ---
Net periodic postretirement benefit
cost $ 79 $ 84 $ 75
=== === ===
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 1995 or 1994.
The discount rate used to determine the APBO was 7.25%, 9.00%
and 7.75% at December 31, 1995, 1994 and 1993, respectively. The
average rates of annual compensation increase used to calculate the
APBO ranged from 3% to 6% at December 31, 1995, 1994 and 1993. The
assumed health care cost trend rate used in measuring the APBO was
8.5% in 1995, declining by 1% per year after 1995 to an ultimate
rate of 4.5%. If the assumed health care cost trend rates were
increased by 1 percentage point, the APBO at December 31, 1995
would be increased by 10% and 1995 periodic postretirement benefit
costs 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. Profit Sharing
In exchange for temporary wage and salary reductions and other
concessions during a twelve month period in 1992 and 1993,
including certain ongoing work rule and medical benefits conces-
sions and the freeze of the defined benefit plan for non-contract
employees, certain USAir employees 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 USAir employees whose pay had been reduced in an amount equal
to (i) two times salary forgone plus (ii) one time salary forgone
(subject to a minimum of $1,000) for the freeze of the pension
plans for non-contract employees. Until the maximum payout has been
made, annual pre-tax profits, as defined in the program, of USAir
Group will be distributed to participating employees as follows:
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<PAGE>
25% of the first $100 million in pre-tax profits; 35% of the next
$100 million in pre-tax profits; and 40% of the pre-tax profits
exceeding $200 million.
The calculation of pre-tax profits under the profit sharing
plan excludes FAS 106 charges (approximately $78.6 million for
1995) and certain unusual items. This program will be in effect
until USAir employees are recompensed for salary and pension
benefits foregone. Because USAir Group recorded a pre-tax profit
for 1995, USAir recognized charges of approximately $49.7 million
under this plan in 1995 (certain amounts have been expensed in
prior years even though 1995 was USAir's first profitable year
since inception of the plan). Under the terms of the plan, the
cash payout for 1995 of approximately $73.7 million was made to
employees covered by the provision of this plan in the first
quarter of 1996.
USAir's ESOP and Defined Contribution Retirement Program each
have profit sharing components. Under the ESOP, each eligible
USAir employee receives a certain number of USAir Group Common
Stock shares based on each participant's compensation relative to
the total compensation of all participants and the number of USAir
Group Common Stock shares in the allocation pool. When USAir's
return on sales equals or exceeds certain prescribed levels, USAir
increases its contribution, which effectively increases the number
of USAir Group Common Stock shares in the allocation pool (see Note
8. - Employee Stock Ownership Plan). Under the Defined Contribu-
tion Retirement Program, USAir makes additional contributions to a
participant's account when USAir Group achieves certain prescribed
pre-tax margin levels (see Note 9. - Employee Benefit Plans). USAir
did not make any profit sharing contributions in connection with
the profit sharing components of the ESOP or the Defined
Contribution Retirement Program in 1995, 1994 or 1993.
11. Related Party Transactions
(a) Parent Company
As of December 31, 1995, USAir had a $68.6 million 8.4% note
payable to USAir Group related to USAir Group's purchase of
aircraft-secured debt obligations of USAir. USAir repaid the note
in February 1996. During 1994, USAir Group financed three aircraft
for USAir. USAir repaid this obligation, including interest, in
December 1994.
USAir's balance sheet line item, Payable to Parent Company,
includes intercompany loans from USAir Group which arise in the
normal course of business. These loans bear interest at market
rates which are reset quarterly.
Net interest expense related to the notes payable and
intercompany loans was $7.8 million, $11.3 million and $1.3 million
for the years 1995, 1994 and 1993, respectively.
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<PAGE>
(b) Regional Airline Subsidiaries of USAir Group
USAir engages in certain transactions with Allegheny Airlines,
Inc. ("Allegheny"), Piedmont Airlines, Inc., and PSA Airlines,
Inc., wholly-owned regional airline subsidiaries of USAir Group.
USAir provides various services to these entities including
passenger handling, contract training and catering. USAir
recognized other operating revenues of approximately $46.5 million,
$43.5 million and $50.3 million related to these services for the
years 1995, 1994 and 1993, respectively. These regional airlines
also perform passenger and ground handling for USAir at certain
airports for which USAir recognized other operating expenses of
approximately $21.0 million and $15.3 million for the years 1995
and 1994, respectively.
USAir leases or subleases certain turboprop aircraft to these
entities. USAir recognized other operating revenues related to
these arrangements of approximately $18.7 million, $22.0 million
and $14.1 million for the years 1995, 1994 and 1993, respectively.
USAir entered into a sale-leaseback arrangement with Allegheny
during 1994 involving certain turboprop aircraft (in return, USAir
subleases these same aircraft back to Allegheny). USAir recognized
other operating expenses related to the lease of these aircraft
from Allegheny of approximately $9.8 million and $3.1 million for
1995 and 1994, respectively.
USAir's receivables from and payables to these regional
airlines were approximately $9.6 million and $1.6 million,
respectively, at December 31, 1995 and $8.7 million and $1.3
million, respectively, at December 31, 1994. USAir's Traffic
Balances Payable liability included $30.8 million and $22.9 million
at December 31, 1995 and 1994, respectively, representing passen-
gers flown by the regional subsidiaries on behalf of USAir during
the month of December in each of those years.
(c) Other USAir Group Subsidiaries
USAir leases certain aircraft to USAir Group's wholly-owned
subsidiary USAir Leasing and Services, Inc. ("Leasing"). Leasing
subleases these aircraft to third parties. USAir recognized other
operating revenues related to these arrangements of approximately
$4.6 million, $2.2 million and $0.7 million for the years 1995,
1994 and 1993, respectively.
USAir purchases a portion of its aviation fuel from USAir
Group's wholly-owned subsidiary USAir Fuel Corporation ("Fuel
Corp."), which acts as a fuel wholesaler to USAir in certain
circumstances. USAir's aviation fuel purchases were approximately
$104.9 million, $57.8 million and $9.7 million for the years 1995,
1994 and 1993, respectively. USAir's accounts payable to Fuel
Corp. was $20.7 million and $5.6 million at December 31, 1995 and
1994, respectively.
158
<PAGE>
(d) British Airways plc
On January 21, 1993, USAir Group and BA entered into an
Investment Agreement under which a wholly-owned subsidiary of BA
purchased certain series of convertible preferred stock and BA
entered into code sharing and wet lease arrangements with USAir. At
December 31, 1995, BA's total voting interest in USAir Group was
approximately 21.0%.
USAir wet leases 767-200ER aircraft, including cockpit and
cabin crews, to BA in order to serve three routes between the U.S.
and London. The wet lease arrangements are scheduled to end by
May 31, 1996 (the first of the three wet lease arrangements ended
in December 1995 and a second wet lease ended in February 1996).
USAir recognized other operating revenues of approximately $63.6
million, $60.7 million and $17.1 million for the years 1995, 1994,
and 1993, respectively, related to the wet lease arrangements.
These revenues were offset by an equal amount of other operating
expense.
USAir also has various agreements with BA for ground handling
at certain airports, contract training and other services. USAir
recognized other operating revenues of approximately $4.9 million,
$6.4 million and $2.4 million for the years 1995, 1994 and 1993,
respectively, related to the services USAir performed for BA.
USAir's current receivables from and payables to BA were
approximately $11.5 million and $5.3 million, respectively, at
December 31, 1995 and $11.0 million and $4.5 million, respectively,
at December 31, 1994.
USAir also had a long-term receivable from BA related to two
U.S. to London routes that USAir relinquished at the time of
implementation of a code sharing arrangement with BA. The balance
of the receivable was approximately $45.4 million and $47.0 million
at December 31, 1995 and 1994, respectively. Payments began in
December 1995 in conjunction with the termination of the first wet
lease arrangement and continue annually for nine years.
12. Selected Quarterly Financial Data (Unaudited)
The following table presents selected quarterly financial data
for 1995 and 1994:
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
(in millions)
1995
Operating revenues $1,664 $1,852 $1,743 $1,725
Operating income (loss) $ (50) $ 135 $ 66 $ 84
Net income (loss) $ (102) $ 85 $ 17 $ 34
===== ===== ===== =====
159
<PAGE>
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)
===== ===== ===== =====
See Note 14. - Non-Recurring and Unusual Items.
Note:
The sum of the four quarters may not equal yearly totals due
to rounding of quarterly results.
(13) Supplemental Balance Sheet Information
The components of certain accounts in the accompanying balance
sheets are as follows:
December 31,
-----------------
1995 1994
---- ----
(in thousands)
(a) Cash and cash equivalents:
Cash $ 11,298 $ 16,946
Cash equivalents, at cost which
approximates market 868,315 411,979
------- -------
$879,613 $428,925
======= =======
(b) Receivables, net:
Accounts receivable $333,859 $335,234
Less allowance for doubtful
accounts 12,104 9,222
------- -------
$321,755 $326,012
======= =======
(c) Materials and supplies, net:
Materials and supplies $383,910 $408,308
Less allowance for obsolescence 161,665 169,827
------- -------
$222,245 $238,481
======= =======
(d) Accrued expenses:
Salaries and wages $ 342,391 $ 258,426
Rents 479,749 477,972
All other 613,054 561,176
--------- ---------
$1,435,194 $1,297,574
========= =========
Note:
Certain 1994 amounts have been reclassified to conform with 1995
classifications.
160
<PAGE>
14. Non-Recurring and Unusual Items
(a) 1995
In the fourth quarter of 1995, USAir reversed $4.1 million of
the $132.8 million non-recurring charge related to its grounded
BAe-146 fleet that was recorded in the fourth quarter of 1994 (see
Note 14.(b) below). The reversal reflects the successful re-
marketing by USAir of three of these aircraft. USAir will reverse
additional amounts related to the 1994 non-recurring charge in
future periods dependent upon its success and the terms at which
the remaining 15 grounded BAe-146 aircraft are subleased or
otherwise disposed.
(b) 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 727-200 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 lost in the September accident,
recorded in the third quarter of 1994.
(c) 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
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.
161
<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 the Company.
Information regarding this item appears in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A
relating to the Company's Annual Meeting of Stockholders on May 22,
1996 and is incorporated herein by reference. Information
concerning executive officers of the Company is set forth in Item 1
of the Report under the caption "Executive Officers" in reliance on
General Instruction G to Form 10-K.
Item 11. Executive Compensation.
Information regarding this item appears in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A
relating to the Company's Annual Meeting of Stockholders on May 22,
1996 and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
Information regarding this item appears in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A
relating to the Company's Annual Meeting of Stockholders on May 22,
1996 and is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information regarding this item appears in the Company's
definitive Proxy Statement to be filed pursuant to Regulation 14A
relating to the Company's Annual Meeting of Stockholders on May 22,
1996 and is incorporated herein by reference.
(this space intentionally left blank)
162
<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, 1995
- Consolidated Balance Sheets as of December 31, 1995
and 1994
- Consolidated Statements of Cash Flows for each of
the Three Years Ended December 31, 1995
- Consolidated Statements of Changes in Stockholders'
Equity (Deficit) for each of the Three Years Ended
December 31, 1995
- 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, 1995
- Consolidated Balance Sheets as of December 31, 1995
and 1994
- Consolidated Statements of Cash Flows for each of
the Three Years Ended December 31, 1995
- Consolidated Statements of Changes in Stockholder's
Equity (Deficit) for each of the Three Years Ended
December 31, 1995
- 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, 1995:
VIII - Valuation and Qualifying Accounts and Re-
serves
163
<PAGE>
(ii) Independent Auditors' Report on the Consolidated
Financial Statement Schedule of USAir.
- Consolidated Financial Statement Schedule - Three
Years Ended December 31, 1995:
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, 1995, the Company and
USAir filed Current Reports on Form 8-K dated October 3, 1995
regarding the news release dated October 2, 1995 of USAir Group,
announcing that it has had preliminary conversations with both
American Airlines, Inc. and United Air Lines, Inc. concerning
possible strategic relationships, up to and including acquisition
of USAir; dated October 18, 1995 regarding the news release dated
October 18, 1995 of USAir Group and USAir, with consolidated
statements of operations for each company for the three months and
nine months ended September 30, 1995 and 1994 and a supplemental
schedule for each company; dated November 14, 1995 regarding the
news release dated November 13, 1995 of USAir Group, related to UAL
Corp.'s announcement that it has decided not to pursue further
talks with USAir Group with respect to possible acquisition of
USAir; dated January 17, 1996 regarding the news release dated
January 16, 1996 of USAir Group and USAir, announcing the election
of Stephen M. Wolf as the Chairman and Chief Executive Officer of
USAir Group and USAir; dated January 22, 1996 regarding the news
release dated January 22, 1996 of USAir Group and USAir, with
consolidated statements of operations and a supplemental schedule
for each company; and dated February 15, 1996 regarding the news
release dated February 15, 1996 announcing that USAir Group did not
pay the dividend due on its Series B Cumulative Convertible
Preferred Stock.
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 Janu-
ary 27, 1983), including the Certificate of Amendment
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
164
<PAGE>
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 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).
165
<PAGE>
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
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 Executive Incentive Compensation Plan of USAir Group,
Inc. as amended and restated December 1, 1995.
10.4 USAir, Inc. Officers' Supplemental Benefit Plan
(incorporated by reference to Exhibit 10.5 to USAir's
Annual Report on Form 10-K for the year ended
166
<PAGE>
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 (incorporated by reference to
Exhibit 10.6 to USAir Group's Annual Report on Form
10-K for the year ended December 31, 1994).
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).
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 USAir Group's 1996 Stock Incentive Plan (incorporated
by reference to Exhibit A to USAir Group's Proxy
Statement dated April 15, 1996).
10.11 Employment Agreement between USAir and its Chief
Executive Officer.
10.12 Employment Agreement between USAir and its President
and Chief Operating Officer.
10.13 Employment Agreement between USAir and its Executive
Vice President-Corporate Affairs and General Counsel.
10.14 Agreement between USAir and its Chief Executive
Officer with respect to certain employment
arrangements.
10.15 Agreement between USAir and its President and Chief
Operating Officer with respect to certain employment
arrangements.
10.16 Agreement between USAir and its Executive Vice
President-Corporate Affairs and General Counsel with
respect to certain employment arrangements.
10.17 Employment Agreement between USAir and its former
Chief Executive Officer, as amended by a severance
agreement.
167
<PAGE>
10.18 Employment Agreement between USAir and its former
President and Chief Operating Officer, as amended by a
severance agreement.
10.19 Employment Agreement between USAir and its former
Executive Vice President, General Counsel and
Secretary, as amended by a severance agreement.
10.20 Employment Agreement between USAir and its Executive
Vice President-Marketing.
10.21 Trust Agreement dated as of April 1, 1992 between
USAir and Wachovia Bank of North Carolina, N.A.
providing for certain compensation arrangements for
the Executive Vice President-Marketing.
10.22 Employment Agreement between USAir and its Executive
Vice President-Customer Services.
10.23 Agreement between USAir and its Chief Executive
Officer providing supplemental retirement benefits.
10.24 Agreement between USAir and its President and Chief
Operating Officer providing supplemental retirement
benefits.
10.25 Agreement between USAir and its Executive Vice
President-Corporate Affairs and General Counsel
providing supplemental retirement benefits.
10.26 Agreement between USAir and its former Chief Executive
Officer providing supplemental retirement benefits.
10.27 Agreement between USAir and its former President and
Chief Operating Officer providing supplemental
retirement benefits.
10.28 Agreement between USAir and its former Executive Vice
President, General Counsel and Secretary providing
supplemental retirement benefits.
10.29 Agreement between USAir and its Executive Vice
President-Marketing providing supplemental retirement
benefits.
10.30 Employment Agreement between USAir and its Executive
Vice President-Customer Services providing retirement
benefits.
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.
168
<PAGE>
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.
27.1 Financial Data Schedule - USAir Group, Inc.
27.2 Financial Data Schedule - USAir, Inc.
169
<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/Stephen M. Wolf
---------------------------------
Stephen M. Wolf
Chairman and Chief
Executive Officer
(Principal Executive Officer)
Date: March 28, 1996
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.
March 28, 1996 By: /s/Stephen M. Wolf
---------------------------------
Stephen M. Wolf
Chairman and Chief
Executive Officer
(Principal Executive Officer)
March 28, 1996 By: /s/John W. Harper
---------------------------------
John W. Harper
Senior Vice President-Finance
(Principal Financial Officer)
March 28, 1996 By: /s/James A. Hultquist
---------------------------------
James A. Hultquist
Controller
(Principal Accounting Officer)
March 28, 1996 By: *
---------------------------------
Robert Ayling
Director
170
<PAGE>
March 28, 1996 By: *
---------------------------------
Robert W. Bogle
Director
March 28, 1996 By: *
---------------------------------
Edwin I. Colodny
Director
March 28, 1996 By: *
---------------------------------
Mathias J. DeVito
Director
March 28, 1996 By: *
---------------------------------
Rakesh Gangwal
Director
March 28, 1996 By: *
---------------------------------
George J. W. Goodman
Director
March 28, 1996 By: *
---------------------------------
John W. Harris
Director
March 28, 1996 By: *
---------------------------------
Edward A. Horrigan, Jr.
Director
March 28, 1996 By: *
---------------------------------
Robert LeBuhn
Director
March 28, 1996 By: *
---------------------------------
Roger P. Maynard
Director
March 28, 1996 By: *
---------------------------------
John G. Medlin, Jr.
Director
171
<PAGE>
March 28, 1996 By: *
---------------------------------
Hanne M. Merriman
Director
March 28, 1996 By: *
---------------------------------
Raymond W. Smith
Director
March 28, 1996 By: *
---------------------------------
Derek M. Stevens
Director
By: /s/John W. Harper
---------------------------------
John W. Harper
Attorney-In-Fact
(this space intentionally left blank)
172
<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/Stephen M. Wolf
---------------------------------
Stephen M. Wolf
Chairman and Chief
Executive Officer
(Principal Executive Officer)
Date: March 28, 1996
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.
March 28, 1996 By: /s/Stephen M. Wolf
---------------------------------
Stephen M. Wolf
Chairman and Chief
Executive Officer
(Principal Executive Officer)
March 28, 1996 By: /s/John W. Harper
---------------------------------
John W. Harper
Senior Vice President-Finance
(Principal Financial Officer)
March 28, 1996 By: /s/James A. Hultquist
---------------------------------
James A. Hultquist
Controller
(Principal Accounting Officer)
March 28, 1996 By: *
---------------------------------
Robert Ayling
Director
173
<PAGE>
March 28, 1996 By: *
---------------------------------
Robert W. Bogle
Director
March 28, 1996 By: *
---------------------------------
Edwin I. Colodny
Director
March 28, 1996 By: *
---------------------------------
Mathias J. DeVito
Director
March 28, 1996 By: *
---------------------------------
Rakesh Gangwal
Director
March 28, 1996 By: *
---------------------------------
George J. W. Goodman
Director
March 28, 1996 By: *
---------------------------------
John W. Harris
Director
March 28, 1996 By: *
---------------------------------
Edward A. Horrigan, Jr.
Director
March 28, 1996 By: *
---------------------------------
Robert LeBuhn
Director
March 28, 1996 By: *
---------------------------------
Roger P. Maynard
Director
March 28, 1996 By: *
---------------------------------
John G. Medlin, Jr.
Director
174
<PAGE>
March 28, 1996 By: *
---------------------------------
Hanne M. Merriman
Director
March 28, 1996 By: *
---------------------------------
Raymond W. Smith
Director
March 28, 1996 By: *
---------------------------------
Derek M. Stevens
Director
By: /s/John W. Harper
---------------------------------
John W. Harper
Attorney-In-Fact
(this space intentionally left blank)
175
<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 28, 1996, we reported on the consolidated
balance sheets of USAir Group, Inc. and subsidiaries ("USAir
Group") as of December 31, 1995 and 1994, 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, 1995, included in Item
14(a)1(i) in this annual report on Form 10-K for the year 1995.
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 USAir
Group's management. Our responsibility 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.
KPMG Peat Marwick LLP
Washington, D. C.
February 28, 1996
176
<PAGE>
USAir Group, Inc.
Schedule II
Valuation and Qualifying Accounts and Reserves
(in thousands)
Allowance For
Uncollectible Inventory
Accounts Obsolescence
------------- ------------
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 (1) 11,763 86,775
Amounts charged to reserve (13,110) (9,155)
------- -------
Balance December 31, 1994 9,471 172,791
Additions charged to income 12,046 12,146
Amounts charged to reserve (9,177) (20,851)
------- -------
Balance December 31, 1995 $ 12,340 $ 164,086
======= =======
(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.
177
<PAGE>
Independent Auditors' Report
On Consolidated Financial Statement Schedule - USAir, Inc.
The Stockholder and Board of Directors
USAir, Inc.
Under date of February 28, 1996, we reported on the consolidated
balance sheets of USAir, Inc. and subsidiary ("USAir") as of
December 31, 1995 and 1994, 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, 1995, included in Item 14(a)1(ii) in this annual
report on Form 10-K for the year 1995. 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.
KPMG Peat Marwick LLP
Washington, D. C.
February 28, 1996
178
<PAGE>
USAir, Inc.
Schedule II
Valuation and Qualifying Accounts and Reserves
(in thousands)
Allowance for
Uncollectible Inventory
Accounts Obsolescence
------------- ------------
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
Additions charged to income 12,000 9,667
Amounts charged to reserve (9,118) (17,829)
------- -------
Balance December 31, 1995 $ 12,104 $ 161,665
======= =======
(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.
179
<PAGE> Exhibit 3.2
BY-LAWS
USAIR GROUP, INC.
November 28, 1995
* * * * * * * * * * *
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.
1
<PAGE>
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
(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
2
<PAGE>
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
3
<PAGE>
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.
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.
4
<PAGE>
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
5
<PAGE>
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.
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 fifteen 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
6
<PAGE>
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
7
<PAGE>
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.
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.
8
<PAGE>
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
9
<PAGE>
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.
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
10
<PAGE>
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-
11
<PAGE>
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
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,
12
<PAGE>
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
13
<PAGE>
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.
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.
14
<PAGE>
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
15
<PAGE>
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
16
<PAGE>
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.
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
17
<PAGE>
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.
18
<PAGE>
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."
19
<PAGE>
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.
November 28, 1995
* * * * * * * * * * *
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
1
<PAGE>
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
(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
2
<PAGE>
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 fifteen 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.
3
<PAGE>
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.
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
4
<PAGE>
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
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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-
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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
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
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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.
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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.
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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
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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.
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
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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.
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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 Delaware.
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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."
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
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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 10.3
Executive Incentive Compensation Plan
of
USAir Group, Inc.
as amended and restated December 1, 1995
The Executive Incentive Committee Plan of USAir Group, Inc.
was originally adopted by the Corporation effective January 1,
1988. By action of the Corporation's Board of Directors, the Plan
has been amended and restated in its entirety to be effective for
Plan Years ending after December 1, 1995.
1. Purpose - The purpose of the Plan is to reward executives
and other key management employees of USAir and other subsidiaries
of the Corporation and to motivate them to increase shareholder
value and to achieve profitable results.
2. Definitions - When used in this Plan, unless the context
otherwise suggests:
(a) "Committee" shall mean the Compensation and Benefits
Committee of the Corporation's Board of Directors.
(b) "Corporation" shall mean USAir Group, Inc.
(c) "Plan" shall mean the Executive Incentive Compensation
Plan of USAir Group, Inc.
(d) "Plan Year" shall mean January 1 to December 31 to
coincide with the Corporation's fiscal year.
(e) "USAir" shall mean USAir, Inc.
3. Administration - The Plan shall be administered by the
Committee. Any Committee member who is eligible to participate in
the Plan shall abstain from voting on any matter before the
Committee relating to the Plan. The Committee may authorize and
establish such rules, regulations, and procedures as it may
determine advisable to make the Plan effective or to provide for
its administration and may take such other action with regard to
the Plan as it shall deem desirable to effectuate its purposes. A
determination of the Committee as to any questions which arise with
respect to the interpretation of the provisions of the Plan shall
be final.
4. Participants - Executives and other key management
employees of USAir and other subsidiaries of the Corporation as
approved by the Committee.
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5. Eligibility - Participation must occupy an incentive-
eligible position prior to October 1 of a Plan Year and must be
actively employed as of the same date in order to be eligible to
receive an award. However, should a Participant retire, die or
become disabled at any time during the Plan Year, a pro rata award
will be paid based on the Participant's number of full months of
active service during the Plan Year. Participants in an eligible
position for less than a full Plan Year, either due to the
commencement or termination of employment, promotion or demotion,
shall receive a pro rata award based on the number of full months
in the eligible position. Participants whose target percentage
changes during a Plan Year will receive an award based on a pro
rata calculation between the percentages. A Participant terminated
for cause forfeits all rights of eligibility with respect to the
Plan Year.
6. Awards - The Plan provides for the payment of incentive
and bonus awards.
(a) Incentive Awards:
(i) The Committee will establish target awards for each
officer Participant in the Plan stated as a percentage of the
Participant's base salary. The senior officer whose
responsibilities include Human Resources, with the concurrence of
the Chief Executive Officer, will establish target awards for each
non-officer Participant in the Plan stated as a percentage of the
Participant's base salary.
(ii) The Committee shall establish objectives for the Plan
Year by March 31 of the Plan Year against which incentive awards
will be measured.
(iii) Target awards will be paid if the Corporation and the
Participant meet established objectives. Awards shall range from
zero (0) to 200% of target if objectives are achieved at maximum.
The Committee retains the right to adjust a Participant's award
based on the individual Participant's performance at its sole
discretion; however, no award may exceed 200% of the individual's
target award.
(b) Bonus Awards: For any Plan Year in which no incentive
awards are paid, the Committee retains the right to authorize bonus
awards under the Plan to such Participants and in such amounts as
it shall determine in its sole discretion.
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(c) Incentive and bonus awards shall be paid in a lump sum
cash distribution to Participants as soon as practical following
the close of the Plan Year and after such awards have been approved
by the Committee.
7. Tax Withholding - Cash awards made pursuant to the Plan
are subject to applicable federal, state and local, if any, payroll
tax withholdings.
8. Amendment of Plan - The Committee may from time to time
amend the Plan and its terms and conditions and may at any time
discontinue the granting of awards under the Plan.
9. Effective Date and Term of Plan - The Plan shall be
effective as of January 1, 1988 and shall remain in effect until
the Committee, in its sole discretion, decided to terminate the
plan.
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<PAGE> Exhibit 10.11
EMPLOYMENT AGREEMENT
Agreement dated as of January 22, 1996, between USAir, Inc.,
a Delaware corporation, having a place of business at Crystal Park
Four, 2345 Crystal Drive, Arlington, VA 22227 (the "Company") and
Stephen M. Wolf, residing at Rock Hill Farm, Route 702 at Route
709, The Plains, Virginia, 22171 (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
termination of employment or cessation of status as an officer (i)
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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, 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
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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, 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; 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
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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 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.
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 the position of Chairman
and Chief Executive Officer with substantially similar duties to
those performed 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.
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(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 November
9, 1995 by the Group Board of Directors ("Incentive Plan") or
otherwise. The Executive's target bonus opportunity under the
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Incentive Plan each year shall be no less than 50% of his Base
Salary (as in effect on the first day of the year) and his maximum
bonus opportunity each year shall be no less than 100% of such Base
Salary. 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.
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(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
7
<PAGE>
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) the failure by Group to elect the Executive to the
position of Chairman and Chief Executive Officer of Group or any
other action by Group which results in the diminution of the
Executive's position, authority, duties, or responsibilities,
excluding an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by Group promptly after
receipt of notice thereof is given by the Executive;
(iii) (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;
8
<PAGE>
(iv) 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;
(v) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by
this Agreement; or
(vi) 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
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.
9
<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
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
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
10
<PAGE>
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 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 5 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
11
<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 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 5 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 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 in an amount equal to the Base
Salary in effect on the Effective Date (the highest Annual Bonus
determined under this clause (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; 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
12
<PAGE>
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.
(ii) The Company shall:
A. for the remainder of the Employment Period or such longer
period as any plan, program, practice or policy may provide,
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; and
B. at the expiration of the Employment Period, 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. 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 or any of its
subsidiaries. Amounts which are vested benefits or which the
Executive is otherwise entitled to receive under any plan, policy,
13
<PAGE>
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, including, but not limited to, any amounts in
respect of (i) options to acquire shares of Group common stock,
(ii) restricted shares of Group common stock, (iii) the letter
agreement entered into as of January 22, 1996 between the Executive
and the Company with respect to supplemental retirement benefits,
and (iv) the letter agreement entered into as of January 22, 1996
between the Executive and the Company with respect to certain
employment matters) (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
14
<PAGE>
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 5
business days of the Date of Termination, 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 upon 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.
(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
15
<PAGE>
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 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
16
<PAGE>
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.
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.
17
<PAGE>
(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: If to the Company:
Stephen M. Wolf USAir, Inc.
Rock Hill Farm 2345 Crystal Drive
Route 702 at Route 709 Arlington, Virginia 22227
The Plains, Virginia 22171 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.
18
<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
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, together with the letter
agreement dated March 4, 1996 between the Executive and the
Company, 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/Stephen M. Wolf
__________________________________
Stephen M. Wolf
Chairman and Chief Executive
Officer
USAIR, INC.
/s/Michelle V. Bryan
________________________________
Michelle V. Bryan
Vice President, Deputy General
Counsel and Secretary
19
<PAGE>
EXHIBIT A
USAir, Inc. Employee Savings Plan
USAir, Inc. Employee Pension Plan
USAir, Inc. Supplementary Retirement Benefit Plan
1988 Stock Incentive Plan of USAir Group, Inc.
1996 Stock Incentive Plan of USAir Group, Inc.
Executive Incentive Compensation Plan of USAir Group, Inc.
Individual Supplemental Retirement Agreements in effect with
certain officers of USAir, Inc.
Restricted Stock Agreements with certain senior officers of
USAir, Inc.
20
<PAGE> Exhibit 10.12
EMPLOYMENT AGREEMENT
Agreement dated as of February 19, 1996, between USAir, Inc.,
a Delaware corporation, having a place of business at Crystal Park
Four, 2345 Crystal Drive, Arlington, VA 22227 (the "Company") and
Rakesh Gangwal, residing at 74 Watergate, South Barrington,
Illinois 60010 (the "Executive").
WITNESSETH
WHEREAS, the Executive has assumed the duties of the President
and Chief Operating Officer 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
<PAGE>
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 President and Chief
Operating 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 termination of employment or cessation of
status as President and Chief Operating Officer.
<PAGE>
(c) The "Employment Period" shall mean the period commencing
on the Effective Date and ending on the earlier to occur of (i) the
third 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) three 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 third 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
<PAGE>
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, 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
<PAGE>
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, 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
<PAGE>
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; or
(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,
<PAGE>
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.
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 the position of
President and Chief Operating Officer with substantially similar
duties to those performed 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; provided, however, that in the event of
the departure of the Chief Executive Officer of the Company
incumbent in that position on the Effective Date the Executive's
services shall be performed at the Executive's location on the
Effective Date, unless the Executive agrees in writing to a
different location.
<PAGE>
(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.
(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
<PAGE>
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 November
9, 1995 by the Group Board of Directors ("Incentive Plan") or
otherwise. The Executive's target percentage under the Incentive
Plan each year shall be no less than 50% of his Base Salary (as in
effect on the first day of the year) and his maximum bonus
opportunity each year shall be no less than 100% of such Base
Salary. 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.
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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) the failure by Group to elect the Executive to the
position of President and Chief Operating Officer of Group or any
other action by Group which results in the diminution of the
Executive's position, authority, duties, or responsibilities,
excluding an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by Group promptly after
receipt of notice thereof is given by the Executive;
<PAGE>
(iii) (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;
(iv) 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;
(v) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by
this Agreement; or
<PAGE>
(vi) 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
<PAGE>
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
<PAGE>
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") and any
obligations as provided in the letter agreements entered into as of
February 19, 1996 between the Executive and the Company with
respect to supplemental retirement benefits and with respect to
certain employment matters. All such Accrued Obligations shall be
paid to the Executive's estate or beneficiary, as applicable, in a
lump sum in cash within 5 days of the Date of Termination, or in
such other form as may be provided for pursuant to such agreements.
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.
<PAGE>
(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 and any obligations as provided in
the letter agreements entered into as of February 19, 1996 between
the Executive and the Company with respect to supplemental
retirement benefits and with respect to certain employment
matters.. All such Accrued Obligations shall be paid to the
Employee in a lump sum in cash within 5 days of the Date of
Termination, or in such other form as may be provided for pursuant
to such agreements. 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.
<PAGE>
(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), plus any obligations as provided in the
letter agreements entered into as of February 19, 1996 between the
Executive and the Company with respect to supplemental retirement
benefits and with respect to certain employment matters. 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) or as
provided in the letter agreements entered into as of February 19,
1996 between the Executive and the Company with respect to
supplemental retirement benefits and with respect to certain
employment matters. All such Accrued Obligations shall be paid to
the Executive in a lump sum in cash within 5 days of the Date of
Termination, or in such other form as may be provided for pursuant
to such agreements.
<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 5 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 three and the Executive's Highest Base
Salary; 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
D. the Executive shall be entitled to receive a retirement
benefit in accordance with the terms of the letter agreement dated
February 19, 1996 between the Executive and the Company with
respect to supplemental retirement benefits; and
<PAGE>
(ii) The Company shall:
A. for a period of three years after the Date of Termination,
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; and
B. at the expiration of the three-year period, continue to
provide the Executive with health insurance and on-line travel
privileges in accordance with the terms of the letter agreement
dated February 19, 1996 between the Executive and the Company with
respect to certain employment matters.
(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:
<PAGE>
(i) the Company shall pay to the Executive in a lump sum in
cash within 5 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 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 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; and
<PAGE>
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 retirement
benefit in accordance with the terms of the letter agreement dated
February 19, 1996 between the Executive and the Company with
respect to supplemental retirement benefits.
(ii) The Company shall:
A. for a period of three years after the Date of Termination
or such longer period as any plan, program, practice or policy may
provide, 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,
<PAGE>
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 three-year period, continue to
provide the Executive with health insurance and on-line travel
privileges in accordance with the terms of the letter agreement
dated February 19, 1996 between the Executive and the Company with
respect to certain employment matters.
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 or 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.
<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
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
<PAGE>
pursuant to the terms of this Agreement or otherwise, but
determined without regard to any additional payments required under
this Section 9, including, but not limited to, any amounts in
respect of (i) options to acquire shares of Group common stock,
(ii) restricted shares of Group common stock, (iii) the letter
agreement entered into as of February 19, 1996 between the
Executive and the Company with respect to supplemental retirement
benefits, and (iv) the letter agreement entered into as of February
19, 1996 between the Executive and the Company with respect to
certain employment matters (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.
<PAGE>
(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 5
business days of the Date of Termination, 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 upon 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
<PAGE>
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,
<PAGE>
(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
<PAGE>
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
<PAGE>
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
<PAGE>
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: If to the Company:
Rakesh Gangwal USAir, Inc.
74 Watergate 2345 Crystal Drive
South Barrington, IL 60010 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.
<PAGE>
(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, together with the two
letter agreements, each dated February 19, 1996, between the
Executive and the Company related to supplemental retirement
benefits and certain employment matters, 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/Rakesh Gangwal
____________________________
Rakesh Gangwal
President and Chief Operating Officer
USAIR, INC.
/s/Michelle V. Bryan
________________________________
Michelle V. Bryan
Vice President and Deputy General
Counsel and Secretary
<PAGE>
EXHIBIT A
USAir, Inc. Employee Savings Plan
USAir, Inc. Employee Pension Plan
USAir, Inc. Supplementary Retirement Benefit Plan
1988 Stock Incentive Plan of USAir Group, Inc.
1996 Stock Incentive Plan of USAir Group, Inc.
Executive Incentive Compensation Plan of USAir Group, Inc.
Individual Supplemental Retirement Agreements in effect with
certain officers of USAir, Inc.
Restricted Stock Agreements with certain senior officers of USAir,
Inc.
<PAGE> Exhibit 10.13
EMPLOYMENT AGREEMENT
Agreement dated as of February 6, 1996, between USAir, Inc.,
a Delaware corporation, having a place of business at Crystal Park
Four, 2345 Crystal Drive, Arlington, Virginia 22227 (the "Company")
and Lawrence M. Nagin, residing at 3508 Reservoir Road, N.W.,
Washington, D.C. 20007, (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
termination of employment or cessation of status as an officer (i)
1
<PAGE>
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
third 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) three 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 third 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, 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
2
<PAGE>
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, 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; 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
3
<PAGE>
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 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.
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 the position of
Executive Vice President-Corporate Affairs and General Counsel with
direct reporting responsibility to the Chief Executive Officer 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.
4
<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 November
9, 1995 by the Group Board of Directors ("Incentive Plan") or
otherwise. The Executive's target percentage under the Incentive
5
<PAGE>
Plan each year shall be no less than 35% of his Base Salary (as in
effect on the first day of the year) and his maximum bonus
opportunity each year shall be no less than 70% of such Base
Salary. 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.
6
<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
7
<PAGE>
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) the failure by Group to elect the Executive to a
responsible executive position of Group with substantially similar
duties to the position held by the Executive on the Effective Date
or any other action by Group which results in the diminution of the
Executive's position, authority, duties, or responsibilities,
excluding an isolated, insubstantial and inadvertent action not
taken in bad faith and which is remedied by Group promptly after
receipt of notice thereof is given by the Executive;
(iii) (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;
8
<PAGE>
(iv) 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;
(v) any purported termination by the Company of the
Executive's employment otherwise than as expressly permitted by
this Agreement; or
(vi) 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
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.
9
<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
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
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
10
<PAGE>
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 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 5 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 three times the Executive's Highest Base
Salary; 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
11
<PAGE>
(ii) for a period of three years after the Date of
Termination, 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 5 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 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 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
12
<PAGE>
C. the product of (x) three and (y) the sum of (i) the
Highest Base Salary and (ii) the Recent Bonus; 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.
(ii) The Company shall:
A. for a period of three years after the Date of Termination
or such longer period as any plan, program, practice or policy may
provide, 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; and
B. at the expiration of the Employment Period, 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.
13
<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 or 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, including, but not limited to, any amounts in
respect of (i) options to acquire shares of Group common stock,
(ii) restricted shares of Group common stock, (iii) the letter
agreement entered into as of February 6, 1996 between the Executive
and the Company with respect to supplemental retirement benefits,
and (iv) the letter agreement entered into as of February 6, 1996
14
<PAGE>
between the Executive and the Company with respect to certain
employment matters) (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 5
business days of the Date of Termination, 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 upon 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
15
<PAGE>
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,
(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
16
<PAGE>
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.
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.
17
<PAGE>
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: If to the Company:
Lawrence M. Nagin USAir, Inc.
3508 Reservoir Road, N.W. 2345 Crystal Drive
Washington, D.C. 20007 Arlington, Virginia 22227
Attention: Senior Vice
President-Human Resources
18
<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, together with the letter
agreement dated March 4, 1996 between the Executive and the
Company, 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/Lawrence M. Nagin
__________________________________
Lawrence M. Nagin
Executive Vice President, Corporate
Affairs and General Counsel
USAIR, INC.
/s/Michelle V. Bryan
________________________________
Michelle V. Bryan
Vice President, Deputy General
Counsel and General Counsel
19
<PAGE>
EXHIBIT A
USAir, Inc. Employee Savings Plan
USAir, Inc. Employee Pension Plan
USAir, Inc. Supplementary Retirement Benefit Plan
1988 Stock Incentive Plan of USAir Group, Inc.
1996 Stock Incentive Plan of USAir Group, Inc.
Executive Incentive Compensation Plan of USAir Group, Inc.
Individual Supplemental Retirement Agreements in effect with
certain officers of USAir, Inc.
Restricted Stock Agreements with certain senior officers of USAir,
Inc.
<PAGE> Exhibit 10.14
January 22, 1996
Mr. Stephen M. Wolf
Rock Hill Farm
Route 701 at Route 709
The Plains, Virginia 22171
Dear Mr. Wolf:
This letter confirms that in connection with the Employment
Agreement dated as of January 22, 1996 between USAir, Inc. (the
"Company") and you, the Company has agreed to provide you with the
additional benefits described herein.
For the first two years of your employment with the Company,
you will be reimbursed for living expenses incurred by you,
including expenses for living accommodations near the Company's
headquarters, in the amount of $75,000 per year.
While employed by the Company, you will be reimbursed for
reasonable expenses incurred for tax/financial planning up to an
annual maximum of $25,000. The tax and/or financial planner you
select must be approved by the Company.
Reimbursement will be made as expenses are incurred upon your
submission of appropriate documentation.
In the event USAir Group, Inc. ("Group") for any reason is
unable to award you the stock options or shares of restricted stock
described in our January 16, 1996 letter agreement, Group and/or
the Company will award you a substitute award, reasonably
acceptable to you, with value and terms substantially identical to
the value and terms such options and/or shares of restricted stock
would have had.
1
<PAGE>
Mr. Stephen M. Wolf
January 22, 1996
Please indicate with your signature below if the foregoing
accurately sets forth our agreement on the subject matter hereof.
Sincerely yours,
/s/Michelle V. Bryan
Michelle V. Bryan
Vice President, Deputy
General Counsel and
Secretary
Agreed:
/s/Stephen Wolf
___________________________
Stephen Wolf
2
<PAGE> Exhibit 10.15
February 19, 1996
Mr. Rakesh Gangwal
74 Watergate
South Barrington, Illinois 60010
Dear Rakesh:
This letter confirms that in connection with the Employment
Agreement dated as of February 19,1996 between USAir, Inc. (the
"Company") and you, the Company has agreed to provide you with
the additional benefits described herein.
The Company will provide you with the use of an automobile
during your employment, at your selection but subject to the
approval of the Chief Executive Officer. USAir will provide you
with a "gross up" payment for any tax liability incurred by you
in connection with the provision of such automobile.
The Company will provide you with relocation assistance in
the form of (1) the purchase of your home in Chicago, (2)
reimbursement for reasonable living expenses for living
accommodations near the Company's headquarters, (3) reasonable
closing costs on the purchase of a residence, including up to
three points, and (4) reimbursement for moving household goods
and reasonable storage from your Chicago and Paris residences.
In connection with the purchase of your home in Chicago, USAir
will obtain three independent appraisals and will use a purchase
price which is the highest appraised market value but not to
exceed 8% above the second highest appraised market value.
Payments for such relocation assistance will be "grossed up" for
all applicable tax liability.
While employed by the Company, you will be reimbursed for
reasonable expenses incurred for tax return preparation up to an
annual maximum of $10,000.
Reimbursement will be made as expenses are incurred upon
your submission of appropriate documentation.
1
<PAGE>
Mr. Rakesh Gangwal
February 19, 1996
As soon as practicable following receipt by the Company of
your written direction, but in no event later than November 19,
1996, the Company will purchase and assign to you an annuity
contract or contracts, as you designate, with an after-tax value
in an aggregate amount equal to (i) $1,000,000, plus (ii) the
amount of interest that would have been credited from February
19, 1996 until the earlier of the policy issuance date or
November 19, 1996 on an account with an initial principal amount
of $1,000,000 bearing interest at an annual interest rate of the
Moody's AA corporate bond rate determined at the date of annuity
purchase.
Upon your employment with the Company, you (and your
eligible spouse and dependents) will become immediately vested in
(1) lifetime health benefits, in accordance with the health plan
benefits provided to other senior officers of the Company, and
(2) travel benefits in accordance with the terms of the plan on
the date of your employment or as increased in the future. Upon
the separation of your employment with the Company for any
reason, the Company will continue to provide you with (1) on-line
travel privileges on the most favorable basis such benefits were
provided during your employment, or if more favorable to you
and/or your family, as in effect at any time thereafter with
respect to other key employees, with such benefits to continue
for your life and, upon your death for your surviving spouse and
eligible dependents, and (2) health insurance on the same basis
such benefits are provided to other retired senior officers who
have reached normal retirement age, with such benefits to
continue for your life and, upon your death for your surviving
spouse and eligible dependents in accordance with the terms of
such plans; provided, however, that if you become 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 while such coverage of a
subsequent employer is in effect.
In the event USAir Group, Inc. ("Group") for any reason is
unable to award you the stock options described in our February
5, 1996 letter agreement, Group and/or the Company will award you
a substitute award, reasonably acceptable to you, with value and
terms substantially identical to the value and terms such options
would have had.
2
<PAGE>
Mr. Rakesh Gangwal
February 19, 1996
Please indicate with your signature below if the foregoing
accurately sets forth our agreement on the subject matter hereof.
Sincerely yours,
/s/Michelle V. Bryan
Michelle V. Bryan
Vice President, Deputy
General Counsel and
Secretary
Agreed:
/s/Rakesh Gangwal
________________________
Rakesh Gangwal
3
<PAGE> Exhibit 10.16
February 6, 1996
Mr. Lawrence M. Nagin
3508 Reservoir Road, N.W.
Washington, D.C. 20007
Dear Larry:
This letter confirms that in connection with the Employment
Agreement dated as of February 6, 1996 between USAir, Inc. (the
"Company") and you, the Company has agreed to provide you with
the additional benefits described herein.
The Company will provide you with relocation assistance in
the form of (1) payment of the remaining obligations under your
lease in Chicago, (2) reimbursement for reasonable living
expenses for living accommodations near the Company's
headquarters, and (3) reimbursement for moving household goods
and reasonable storage. You will also receive other relocation
assistance in accordance with the Company's Executive Relocation
and Housing Assistance Guidelines. Payments for such relocation
assistance will be "grossed up" for all applicable tax liability.
Any such "gross up" payments will be made as soon as practicable,
but not later than September 30, 1996.
While employed by the Company, you will be reimbursed for
reasonable expenses incurred for tax return preparation up to an
annual maximum of $10,000.
Reimbursement will be made as expenses are incurred upon
your submission of appropriate documentation.
In the event USAir Group, Inc. ("Group") for any reason is
unable to award you the stock options described in our February
5, 1996 letter agreement, Group and/or the Company will award you
a substitute award, reasonably acceptable to you, with value and
terms substantially identical to the value and terms such options
would have had.
1
<PAGE>
Mr. Lawrence M. Nagin
February 6, 1996
Please indicate with your signature below if the foregoing
accurately sets forth our agreement on the subject matter hereof.
Sincerely yours,
/s/Michelle V. Bryan
Michelle V. Bryan
Vice President, Deputy
General Counsel and
Secretary
Agreed:
/s/Lawrence M. Nagin
________________________
Lawrence M. Nagin
2
<PAGE> EXHIBIT 10.17
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, the then
outstanding shares of common stock of such corporation and the
<PAGE>
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
(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
<PAGE>
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.
<PAGE>
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.
(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
<PAGE>
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
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".
<PAGE>
(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.
(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.
<PAGE>
(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,
<PAGE>
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.
<PAGE>
(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.
<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
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>
September 5, 1995
Mr. Seth E. Schofield
Chairman and Chief Executive Officer
USAir, Inc.
Crystal Park Four
2345 Crystal Drive
Arlington, VA 22227
Dear Seth:
I know you agree that the company's efforts to secure wage and
productivity benefits from the employees must take a new direction
in light of recent events. We also agree that, as valuable as your
contribution to the company has been, the company's ability to
succeed in achieving those benefits may well depend on having
someone new in the position of Chief Executive Officer who is
completely free to take a new direction. While the Directors
believe that the company will be disadvantaged by the loss of your
knowledge and experience, after carefully considering the company's
interests in securing long-term cost reductions, we have agreed
that you should retire from your position as Chairman of the Board
and Chief Executive Officer.
The Board of Directors wishes to make clear both by this
agreement and the resolutions we adopt to approve this agreement
that your removal as Chairman and Chief Executive Officer is in no
way a reflection on the job you have done at USAir. To the
contrary, the Board is unanimous in expressing to you our profound
gratitude for your dedication and leadership during what have been
extraordinarily difficult times for the company. We are taking
this action reluctantly but with the understanding that it is in
the long-term interests of the company to forge a new relationship
with its organized labor groups.
Accordingly, the Board has requested and you have agreed to
remain in your position as Chairman of the Board and Chief
Executive Officer through a transition period and to retire
thereafter, on the condition that your rights under the Employment
Agreement be fully protected. This letter serves to confirm that
protection and the agreement among USAir Group, Inc., USAir, Inc.
and yourself, as approved by the respective Boards of Directors,
with respect to your retirement.
1
<PAGE>
1. The Board of Directors agrees to retain you and you agree to
remain in your position as Chairman of the Board and Chief
Executive Officer of USAir Group, Inc. and USAir, Inc. until
such time as your replacement has been elected by the Board.
2. You agree to retire from your employment with USAir Group,
Inc. and USAir, Inc. effective with the date established
pursuant to paragraph 1 above. This retirement date will be
the "Date of Termination" for all purposes of the Employment
Agreement.
3. The severance of your employment is by mutual agreement
pursuant to paragraph 5(a) of the Employment Agreement;
provided, however, that for all severance compensation,
benefits and payment purposes of the Employment Agreement,
this severance is deemed to be a termination by you for "good
reason." All notice requirements for you or the company
pursuant to paragraph 5(e) of the Employment Agreement are
hereby waived. USAir, Inc. agrees to pay to you all severance
compensation and benefits set forth in Section 6(d)(1) of the
Employment Agreement providing for the obligations of the
company upon termination of the executive's employment for
good reason prior to a change of control. All other rights
and obligations of the company and you as set forth in the
Employment Agreement that are applicable to termination of
employment for good reason remain applicable to your
severance.
4. You agree not to take another position for a period of three
years after the Date of Termination in which you could make
use of the proprietary or other confidential information
learned while employed with the company, including without
limitation, employment by or a consulting arrangement with any
company providing air transportation. In the event of a
breach of this non-compete provision, any payments or other
benefits promised under this Agreement or the Employment
Agreement shall be forfeited. In the event of such breach,
the company may seek injunctive relief as well as any other
equitable remedies available and appropriate under the
circumstances.
5. You will not be entitled to any separate severance benefits
from USAir Group, Inc.
2
<PAGE>
EXECUTIVE USAIR GROUP, INC.
/s/Seth E. Schofiel /s/Mathias J. DeVito
__________________________ __________________________
Seth E. Schofield Mathias J. DeVito
Chairman of the
Compensation and Benefits
Committee
USAIR, INC.
/s/Mathias J. DeVito
___________________________
Mathias J. DeVito
Chairman of the
Compensation and Benefits
Committee
3
<PAGE> EXHIBIT 10.18
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 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
<PAGE>
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, 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
<PAGE>
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
(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
<PAGE>
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.
(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
<PAGE>
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
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,
<PAGE>
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.
(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.
<PAGE>
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.
(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
<PAGE>
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
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
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
<PAGE>
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
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 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
<PAGE>
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 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
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
<PAGE>
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:
(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
<PAGE>
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
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:
<PAGE>
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
(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.
<PAGE>
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) 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
<PAGE>
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% 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,
<PAGE>
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.
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.
<PAGE>
(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.
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
<PAGE>
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,
<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
President and Chief Operating
Officer
USAIR, INC.
/s/John P. Frestel, Jr.
_______________________________
John P. Frestel, Jr.
Senior Vice President-Human
Resources
Attest:
/s/Michelle V. Bryan
_________________________
Secretary
<PAGE>
February 6, 1996
Mr. Frank L. Salizzoni
President and Chief Operating Officer
USAir, Inc.
Crystal Park Four
2345 Crystal Drive
Arlington, VA 22227
Dear Frank:
This letter sets forth the terms of our agreement concerning
the severance of your employment with USAir. I have requested and
you have agreed to provide assistance and advice to ensure a smooth
transition of your responsibilities to your successor. In
consideration for your services during the transition period, for
your past services to the company, and the mutual promises herein
contained, USAir will provide the following severance benefits:
1. You will resign from your position as President and Chief
Operating Officer of USAir Group, Inc. and USAir, Inc. to become
effective February 19, 1996, however, you will remain an employee
of USAir, Inc. through March 31, 1996. During such period as an
employee of USAir, Inc. you will provide advice and assistance to
your successor at such times as agreed to between you and your
successor.
2. During the period of employment from February 19 through March
31, 1996, you will continue to receive your current base salary and
all other compensation and benefits applicable to your current
position as a senior officer, including but not limited to payment
of the incentive award for the 1995 fiscal year under the Executive
Incentive Compensation Plan of USAir Group, Inc. at 85% of the 40%
target level using your 1995 base salary.
3. You agree to retire from your employment with USAir, Inc.
effective March 31, 1996. March 31, 1996 will be the "Date of
Termination" for all purposes of the Employment Agreement between
you and USAir, Inc. dated November 12, 1991, as amended
("Employment Agreement").
4. USAir acknowledges that the termination of your employment
entitles you to severance payments under Section 6(d)(1) of the
Employment Agreement and all notice requirements for you or USAir
thereunder are hereby waived. USAir, Inc. agrees to pay to you all
severance compensation and benefits set forth in Section 6(d)(1) of
the Employment Agreement providing for the obligations of the
company upon termination of the executive's employment prior to a
change of control. The compensation and benefits required pursuant
to the Employment Agreement are set forth in Attachment A.
<PAGE>
Mr. Frank L. Salizzoni
February 6, 1996
5. As soon as practical after your retirement on March 31, 1996,
USAir will issue you a check to pay back the salary reduction you
incurred in 1992 and 1993 in accordance with USAir's normal
repayment procedures. Your total payback will be $56,000 less any
Employee Profit Sharing Plan payment you receive prior to the date
of your retirement.
6. Assuming that you commence your retirement benefits
immediately upon your retirement (i.e., benefit commencement on
April 1, 1996), you will be eligible for all retiree benefits
provided to employees and senior officers of the company, as they
may be amended from time to time, including but not limited to
health plan coverage, on-line space positive travel privileges,
USAir Club privileges and split-dollar life insurance continuation.
7. You agree not to take another position for a period of two
years after the Date of Termination in which you could make use of
the proprietary or other confidential information learned while
employed with USAir, including without limitation, employment by or
a consulting arrangement with any company providing air
transportation. In the event of a breach of this non-compete
provision, any payments or other benefits promised under this
Agreement shall be forfeited. In the event of such breach, USAir
may seek injunctive relief as well as any other equitable remedies
available and appropriate under the circumstances.
8. As a result of the separation of your employment with USAir
earlier than anticipated, the options to purchase 100,000 shares of
stock granted to you on April 1, 1994, with a three year vesting
schedule, will not vest. USAir agrees that the remaining unvested
options (75,000 shares) will immediately vest upon your retirement
on March 31, 1996.
9. As a result of the separation of your employment with USAir
earlier than anticipated, the supplemental pension benefit payable
to you pursuant to the non-qualified supplemental executive
retirement plan agreement dated December 6, 1991 (hereinafter "SERP
Agreement") will be less than the full 30-year benefit anticipated
under the SERP Agreement. Additionally, the early separation of
your employment will decrease the benefit payable to you under all
of USAir's retirement programs as a result of the need to commence
benefits earlier than anticipated. Accordingly, USAir agrees to
provide you with (a) service credit, (b) age credit, and (c)
earnings credit at your 1996 base salary rate, through the
<PAGE>
Mr. Frank L. Salizzoni
February 6, 1996
remainder of the Employment Period under the Employment Agreement
(i.e., through November 12, 1999). This supplemental credit will
be applicable to the SERP Agreement and the frozen defined benefit
pension plan. All other terms of such retirement programs shall
remain as written.
10. To the extent required, USAir has obtained the approval of
the Compensation and Benefits Committee, and/or the Board of
Directors for the severance arrangements set forth herein.
EXECUTIVE USAIR, INC.
/s/Frank L. Salizzoni /s/Stephen M. Wolf
_________________________ __________________________
Frank L. Salizzoni Stephen M. Wolf
Chairman and Chief Executive
Officer
<PAGE> EXHIBIT 10.19
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
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 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
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
<PAGE>
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,
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
<PAGE>
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.
(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
<PAGE>
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
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".
<PAGE>
(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.
(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.
<PAGE>
(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 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
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 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 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 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.
<PAGE>
(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.
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
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
<PAGE>
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.
(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:
<PAGE>
(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
(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
<PAGE>
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").
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
<PAGE>
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
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
<PAGE>
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 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
<PAGE>
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.
(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.
<PAGE>
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:
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.
(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/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 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/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 Company's parent, USAir Group, Inc.
<PAGE>
("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% 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
<PAGE>
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.
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.
<PAGE>
(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.
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
<PAGE>
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>
<PAGE>
February 6, 1996
Mr. James T. Lloyd
Executive Vice President and General Counsel
USAir, Inc.
Crystal Park Four
2345 Crystal Drive
Arlington, VA 22227
Dear Jim:
This letter sets forth the terms of our agreement concerning
the severance of your employment with USAir. I have requested and
you have agreed to provide assistance and advice to ensure a smooth
transition of your responsibilities to your successor. In
consideration for your services during the transition period, for
your past services to the company, and the mutual promises herein
contained, USAir will provide the following severance benefits:
1. You will resign from your position as Executive Vice
President, General Counsel and Secretary of USAir Group, Inc. and
Executive Vice President and General Counsel of USAir, Inc. to
become effective February 5, 1996, however, you will remain an
employee of USAir, Inc. through April 4, 1996. During such period
as an employee of USAir, Inc. you will provide advice and
assistance to your successor at such times as agreed to between you
and your successor.
2. During the period of employment from February 6 through
April 4, 1996, you will continue to receive your current base
salary and all other compensation and benefits applicable to your
current position as a senior officer, including but not limited to
payment of the incentive award for the 1995 fiscal year under the
Executive Incentive Compensation Plan of USAir Group, Inc. at 85%
of the 35% target level using your 1995 base salary.
3. You agree to retire from your employment with USAir, Inc.
effective April 4, 1996. This retirement date will be the "Date of
Termination" for all purposes of the Employment Agreement between
you and USAir, Inc. dated June 29, 1989, as amended ("Employment
Agreement").
1
<PAGE>
Mr. James T. Lloyd
February 6, 1996
4. USAir acknowledges that the termination of your employment
entitles you to severance payments under Section 6(d)(1) of the
Employment Agreement and all notice requirements for you or USAir
thereunder are hereby waived. USAir, Inc. agrees to pay to you all
severance compensation and benefits set forth in Section 6(d)(1) of
the Employment Agreement providing for the obligations of the
company upon termination of the executive's employment prior to a
change of control. The compensation and benefits required pursuant
to the Employment Agreement are set forth in Attachment A.
5. As soon as practical after your retirement on April 4,
1996, USAir will issue you a check to pay back the salary reduction
you incurred in 1992 and 1993 in accordance with USAir's normal
repayment procedures. Your total payback will be $49,846 less any
Employee Profit Sharing Plan payment you receive prior to the date
of your retirement.
6. Assuming that you commence your retirement benefits
immediately upon your retirement on April 4, 1996 (i.e., benefit
commencement on May 1, 1996), you will be eligible for all retiree
benefits provided to employees and senior officers of the company,
as they may be amended from time to time, including but not limited
to health plan coverage, on-line space positive travel privileges,
USAir Club privileges and split-dollar life insurance continuation.
7. You agree not to take another position for a period of two
years after the Date of Termination in which you could make use of
the proprietary or other confidential information learned while
employed with USAir, including without limitation, employment by or
a consulting arrangement with any company providing air
transportation. This covenant not to compete does not prohibit you
from joining or becoming affiliated with a law firm which
represents a company providing air transportation, provided,
however, that if you join or affiliate with such a law firm you
will refrain from working on any matters for companies providing
air transportation for a period of six months from the Date of
Termination. During that six-month period, in the event that you
are employed by or affiliated with a law firm representing a
company providing air transportation and a representation matter
arises in which you wish to represent such company without making
use of proprietary or other confidential information learned while
employed with USAir, you may seek an exemption from this covenant
from the General Counsel of USAir. In the event of a breach of
this non-compete provision, any payments or other benefits promised
under this Agreement shall be forfeited. In the event of such
breach, USAir may seek injunctive relief as well as any other
equitable remedies available and appropriate under the
circumstances.
2
<PAGE>
Mr. James T. Lloyd
February 6, 1996
8. As a result of the separation of your employment with
USAir earlier than anticipated, the 17,500 shares of restricted
stock granted to you on November 28, 1995, with a three year
vesting schedule, will not vest under the Restricted Stock
Agreement as currently drafted. USAir agrees that the
restrictions on 30% of the stock (5,250 shares) will lapse upon
your retirement on April 4, 1996 and the Restricted Stock Agreement
will be amended accordingly. The remaining 70% of the restricted
stock grant (12,250 shares) will be forfeited and revert to the
company.
9. As a result of the separation of your employment with
USAir earlier than anticipated, the supplemental pension benefit
payable to you pursuant to the non-qualified supplemental executive
retirement plan agreement dated December 6, 1991 (hereinafter "SERP
Agreement") will be less than the full 30-year benefit anticipated
under the SERP Agreement. Additionally, the early separation of
your employment will decrease the benefit payable to you under all
of USAir's retirement programs as a result of the need to commence
benefits earlier than anticipated. Accordingly, USAir agrees to
provide you with (a) service credit, (b) age credit, and (c)
earnings credit at your 1996 base salary rate, through the
remainder of the Employment Period under the Employment Agreement
(i.e., through June 29, 1999). This supplemental credit will be
applicable to the SERP Agreement and the frozen defined benefit
pension plan. All other terms of such retirement programs shall
remain as written.
10. To the extent required, USAir has obtained the approval
of the Compensation and Benefits Committee, and/or the Board of
Directors for the severance arrangement set forth herein.
EXECUTIVE USAIR, INC.
/s/James T. Lloyd /s/Stephen M. Wolf
____________________________ ____________________________
James T. Lloyd Stephen M. Wolf
Chairman and Chief Executive
Officer
<PAGE> EXHIBIT 10.20
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>
<PAGE> Exhibit 10.21
TRUST AGREEMENT
THIS TRUST AGREEMENT, made and entered into as of April 1,
1992, between USAir Inc., a Delaware corporation with its principal
address at Crystal Park Four, 2345 Crystal Drive, Arlington, VA
22227 (the "Company") and Wachovia Bank of North Carolina, N.A.
with its principal address at 301 North Main Street, Winston-Salem,
NC 27150, (the "Trustee");
W I T N E S E T H T H A T :
WHEREAS, the Company has entered into an agreement with its
Executive Vice President-Marketing, W. Thomas Lagow (the
"Executive") to provide certain payments to him in the future if
certain conditions are met; and
WHEREAS, the terms of the agreement between the Company and
the Executive provides for the Company to set aside in a trust
sufficient assets to satisfy its contractual liability under the
agreement;
NOW THEREFORE, in consideration of the promises and of the
mutual covenants herein contained, the Company and the Trustee
agree as follows.
SECTION 1
Establishment of Trust
1.1 Trust Fund. The Company hereby establishes with the
Trustee a trust (the "Trust") to hold such cash and other property
which may be delivered to the Trustee from time to time by the
Company. All such assets contributed by the Company to the Trust,
together with all earnings, profits, proceeds, investments or
reinvestments of such assets, less all payments and charges as
authorized herein, shall constitute and hereinafter be referred to
as the "Trust Fund." The Trust Fund shall be held by the Trustee
in trust and shall be held, managed and administered by the Trustee
in accordance with the terms of this Trust Agreement.
1.2 Acceptance of Trust. The Trustee accepts the Trust
established under this Trust Agreement on the terms and subject to
the provisions set forth herein, and it agrees to discharge and
perform fully and faithfully all of the duties and obligations
imposed upon it under this Trust Agreement. The Trustee shall act
with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a like
capacity and familiar with such matters would use in the conduct of
an enterprise of a like character and with like aims; provided,
however, that the Trustee shall incur no liability for any action
taken by it pursuant to direction from the Company.
<PAGE>
1.3 Limitations on the Use of Trust Fund. The assets of the
Trust Fund shall not be returned to the Company or used for any
purpose other than the exclusive purpose of providing payments to
the Executive and defraying reasonable expenses of administration
of the Trust until all payments to the Executive as required by
this Trust Agreement have been made; provided, however, that (a)
nothing in this Section 1.3 shall be deemed to limit or otherwise
prevent the payment from the Trust Fund of expenses and other
charges incurred by the Trust or the Trustee as authorized in this
Trust Agreement, and (b) excess assets may be paid out to the
Company pursuant to Section 9.1 of this Trust Agreement
1.4 Irrevocability. The Company and the Trustee agree that
the Trust created herein shall not be revocable by the Company or
any successor thereto.
1.5 Grantor Trust. The Trust established by this Trust
Agreement is intended to be classified as a "grantor trust" as that
term is defined by Section 671 of the Internal Revenue Code of 1986
for purposes of the Trust's income taxes with the result that (a)
the Executive shall not have any taxable income on any assets of
the Trust Fund until such time as and only to the extent that the
Executive has a vested interest in such assets; and (b) the income
of the Trust be treated as income of the Company.
SECTION 2
Definitions
2.1 "Board" shall mean the Board of Directors of USAir, Inc.
2.2 "Change of Control" shall have the meaning set forth in
the employment agreement entered into between the Company and the
Executive, dated as of February 7, 1992, a copy of which has been
appended hereto as Attachment 1.
2.3 "Committee" shall mean the Compensation and Benefits
Committee of the Board.
2.4 "Company" shall mean USAir, Inc., its successors and
assigns.
2.5 "Executive" shall mean W. Thomas Lagow, Executive Vice
President-Marketing of the Company.
2.6 "Trustee" shall mean Wachovia Bank of North Carolina,
N.A.
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<PAGE>
SECTION 3
Payment Obligations
3.1 Payment Obligations. The Company has promised the
Executive a One Million Dollar ($1,000,000) incentive payment in
which the Executive is to become vested over a period of four years
as further described below. The Executive shall become vested and
have a nonforfeitable interest in 25% of the One Million Dollars
($1,000,000) on each anniversary of his employment, provided he
remains in the employ of the Company, until he has received a total
of One Million Dollars ($1,000,000) and shall receive payment of
vested amounts within 10 days of its vesting. The Executive shall
be entitled to receive four installment payments at such times and
in such amounts as set forth in the following schedule:
Amount Date Vested Payment Date
-------- ---------------- -----------------
$250,000 February 7, 1993 February 17, 1993
$250,000 February 7, 1994 February 17, 1994
$250,000 February 7, 1995 February 17, 1995
$250,000 February 7, 1996 February 17, 1996
3.2 Normal Payment Schedule. Upon receipt of written
instructions from the Company, the Trustee shall pay to the
Executive Two Hundred Fifty Thousand Dollars ($250,000) in one cash
lump sum on the payment dates set forth in Section 3.1. Upon
making such payments to the Executive the Trustee shall withhold
for and make payment of all taxes to the appropriate taxing
authority and shall furnish the Executive or other beneficiary with
the appropriate tax information form evidencing such payment and
the amount thereof.
3.3 Payment Following a Change of Control. Following the
Trustee's determination that a Change of Control has occurred, and
in the event that the Executive's employment with the Company has
been terminated, the Executive shall become 100% vested in the
remaining payments and the Trustee shall, without direction from
the Company, immediately distribute to the Executive, in one lump
sum, all remaining payments. The Trustee shall, concurrently with
the distribution of the Executive's account, advise the General
Counsel and Chief Financial Officer of the Company of the amount
paid to the Executive hereunder. The Trustee shall be indemnified
and held harmless by the Company in making a payment pursuant to
this Section 3.3. If the Trustee so desires, it may, in its sole
discretion, make such additional inquiries or take such other steps
as it deems necessary to carry out the intent and purposes of this
3
<PAGE>
Trust Agreement. The Trustee may engage its own counsel or other
experts to assist it in making its determination. The cost of such
counsel or other expert assistance, and any other costs reasonably
incurred by the Trustee in making its determination shall be borne
by the Company. If the Company fails to pay any such fees and
expenses when due, the Trustee may use the assets of the Trust to
pay the fees and expenses and demand reimbursement to the Trust
from the Company. If such demand is not met, the Trustee may
commence an action against the Company on behalf of the Trust.
Following a Change of Control, the Trustee shall owe its fiduciary
duties to the Executive and shall exercise it powers hereunder
solely for the benefit of the Executive.
3.4 Payment in the Event of the Executive's Termination. In
the event that the Executive's employment with the Company is
terminated for any reason the Executive shall have no further
entitlement to any additional payments other than for amounts which
vested prior to his termination, and all remaining assets in the
Trust shall revert to the Company. The foregoing sentence shall
not apply in the event the termination follows a Change of Control
or in the event that the Executive's employment is terminated by
reason of death or disability. In the event of a termination
following a Change of Control, Section 3.3 above shall control. In
the event of the Executive's death or disability, the scheduled
payments shall continue to be made to such beneficiary as may be
designated by the Executive, or in the event that no beneficiary is
designated, to the Executive's estate, on the payment dates set
forth in the schedule set forth in Section 3.1.
3.5 Company Obligation. Notwithstanding the provisions of
this Trust Agreement, the Company shall remain obligated to pay the
amounts promised to the Executive in the event that the Trust
assets are insufficient to cover the obligations when they become
due.
SECTION 4
Contributions
4.1 Initial Contribution. Concurrent with the execution and
delivery of this Trust Agreement, the Company shall deliver to the
Trustee One Million Dollars ($1,000,000) in assets to form the
corpus of the Trust. No future contributions will be required by
the Company unless the assets remaining in the Trust are
insufficient to meet the Company's payment obligation as set forth
in Section 3. The Trustee shall notify the Company promptly after
any valuation of the assets in which it is determined that the
remaining assets are insufficient to make the remaining payments as
4
<PAGE>
set forth in Section 3. In the event that the Company is notified
by the Trustee that the Trust assets are insufficient to meet a
payment obligation, the Company shall make an additional
contribution to the Trust within 15 days to the level required to
make all remaining payments.
4.2 Form of Contributions. The Company shall make its
contributions in cash.
SECTION 5
Trustee Powers and Authority
5.1 Investment Power. The Trustee shall invest and reinvest
the principal and income of the Trust Fund and keep the Trust Fund
invested, without distinction between principal and income, in
accordance with the directions of the Company or such investment
guidelines as the Company may provide to the Trustee from time to
time; provided, however, that the assets may not be invested in
securities or debt obligations issued by the Company or its parent
corporation, USAir Group, Inc.
5.2 Additional Powers. Subject to the provisions of Section
5.1, the Trustee shall have the following powers and authority in
the administration of the Trust:
(a) To sell, exchange, transfer or otherwise dispose of any
such property at public or private sale for cash or on credit and
grant options for the purchase or exchange of any securities or
other property held in the Trust Fund.
(b) To participate in any plan of reorganization,
consolidation, merger, combination, liquidation or other similar
plan relating to any such property, and to consent to or oppose any
such plan or any action thereunder, or any contract, lease,
mortgage, purchase, sale or other action by any corporation or
other entity.
(c) To deposit any such property with any protective,
reorganization or similar committee; to delegate discretionary
power to any such committee; and to pay part of the expenses and
compensation of any such committee and any assessments levied with
respect to any property so deposited.
5
<PAGE>
(d) To exercise any conversion privilege or subscription
right available in connection with any such property; to oppose or
to consent to the reorganization, consolidation, merger or
readjustment of the finances of any corporation, company or
association, or to the sale, mortgage, pledge or lease of the
property of any corporation, company or association of any of the
securities of which may at any time be held in the Trust Fund and
to do any act with reference thereto, including the exercise of
options, the making of agreements or subscriptions and the payment
of expenses, assessments or subscriptions, which may be deemed
necessary or advisable in connection therewith, and to hold and
retain any securities or other property which it may so acquire.
(e) To commence or defend suits or legal proceedings and to
represent the Trust in all suits or legal proceedings; to settle,
compromise or submit to arbitration, any claims, debts or damages,
due or owing to or from the Trust.
(f) To exercise, personally or by general or limited power of
attorney, any right, including the right to vote, appurtenant to
any securities or other such property.
(g) To borrow money from any lender in such amounts and upon
such terms and conditions as shall be deemed advisable or proper to
carry out the purposes of the Trust and to pledge any securities or
other property for the repayment of any such loan.
(h) To engage any legal counsel, including counsel to the
Company or the Trustee, any enrolled actuary, or any other suitable
agents, to consult with such counsel, enrolled actuary, or agents
with respect to the construction of the Trust Agreement, the duties
of the Trustee hereunder, the transactions contemplated by this
Trust Agreement or any act which the Trustee proposes to take or
omit, to rely upon the advice of such counsel, enrolled actuary or
agents, and to pay its reasonable fees, expenses and compensation.
(i) To register any securities held by it in its own name or
in the name of any custodian of such property or of its nominee,
including the nominee of any system for the central handling of
securities, with or without the addition of words indicating that
such securities are held in a fiduciary capacity, to deposit or
arrange for the deposit of any such securities with such a system
and to hold any securities in bearer form.
6
<PAGE>
(j) To make, execute and deliver, as Trustee, any and all
deeds, leases, notes, bonds, guarantees, mortgages, conveyances,
contracts, waivers, releases or other instruments in writing
necessary or proper for the accomplishment of any of the foregoing
powers or to appoint an ancillary trustee for the accomplishment of
the foregoing powers.
(k) To transfer assets of the Trust Fund to a successor
trustee as provided in Section 7.4.
(l) To exercise, generally, any of the powers which an
individual owner might exercise in connection with property either
real, personal or mixed held by the Trust Fund, and to do all other
acts that the Trustee may deem necessary or proper to carry out any
of the powers set forth in this Section 5 or otherwise in the best
interests of the Trust Fund.
(m) To do all acts, whether or not expressly authorized,
which the Trustee may deem necessary or desirable for the
protection of the Trust.
SECTION 6
Administration and Records
6.1 Responsibility to Keep Records. The Trustee shall keep
accurate and detailed accounts of any investments, receipts,
disbursements and other transactions hereunder. All accounts,
books and records shall be open to inspection and audit at all
reasonable times by any person designated by the Company. In the
event of the removal or resignation of the Trustee, the Trustee
shall promptly deliver to the successor trustee all records which
shall be required by the successor trustee to enable it to carry
out the provisions of this Trust Agreement.
6.2 Reports. Within 25 days after the close of each calendar
year and within 30 days after the removal or resignation of the
Trustee or the termination of the Trust, the Trustee shall file
with the Company a written account setting forth all investments,
receipts, disbursements and other transactions effected by it
during the preceding calendar year, or during the period from the
close of the preceding calendar year to the date of such removal,
resignation or termination.
7
<PAGE>
6.3 Taxes and Expenses. The Company shall pay any taxes
which at any time are lawfully levied or assessed or become payable
with respect to assets in the Trust Fund. To the extent that any
taxes lawfully levied are not paid by the Company, the Trustee
shall pay such taxes out of the Trust Fund. Any taxes levied or
assessed against the Executive with respect to assets paid out of
the Trust to the Executive shall be the sole responsibility of the
Executive. The Company shall also pay the reasonable expenses
incurred by the Trustee in the performance of its duties under this
Trust Agreement. Such expenses shall be paid from the Trust Fund
to the extent that the Company does not pay them.
6.4 Trustee's Compensation. The Trustee shall be paid by the
Company reasonable compensation for its services in accordance with
the Trustee's regular schedule of fees for trust services as shall
from time to time be in effect, unless otherwise agreed to by the
Company and the Trustee. A copy of the Trustee's fee schedule is
appended to this Trust Agreement as Attachment 2. The Trustee
shall notify the Company in writing at least 60 days in advance of
the effective date of a change in the fee schedule. Such
compensation for the Trustee shall be paid from the Trust Fund to
the extent that the Company does not pay it.
6.5 Protection of Trustee. The Trustee shall be fully
protected in relying upon any instruction, direction or approval of
the Company if certified in writing by a designated representative
of the Company. In addition to the foregoing, the Company hereby
agrees to indemnify and hold harmless the Trustee from and against
all losses, damages, costs, expenses and liabilities including
reasonable attorneys fees and other costs of litigation, to which
the Trustee may become subject, arising out of or occasioned by or
incurred in connection with or in any way associated with this
Trust, including any claim brought against the Trustee by the
Company or its successor, except for any claim arising from an act
or omission due to the Trustee's gross negligence or willful
misconduct.
SECTION 7
Resignation and Removal
7.1 Removal. The Company may, at any time, remove the
Trustee with or without cause upon giving at least 60 days' notice
in writing to the Trustee, unless such notice requirement is waived
by the Trustee in writing; provided, however, that in the event of
a Change of Control, the Company may only remove the Trustee with
the written consent of the Executive.
8
<PAGE>
7.2 Resignation. The Trustee may resign at any time upon
giving at least 60 days' notice in writing to the Company.
7.3 Final Accounting. In the event of such removal or
resignation, the Trustee shall duly file with the Company a written
account as provided in Section 6.2 of this Trust Agreement for the
period since the previous annual accounting.
7.4 Successor Trustee. Within 60 days after any such notice
of removal or resignation of the Trustee, the Company shall
designate a successor trustee. Such successor trustee shall have
the powers and duties herein conferred upon the Trustee and the
word "Trustee" wherever used herein, except when the context
otherwise requires, shall be deemed to include any successor
trustee. Upon designation of a successor trustee and delivery to
the resigned or removed Trustee notice of written acceptance by the
successor trustee of such designation, such resigned or removed
Trustee shall promptly assign, transfer, deliver and pay over to
such successor trustee, in conformity with the requirements of
applicable law, the funds and properties in its control or
possession then constituting the Trust Fund.
SECTION 8
Termination and Amendment of the Trust
8.1 Termination Upon Tax Determination. Notwithstanding
anything contained in this Trust Agreement to the contrary, if at
any time the Trust is finally determined by the Internal Revenue
Service ("IRS") not to be a "grantor trust" with the result that
the income of the Trust Fund is not treated as income of the
Company, or if a tax is finally determined by the IRS to be
payable by the Executive with respect to any payment obligation
under the Trust Fund prior to the Executive's interest in such
payment obligation becoming vested, then the Trust shall
immediately terminate and the full fair market value of the assets
in the Trust Fund shall be returned to the Company. The Company
shall fully reimburse the Executive for any tax liability he may
incur with respect to assets in the Trust prior to the payment or
vesting of such assets. For purposes of this Section 8.1, a final
determination of the IRS shall be a decision rendered by the IRS
which is no longer subject to administrative appeal within the IRS.
8.2 Termination Upon Total Distribution of Assets. The Trust
shall terminate when all payments which have or may become payable
pursuant to the terms of the Trust have been made. Upon
termination of the Trust any remaining assets shall be paid by the
Trustee to the Company.
9
<PAGE>
8.3 Amendments. With the consent of the Trustee, the Company
may from time to time amend or modify, in whole or in part, any of
the provisions of this Trust Agreement; provided, however, that
such amendment shall not adversely affect the rights of the
Executive; and provided, further, that no such amendment shall be
allowed following the occurrence of a Change of Control.
SECTION 9
Return of Assets
9.1 Excess Assets. Prior to termination of the Trust and
prior to the occurrence of a Change of Control, if the total assets
of the Trust Fund exceed the amount required to pay all remaining
payment obligations under Section 3.1, then such amount shall be
deemed to be "excess assets." The Trustee shall determine in its
sole discretion the amount of any excess assets and return such
amount to the Company. Such determination shall be made by the
Trustee on an annual basis and any "excess assets" shall be
returned to the Company within 45 days following the close of the
calendar year. Notwithstanding the foregoing, if the Trust
terminates pursuant to Section 8.2 as a result of the Company's
payment obligations becoming fully satisfied, all assets shall be
returned to the Company as soon as practicable.
SECTION 10
Miscellaneous
10.1 Non-Alienation. No amount payable to or in respect of
the Executive shall be subject in any manner to alienation by
anticipation, sale, transfer, assignment, bankruptcy, pledge,
attachment, or encumbrance of any kind and any attempt to do so
shall be void. The Trust Fund shall in no manner be liable for or
subject to the debts or liabilities of the Executive.
10.2 Governing Law. This Trust Agreement and the Trust
hereby created shall be governed by the laws of the State of North
Carolina.
10.3 Communications. Communications to the Company shall be
addressed to:
USAir Group, Inc.
Crystal Park Four
2345 Crystal Drive
Arlington, VA 22227
Attention: General Counsel or Chief Financial
Officer or their designee
10
<PAGE>
Communications to the Trustee shall be addressed to :
Wachovia Bank of North Carolina, N.A.
301 North Main Street
Winston-Salem, NC 27150
Attention: Jane Price - Vice President or her
designee
10.4 Titles and headings. The titles of the Sections and the
Section headings in this Trust Agreement are placed herein for
convenience of reference only and shall not control the meaning or
interpretation of any provision of this Trust Agreement.
10.5 Assignment. This Trust Agreement may not be assigned by
either party without the prior written consent of the other and any
purported assignment without such prior written consent shall be
null and void.
10.6 Successors. This Trust Agreement shall be binding upon
and inure to the benefit of the Company and the Trustee and their
respective successors.
10.7 Severability. In the event that any provision of this
Trust Agreement shall be determined by a court to be invalid or
unenforceable, the remainder of this Trust Agreement shall not be
affected thereby.
11
<PAGE>
IN WITNESS WHEREOF, this Trust Agreement has been duly
executed by the parties hereto as of April 1, 1992.
USAIR, INC.
By: /s/John P. Frestel, Jr.
______________________________
Title: Senior Vice President-
Human Resources
Attest:
/s/Michelle V. Bryan
______________________________
Secretary
WACHOVIA BANK OF NORTH CAROLINA,
N.A., TRUSTEE
By: /s/Jane B. Fisher
___________________________
Title: Senior Vice President
________________________
Attest:
/s/Nancy Gander
_________________________
Secretary
12
<PAGE> Exhibit 10.22
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 R. Long, III, residing at 6 Wesley Circle, 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
1
<PAGE>
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
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.
2
<PAGE>
(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
3
<PAGE>
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, 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
4
<PAGE>
(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
5
<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.
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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.
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(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.
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(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
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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
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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.
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(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
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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
13
<PAGE>
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
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(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
Agreement to the contrary notwithstanding, a termination by the
Executive for any reason during the 30-day period immediately
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<PAGE>
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
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<PAGE>
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
Termination, and the denominator of which is 365 and (iii) any
compensation previously deferred by the Executive (together with
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<PAGE>
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
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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
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<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
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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:
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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
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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
23
<PAGE>
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
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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
25
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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
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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.
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(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,
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(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,
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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
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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
31
<PAGE>
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.
32
<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:
6 Wesley Circle, 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
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.
33
<PAGE>
(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/John R. Long III
____________________________
John R. Long III
Senior Vice President-
Customer Operations
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 R. Long, III, residing at 115 Creek Drive,
Sewickley, Pennsylvania 15143 (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:
<PAGE>
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:
(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".
<PAGE>
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
<PAGE>
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
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,
<PAGE>
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
<PAGE>
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 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
<PAGE>
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 R. Long, III
_______________________________
John R. Long, III
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 R. Long III, residing at 115 Creek Drive,
Sewickley, Pennsylvania 15143 (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;
<PAGE>
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 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)
<PAGE>
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
<PAGE>
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% 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
<PAGE>
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.
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
<PAGE>
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
<PAGE>
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.
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,
<PAGE>
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 R. Long III
_____________________________
John R. Long III
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> Exhibit 10.23
January 22, 1996
Mr. Stephen M. Wolf
Chairman and Chief Executive Officer
USAir, Inc.
2345 Crystal Drive
Arlington, Virginia 22227
Dear Steve:
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 January 16, 1996. USAir
hereby agrees with you as follows:
1. In consideration for your future services between the
date of this letter and the time of your retirement, USAir will pay
to you a supplemental pension benefit which is the difference of
subparagraph (a) minus subparagraph (b), where (a) and (b) are:
(a) the pension benefit calculated under the benefit formula
set forth in the Retirement Plan for Certain Employees of USAir,
Inc. (the "Retirement Plan") assuming (i) that the Retirement Plan
had not been frozen in 1991, (ii) final average earnings under the
Retirement Plan in the amount of $1 million, (iii) no amendments to
the Retirement Plan after the date hereof, and (iv) credited
service under the Retirement Plan using "deemed credited service"
determined under the following schedule:
Retirement Date Deemed Credited Service
------------------------ -----------------------------
01/22/96 through 01/21/97 7.5 years of credited service
01/22/97 through 01/21/98 15 years of credited service
01/22/98 through 01/21/99 22.5 years of credited service
01/22/99 or later 30 years of credited service
(b) all pension benefits payable to you in the aggregate
under any defined contribution pension plan maintained by USAir for
the purpose of providing retirement income, whether tax-qualified
or non-tax-qualified (the "Defined Contribution Pension Plans").
1
<PAGE>
Mr. Stephen M. Wolf
January 22, 1996
2. For purposes of calculating the supplemental benefits
under paragraph 1 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 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.
(b) In determining the amount of the pension benefit payable
in the aggregate under the Defined Contribution Pension Plans, the
benefit shall only be included to the extent that it is
attributable to contributions made by USAir (including earnings
attributable to such contributions) and any portion of the benefit
payable under such Defined Contribution Pension Plans attributable
to your own contributions (including earnings attributable to such
contributions) shall be excluded.
(c) In determining the amount of the pension benefit payable
under the Defined Contribution Pension Plans, any benefit payable
in the form of a lump sum, shall be converted to an annuity for
purposes of calculating the benefit to be offset by subparagraph
1(b).
(d) 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.
3. The amount of supplemental pension benefit calculated
pursuant to paragraph 1 will be payable in the event of your normal
retirement from USAir at age 65. You may elect to receive early
retirement benefits under this agreement at any time after
termination of your employment with USAir and upon your attainment
of age 55. In the event of your early retirement from USAir, the
supplemental pension benefit calculated pursuant to paragraph 1
will be reduced for early commencement in accordance with the early
retirement reduction factors set forth in the Retirement Plan.
4. You may elect to receive your supplemental pension
benefits (determined in accordance with paragraphs 1 and 6 hereof)
in one of the following payment forms:
(a) an annuity (single life or joint and survivor) payable
from the general assets of USAir;
(b) a single lump sum payment;
2
<PAGE>
Mr. Stephen M. Wolf
January 22, 1996
(c) periodic installment payments; or
(d) an annuity (single life or joint and survivor) purchased
by USAir from an annuity provider and assigned to you.
In the event that you select an option other than option (a),
the cost of providing such optional payment form must be cost-
neutral to USAir to providing payment option (a). Specifically,
USAir will base the calculation of any optional payment form on the
basis of a purchase price equivalent to the present value of the
promised annual benefit based on the Moody's AA corporate bond
interest rate, which may result in an annuity payment which is less
than the annual benefit calculated under the formula.
5. In the event of your death prior to the payment of your
supplemental pension benefit, your surviving spouse will be
entitled to a benefit hereunder equal to 50 percent of the benefit
which would have been payable had you retired and commenced
benefits on the day before your death. In the event of your death
prior to the payment of your supplemental pension benefit and there
is no surviving spouse, USAir will have no payment obligation under
this agreement. In the event of your death after the commencement
of benefits hereunder, a death benefit will be payable only if
applicable pursuant to the optional payment form elected under
paragraph 4.
6. Notwithstanding anything in this agreement to the
contrary, your supplemental pension benefit will immediately vest
and you will be entitled to a benefit under paragraph 1 assuming 30
years of deemed credited service: (a) if USAir terminates your
employment other than for "cause," (b) you resign for "good
reason," or (c) in the event of a "change-of-control." For
purposes of this paragraph the terms "cause," "good reason" and
"change-of-control" shall have the definitions set forth in the
employment agreement between you and USAir dated January 22, 1996.
7. Prior to the termination of your employment, your benefits
hereunder shall be accrued, but unfunded and unsecured.
8. 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 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 1 above.
3
<PAGE>
Mr. Stephen M. Wolf
January 22, 1996
If you concur in the foregoing, please indicate your agreement
by signing a copy of this letter in the space provided below.
USAIR, INC.
/s/Michelle V. Bryan
______________________________
Michelle V. Bryan
Vice President, Deputy General
Counsel and Secretary
Agreed:
/s/Stephen M. Wolf
_____________________________
<PAGE> Exhibit 10.24
February 19, 1996
Mr. Rakesh Gangwal
President and Chief Operating Officer
USAir, Inc.
2345 Crystal Drive
Arlington, Virginia 22227
Dear Rakesh:
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 February 5, 1996. USAir
hereby agrees with you as follows:
1. In consideration for your future services, USAir will pay
to you a supplemental pension benefit which is the difference of
subparagraph (a) minus subparagraph (b), where (a) and (b) are:
(a) the pension benefit calculated under the benefit formula
set forth in the Retirement Plan for Certain Employees of USAir,
Inc. (the "Retirement Plan") assuming (i) that the Retirement Plan
had not been frozen in 1991, (ii) final average earnings under the
Retirement Plan equal to your actual base salary in effect, or, if
higher, your highest previous base salary, plus an assumed bonus at
the maximum amount of 100% of your highest base salary, (iii) no
amendments to the Retirement Plan after the date hereof, (iv) for
purposes of vesting you will be deemed to be 100% vested on the
date of hire, and (v) credited service under the Retirement Plan
using "deemed credited service" determined under the following
schedule:
Actual Credited Service Deemed Credited Service
----------------------- -----------------------
1 year of credited service 5 years of credited service
2 years of credited service 10 years of credited service
3 years of credited service 15 years of credited service
4 years of credited service 20 years of credited service
5 years of credited service 25 years of credited service
plus, one year of credited service for each actual year of
credited service after five years, up to a maximum of 30 years of
credited service.
<PAGE>
Mr. Rakesh Gangwal
February 19, 1996
(b) all pension benefits payable to you in the aggregate
under any defined contribution pension plan maintained by USAir for
the purpose of providing retirement income, whether tax-qualified
or non-tax-qualified (the "Defined Contribution Pension Plans").
2. For purposes of calculating the supplemental benefits
under paragraph 1 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 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.
(b) In determining the amount of the pension benefit payable
in the aggregate under the Defined Contribution Pension Plans, the
benefit shall only be included to the extent that it is
attributable to contributions made by USAir (including earnings
attributable to such contributions) and any portion of the benefit
payable under such Defined Contribution Pension Plans attributable
to your own contributions (including earnings attributable to such
contributions) shall be excluded.
(c) In determining the amount of the pension benefit payable
under the Defined Contribution Pension Plans, any benefit payable
in the form of a lump sum, shall be converted to an annuity for
purposes of calculating the benefit to be offset by subparagraph
1(b).
(d) 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.
3. The amount of supplemental pension benefit calculated
pursuant to paragraph 1 will be payable in the event of your normal
retirement from USAir at age 65, or you may elect to receive early
retirement benefits under this agreement at any time after
termination of your employment with USAir and upon your attainment
of age 55. In the event of your early retirement from USAir, the
supplemental pension benefit calculated pursuant to paragraph 1
will be reduced for early commencement in accordance with the early
retirement reduction factors set forth in the Retirement Plan.
Notwithstanding the foregoing, if your employment terminates prior
to attaining age 55, you may elect to commence your benefit
immediately and elect one of the optional payment forms set forth
in paragraph 4(b), 4(c) or 4(d).
<PAGE>
Mr. Rakesh Gangwal
February 19, 1996
4. You may elect to receive your supplemental pension
benefits (determined in accordance with paragraphs 1 and 6 hereof)
in any one of the following payment forms:
(a) an annuity (single life or joint and survivor) payable
from the general assets of USAir;
(b) a single lump sum payment;
(c) periodic installment payments; or
(d) an annuity (single life or joint and survivor) purchased
by USAir from an annuity provider and assigned to you.
In the event that you select an option other than option (a), the
cost of providing such optional payment form must be cost-neutral
to USAir to providing payment option (a). Specifically, USAir will
base the calculation of any optional payment form on the basis of
a purchase price equivalent to the present value of the promised
annual benefit based on the Moody's AA corporate bond interest
rate, which may result in an annuity payment which is less than the
annual benefit calculated under the formula.
5. In the event of your death prior to the payment of your
supplemental pension benefit, your surviving spouse will be
entitled to a benefit hereunder equal to 50 percent of the benefit
which would have been payable had you retired and commenced
benefits on the day before your death. In the event of your death
prior to the payment of your supplemental pension benefit and there
is no surviving spouse, USAir will have no payment obligation under
this agreement. In the event of your death after the commencement
of benefits hereunder, a death benefit will be payable only if
applicable pursuant to the optional payment form elected under
paragraph 4.
6. Notwithstanding anything in this agreement to the
contrary, your supplemental pension benefit will immediately vest
and you will be entitled to a benefit under paragraph 1 assuming 30
years of deemed credited service: (a) if USAir terminates your
employment other than for "cause," (b) you resign for "good
reason," or (c) in the event of a "change-in-control." For
purposes of this paragraph the terms "cause," "good reason" and
"change-in-control" shall have the definitions set forth in the
employment agreement between you and USAir dated February 19, 1996.
7. Prior to the termination of your employment, your benefits
hereunder shall be accrued, but unfunded and unsecured.
<PAGE>
Mr. Rakesh Gangwal
February 19, 1996
8. 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 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 1 above.
If you concur in the foregoing, please indicate your agreement
by signing a copy of this letter in the space provided below.
USAIR, INC.
/s/Michelle V. Bryan
_________________________________
Michelle V. Bryan
Vice President, Deputy General
Counsel and Secretary
Agreed:
/s/Rakesh Gangwal
_____________________________
Rakesh Gangwal
<PAGE> Exhibit 10.25
February 6, 1996
Mr. Lawrence M. Nagin
Executive Vice President-Corporate Affairs
and General Counsel
USAir, Inc.
2345 Crystal Drive
Arlington, Virginia 22227
Dear Larry:
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 February 5, 1996. USAir
hereby agrees with you as follows:
1. In consideration for your future services between the
date of this letter and the time of your retirement, USAir will pay
to you a supplemental pension benefit which is the difference of
subparagraph (a) minus subparagraph (b), where (a) and (b) are:
(a) the pension benefit calculated under the benefit
formula set forth in the Retirement Plan for Certain
Employees of USAir, Inc. (the "Retirement Plan") assuming
(i) that the Retirement Plan had not been frozen in 1991,
(ii) final average earnings under the Retirement Plan in
an amount based on your actual base salary plus an
assumed bonus in the maximum amount of 70% of your base
salary, (iii) no amendments to the Retirement Plan after
the date hereof, and (iv) credited service under the
Retirement Plan using "deemed credited service"
determined under the following schedule:
Actual Credited Service Deemed Credited Service
----------------------- -----------------------
1 year of credited service 4 years of credited service
2 years of credited service 8 years of credited service
3 years of credited service 12 years of credited service
4 years of credited service 16 years of credited service
5 years of credited service 20 years of credited service
plus, one year of credited service for each actual year of credited
service after five years, up to a maximum of 30 years of credited
service.
1
<PAGE>
Mr. Lawrence M. Nagin
February 6, 1996
(b) all pension benefits payable to you in the aggregate
under any defined contribution pension plan maintained by USAir for
the purpose of providing retirement income, whether tax-qualified
or non-tax-qualified (the "Defined Contribution Pension Plans").
2. For purposes of calculating the supplemental benefits
under paragraph 1 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 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.
(b) In determining the amount of the pension benefit payable
in the aggregate under the Defined Contribution Pension Plans, the
benefit shall only be included to the extent that it is
attributable to contributions made by USAir (including earnings
attributable to such contributions) and any portion of the benefit
payable under such Defined Contribution Pension Plans attributable
to your own contributions (including earnings attributable to such
contributions) shall be excluded.
(c) In determining the amount of the pension benefit payable
under the Defined Contribution Pension Plans, any benefit payable
in the form of a lump sum, shall be converted to an annuity for
purposes of calculating the benefit to be offset by subparagraph
1(b).
(d) 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.
3. The amount of supplemental pension benefit calculated
pursuant to paragraph 1 will be payable in the event of your normal
retirement from USAir at age 65. You may elect to receive early
retirement benefits under this agreement at any time after
termination of your employment with USAir and upon your attainment
of age 55. In the event of your early retirement from USAir, the
supplemental pension benefit calculated pursuant to paragraph 1
will be reduced for early commencement in accordance with the early
retirement reduction factors set forth in the Retirement Plan.
4. You may elect to receive your supplemental pension
benefits (determined in accordance with paragraphs 1 and 6 hereof)
in any one of the following payment forms:
2
<PAGE>
Mr. Lawrence M. Nagin
February 6, 1996
(a) an annuity (single life or joint and survivor) payable
from the general assets of USAir;
(b) a single lump sum payment;
(c) periodic installment payments; or
(d) an annuity (single life or joint and survivor) purchased
by USAir from an annuity provider and assigned to you.
In the event that you select an option other than option (a),
the cost of providing such optional payment form must be cost-
neutral to USAir to providing payment option (a). Specifically,
USAir will base the calculation of any optional payment form on the
basis of a purchase price equivalent to the present value of the
promised annual benefit based on the Moody's AA corporate bond
interest rate, which may result in an annuity payment which is less
than the annual benefit calculated under the formula.
5. In the event of your death prior to the payment of your
supplemental pension benefit, your surviving spouse will be
entitled to a benefit hereunder equal to 50 percent of the benefit
which would have been payable had you retired and commenced
benefits on the day before your death. In the event of your death
prior to the payment of your supplemental pension benefit and there
is no surviving spouse, USAir will have no payment obligation under
this agreement. In the event of your death after the commencement
of benefits hereunder, a death benefit will be payable only if
applicable pursuant to the optional payment form elected under
paragraph 4.
6. Notwithstanding anything in this agreement to the
contrary, your supplemental pension benefit will immediately vest
and you will be entitled to a benefit under paragraph 1 assuming 30
years of deemed credited service: (a) if USAir terminates your
employment other than for "cause," (b) you resign for "good
reason," or (c) in the event of a "change-in-control." For
purposes of this paragraph the terms "cause," "good reason" and
"change-in-control" shall have the definitions set forth in the
employment agreement between you and USAir dated February 6, 1996.
7. Prior to the termination of your employment, your benefits
hereunder shall be accrued, but unfunded and unsecured.
3
<PAGE>
Mr. Lawrence M. Nagin
February 6, 1996
8. 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 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 1 above.
If you concur in the foregoing, please indicate your agreement
by signing a copy of this letter in the space provided below.
USAIR, INC.
/s/Michelle V. Bryan
___________________________
Michelle V. Bryan
Vice President, Deputy General
General Counsel and Secretary
Agreed:
/s/Lawrence M. Nagin
_____________________________
<PAGE> Exhibit 10.26
November 9, 1995
Mr. Seth E. Schofield
Chairman and Chief Executive Officer
USAir, Inc.
2345 Crystal Drive
Arlington, Virginia 22227
Dear Seth:
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
Compensation and Benefits Committee of the Board of Directors at
its meeting on November 9, 1995. 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 maintained by USAir for the purpose of
providing retirement income (whether qualified or non-qualified),
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) the pension benefit calculated under the benefit formula
set forth in the Retirement Plan as if the Retirement Plan had not
been frozen in 1991 and using your salary of record, rather than
your reduced salary, for the years 1992, 1993, 1994 and 1995, less
(b) all pension benefits payable to you in the aggregate
under the Pension Plans as defined above.
<PAGE>
Mr. Seth E. Schofield
November 9, 1996
4. In determining the amount of the pension benefit
calculated under the benefit formula set forth in the Retirement
Plan for purposes of subparagraph 3(a), 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.
5. In determining the amount of the pension benefits payable
in the aggregate under the Pension Plans for purposes of
subparagraph 3(b), 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.
6. In determining the amount of the pension benefits payable
in the aggregate under the Pension Plans for purposes of
subparagraph 3(b), 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.
7. 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.
8. 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.
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/Mathias J. DeVito
_______________________________
Mathias J. DeVito
Chairman of the Compensation
and Benefits Committee
Agreed:
/s/Seth E. Schofield
_____________________________
Seth E. Schofield
December 30, 1995 (Date)
_____________________________
<PAGE> EXHIBIT 10.27
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.
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
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 10.28
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 10.29
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 10.30
August 8, 1995
Mr. John R. Long III
Executive Vice President-Customer Services
USAir, Inc.
Greater Pittsburgh International Airport
P.O. Box 12346
Pittsburgh, Pennsylvania 15231
Dear John:
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
Compensation and Benefits Committee of the Board of Directors at
its meeting on December 20, 1994 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 maintained by USAir for the purpose of
providing retirement income (whether qualified or non-qualified),
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;
1
<PAGE>
John R. Long III
August 8, 1995
(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).
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.
2
<PAGE>
John R. Long III
August 8, 1995
(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).
(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 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.
3
<PAGE>
John R. Long III
August 8, 1995
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 be 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/John R. Long III
_____________________________
_____________________________ (Date)
4
<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,
-----------------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Adjustments to Net Income (Loss)
Income (loss) before
accounting change $ 119,287 $(684,923) $(349,367) $ (600,818) $(305,258)
Preferred dividend requirement (84,904) (78,036) (73,651) (51,766) (44,306)
-------- -------- -------- --------- --------
Net income (loss) applicable to
common stock before accounting
change 34,383 (762,959) (423,018) (652,584) (349,564)
Accounting change - - (43,749) (628,098) -
------- -------- -------- --------- --------
Net income (loss) applicable to
common stock and common stock
equivalents used for primary
computation 34,383 (762,959) (466,767) (1,280,682) (349,564)
Fully Diluted Adjustments
Assume conversion of preferred
stock and convertible debentures
Preferred dividend requirement 84,904 78,036 73,651 51,766 44,306
-------- -------- -------- --------- --------
Adjusted net income (loss)
applicable to common stock
assuming full dilution $ 119,287 $(684,923) $(393,116) $(1,228,916) $(305,258)
======== ======== ======== ========= ========
Adjustments to Shares Outstanding
Average number of shares of common
stock 62,352 59,915 55,070 47,026 45,864
Primary Adjustments (1)
Assume exercise of options and
common stock equivalents 78 - - - -
Total average number of common -------- -------- -------- --------- --------
and common equivalent shares
used for primary computation 62,430 59,915 55,070 47,026 45,864
======== ======== ======== ========= ========
Average number of shares of common
stock 62,352 59,915 55,070 47,026 45,864
Fully Diluted Adjustments (2)
Assume exercise of options 174 12 517 - 12
Assume conversion of preferred
stock and debentures
Preferred stock 39,156 39,156 38,642 17,463 12,928
Total average number of -------- -------- -------- --------- --------
shares assumed to be
outstanding after full
conversion 101,682 99,083 94,229 64,489 58,804
======== ======== ======== ========= =========
Income (Loss) Per Common Share
Primary (1)
Before accounting change $ 0.55 $ (12.73) $ (7.68) $ (13.88) $ (7.62)
Effect of accounting change - - (0.80) (13.35) -
-------- -------- -------- --------- --------
Primary income (loss) per
common share $ 0.55 $ (12.73) $ (8.48) $ (27.23) $ (7.62)
======= ======== ======== ======= ========
Fully diluted (2)
Before accounting change $ 1.17 $ (6.91) $ (3.71) $ (9.32) $ (5.19)
Effect of accounting change - - (0.46) (9.74) -
-------- -------- -------- -------- --------
Fully diluted income (loss)
per common share $ 1.17 $ (6.91) $ (4.17) $ (19.06) $ (5.19)
======== ======== ======== ======== ========
(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.
PSA Airlines, Inc.
USAir Fuel Corporation
USAir Leasing and Services, Inc.
Material Services Company, Inc.
Subsidiary of USAir, Inc.
-------------------------
USAM Corp.
EXHIBIT 23.1
Consent of Independent Auditors
The Board of Directors
USAir Group, Inc.
We consent to the incorporation by reference in the
registration statements nos. 2-98828, 33-26762, 33-39896, 33-
44835, 33-60618 and 33-60620 on Form S-8 and the registration
statements nos. 33-41821 and 33-50231 on Form S-3 of USAir
Group, Inc., of our report dated February 28, 1996 relating to
the consolidated balance sheets of USAir Group, Inc. and
subsidiaries (the "Company") as of December 31, 1995 and 1994
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, 1995
which appear in the December 31, 1995 annual report on Form 10-
K of the Company and USAir, Inc.
Our report also refers to a change in the Company's method of
accounting for postemployment benefits effective January 1,
1993.
KPMG Peat Marwick LLP
Washington, DC
March 28, 1996
<PAGE>
EXHIBIT 23.2
Consent of Independent Auditors
The Board of Directors
USAir, Inc.
We consent to the incorporation by reference in the
registration statements nos. 33-35509 and 33-50231-01 on Form
S-3 of USAir, Inc., of our report dated February 28, 1996
relating to the consolidated balance sheets of USAir, Inc. and
subsidiary ("USAir") as of December 31, 1995 and 1994 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, 1995 which appear
in the December 31, 1995 annual report on Form 10-K of USAir
Group, Inc. and USAir.
Our report also refers to a change in USAir's method of
accounting for postemployment benefits effective January 1,
1993.
KPMG Peat Marwick LLP
Washington, DC
March 28, 1996
<PAGE> Exhibit 24.1
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT I, Robert J. Ayling,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Robert J. Ayling (L.S.)
---------------------------
<PAGE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT I, Robert W. Bogle,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Robert W. Bogle (L.S.)
---------------------------
<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Edwin I. Colodny (L.S.)
---------------------------
<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Mathias J. DeVito (L.S.)
---------------------------
<PAGE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT I, Rakesh Gangwal,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Rakesh Gangwal (L.S.)
---------------------------
<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/George J. W. Goodman (L.S.)
------------------------------
<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/John W. Harris (L.S.)
------------------------------
<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Edward A. Horrigan, Jr. (L.S.)
---------------------------------
<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Robert LeBuhn (L.S.)
---------------------------------
<PAGE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT I, Roger P. Maynard,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Roger P. Maynard (L.S.)
---------------------------------
<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/John G. Medlin, Jr. (L.S.)
---------------------------------
<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Hanne M. Merriman (L.S.)
---------------------------------
<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Raymond W. Smith (L.S.)
---------------------------------
<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Derek M. Stevens (L.S.)
---------------------------------
<PAGE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT I, Stephen M. Wolf,
Director of USAir Group, Inc., (the "Company"), do hereby
constitute and appoint Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Stephen M. Wolf (L.S.)
---------------------------------
<PAGE> Exhibit 24.2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT I, Robert J. Ayling,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Robert J. Ayling (L.S.)
-----------------------------<PAGE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT I, Robert W. Bogle,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Robert W. Bogle (L.S.)
-----------------------------<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Edwin I. Colodny (L.S.)
-----------------------------<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Mathias J. DeVito (L.S.)
-----------------------------<PAGE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT I, Rakesh Gangwal,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Rakesh Gangwal (L.S.)
-----------------------------<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/George J. W. Goodman (L.S.)
------------------------------<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/John W. Harris (L.S.)
------------------------------
<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Edward A. Horrigan, Jr. (L.S.)
---------------------------------
<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Robert LeBuhn (L.S.)
------------------------------
<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Robert LeBuhn (L.S.)
------------------------------
<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/John G. Medlin, Jr. (L.S.)
------------------------------
<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Hanne M. Merriman (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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Raymond W. Smith (L.S.)
------------------------------
<PAGE>
<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 Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Derek M. Stevens (L.S.)
------------------------------
<PAGE>
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, THAT I, Stephen M. Wolf,
Director of USAir, Inc., (the "Company"), do hereby constitute and
appoint Lawrence M. Nagin 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, 1995 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
27th day of March, 1996.
/s/Stephen M. Wolf (L.S.)
------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000701345
<NAME> USAIR GROUP, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 881,854
<SECURITIES> 19,831
<RECEIVABLES> 322,122<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 248,144
<CURRENT-ASSETS> 1,583,082
<PP&E> 6,342,488
<DEPRECIATION> 2,301,059
<TOTAL-ASSETS> 6,955,008
<CURRENT-LIABILITIES> 2,484,696
<BONDS> 2,717,085
758,719
213,153
<COMMON> 63,449
<OTHER-SE> (1,112,390)
<TOTAL-LIABILITY-AND-EQUITY> 6,955,008
<SALES> 0
<TOTAL-REVENUES> 7,474,348
<CGS> 0
<TOTAL-COSTS> 7,152,661
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 302,593
<INCOME-PRETAX> 128,272
<INCOME-TAX> 8,985
<INCOME-CONTINUING> 119,287
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 119,287
<EPS-PRIMARY> 0.55
<EPS-DILUTED> 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
<CIK> 0000714560
<NAME> USAIR, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 879,613
<SECURITIES> 19,831
<RECEIVABLES> 321,755<F1>
<ALLOWANCES> 0<F1>
<INVENTORY> 222,245
<CURRENT-ASSETS> 1,541,366
<PP&E> 6,091,252
<DEPRECIATION> 2,222,814
<TOTAL-ASSETS> 6,823,527
<CURRENT-LIABILITIES> 2,576,132
<BONDS> 2,741,932
0
0
<COMMON> 1
<OTHER-SE> (311,174)
<TOTAL-LIABILITY-AND-EQUITY> 6,823,527
<SALES> 0
<TOTAL-REVENUES> 6,984,876
<CGS> 0
<TOTAL-COSTS> 6,750,225
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 301,923
<INCOME-PRETAX> 37,398
<INCOME-TAX> 4,408
<INCOME-CONTINUING> 32,990
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 32,990
<EPS-PRIMARY> 0<F2>
<EPS-DILUTED> 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>
