MEMORANDUM OF UNDERSTANDING
This memorandum of understanding, dated May 23 , 2000 (this
"Agreement"), by and among the parties signatory hereto (each a "party" and
collectively, the "parties"), confirms the mutual understanding of the
parties with respect to the proposed acquisition by an entity to be formed
by Robert L. Johnson ("Johnson") of certain assets (the "Assets") of US
Airways Group, Inc. ("US Airways"), as more specifically identified on the
term sheet attached hereto as Attachment I (the "Term Sheet"). The parties
agree that the Term Sheet, in addition to identifying the Assets, sets
forth the principal terms and provisions to be included in the definitive
documentation (the "Transaction Documents") with respect to the acquisition
of the Assets by Johnson.
1. Definitive Documentation. The parties hereby agree to use
their good faith reasonable best efforts to prepare promptly and, as the
case may be, consistent with the goal of achieving antitrust clearance for
the transactions contemplated by the Merger Agreement, dated as of May 23 ,
2000 (the "Merger Agreement"), among US Airways, UAL Corporation ("UAL")
and Yellow Jacket Acquisition Corp., execute and deliver, adopt or provide
expanded agreements and documents reflecting the terms and provisions set
forth in the applicable portion of the Term Sheet and containing other
customary and appropriate provisions for agreements and documents of the
type contemplated by the applicable portion of the Term Sheet (the
"Transaction Documents").
2. Satisfaction of Merger Agreement Covenant. The parties
agree that the consummation of the transaction contemplated by the Term
Sheet shall be deemed to satisfy UAL's obligation, pursuant to the first
sentence of Section 5.03(a) of the Merger Agreement, to divest the Assets,
and provide the assets, facilities and services set forth on Exhibit A to
the Merger Agreement, but shall not be deemed to satisfy any other
obligation of UAL under Section 5.03(a) of the Merger Agreement.
3. No Solicitation. The parties agree that, from the date
hereof until such time as this Agreement is terminated in accordance with
its terms, none of the parties, nor any of their respective directors,
officers, employees, advisors, affiliates or representatives shall (i)
solicit, initiate, encourage, or take any action knowingly to facilitate,
any inquiry, proposal or offer from any person relating to, or that is
reasonably likely to lead to, the making of a proposal by such person to
acquire the Assets or any portion thereof (a "Competing Proposal") or (ii)
participate in any negotiations or substantive discussions regarding, or
furnish to any person any information with respect to, or otherwise
cooperate in any way with, a Competing Proposal; provided, however, that
this Section 3 shall not apply to UAL or any of its directors, officers,
employees, advisors, affiliates or representatives if a Takeover Proposal
(as defined in the Merger Agreement) has been made by anyone other than UAL
and UAL or any of its directors, officers, employees, advisors, affiliates
or representatives takes any of the actions otherwise prohibited by this
Section 3 with the goal of formulating a plan that, in UAL's good faith
judgment, is more likely than this Agreement to result in antitrust
clearance for the Merger (as defined in the Merger Agreement).
4. Conditions. The obligations of Johnson to consummate the
transactions contemplated by this Agreement and the Term Sheet is subject,
among other things, to Johnson having obtained, prior to the closing of the
transactions contemplated by the Merger Agreement, sufficient financing to
acquire the Assets on terms and conditions acceptable in form and substance
to Johnson. As a condition to the execution of definitive agreements
relating to the sale and purchase of the Assets and the provision of the
related facilities and services, Johnson will be required to deliver
binding commitment letters relating to such financing to UAL in form and
substance reasonably acceptable to UAL (it being acknowledged and agreed
that such commitment letters may be subject to conditions typical of
transaction of the type contemplated hereby but shall not be subject to a
syndication condition or a due diligence condition).
5. Binding Agreement. The parties intend to be legally bound
by the terms of this Agreement and the terms set forth on the Term Sheet
notwithstanding that the expanded agreements and documents reflecting the
terms and provisions set forth on the Term Sheet have not been completed
and executed.
6. Termination. This Agreement shall automatically
terminate, and the obligations of the parities hereto shall immediately
cease, upon the occurrence of any of the following events: (i) termination
of the Merger Agreement; (ii) delivery of written notice of termination by
any party to the other parties hereto, which notice may not be delivered
before ninety (90) days from the date first set forth above; or (iii)
delivery of written notice of termination signed by any two parties to the
other party.
7. Expenses. If, prior to the consummation of the
transactions contemplated by this Agreement and the Term Sheet, this
Agreement (or the Transaction Documents) is terminated for any reason other
than solely as a result of a breach by Johnson, then US Airways shall, upon
request of Johnson, reimburse Johnson for up to $2 million of his
out-of-pocket expenses incurred in connection with this Agreement, the
Transaction Documents and the transactions contemplated hereby and thereby,
including, without limitation, reasonable fees and expenses of accountants,
attorneys and financial advisors, and costs and expenses associated with
financing of the transactions contemplated hereby and thereby and
regulatory compliance.
8. Miscellaneous. (a) This Agreement may be executed by
facsimile in several counterparts, each of which, when executed by a party
hereto, shall be deemed to be an original and such counterparts shall
together constitute one and the same instrument.
(b) This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless
of the laws that might otherwise govern under applicable principles of
conflicts of laws thereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
/s/ Robert L. Johnson
--------------------------------
Robert L. Johnson
UAL CORPORATION
By: /s/ Frederic F. Brace
------------------------------
Name: Frederic F. Brace
Title: Senior Vice President,
Finance
US AIRWAYS GROUP, INC.
By: /s/ Lawrence M. Nagin
-----------------------------
Name: Lawrence M. Nagin
Title: Executive Vice President -
Corporate Affairs and
General Counsel
ATTACHMENT I
DC AIR
1. PSA Will Be The Vehicle To Create DC Air.
2. Aircraft:
o 8 Dornier 328's, leases transferred from PSA subsidiary,
tail numbers specified by US Airways subject to consent of
United, which consent shall not be unreasonably withheld
o 19 Regional Jets, operated by Mesa and/or Chautauqua,
existing contracts assigned to DC Air (includes one spare)
o 10 Wet-leased B73 7-200 Advanced (JT8D- 1 5 powered)
aircraft, for a transition period
3. Employees (subject to necessary labor approvals):
o Necessary management structure to appropriately manage DC
Air's operations
o The number and type of employees required to operate the 8
Dornier 328s will stay with PSA when it transfers to DC Air
o In transaction, no other US Airways or PSA employees will
become employees of DC Air
o United will provide interim employees for up to six months
to staff "open" positions while DC Air hires and trains, if
needed, at United's cost
4. Transition Wet-Lease for B737-200s:
o 10 aircraft to be wet-leased for initial period of two years
o If necessary, extension beyond two years until DC Air
obtains other aircraft on the market or through a dry-lease
arrangement with United; not to exceed four years total
o Wet-lease rates:
- Per-aircraft monthly lease rate equal to the weighted
average (based on the number aircraft leased) of
rates currently in place between US Airways and
Vanguard and IMP for B737- 200 aircraft, assuming
full maintenance life (if aircraft with less than
full maintenance life provided, maintenance reserves
to be adjusted accordingly)
- Pilot rates (i.e., cost per block hour), as follows:
(i) Year 1 at current MetroJet block hour rates; (ii)
Years 2 and beyond at US Airways block hour rates
unless United rates have become applicable to US
Airways pilots, and in that case at United block hour
rates
- US Airways flight attendant rates (i.e., cost per
block hour) as follows: (i) Year 1 at current US
Airways block hour rates; (ii) Years 2 and beyond at
US Airways block hour rates unless United rates have
become applicable to US Airways flight attendants,
and in that case at United block hour rates
- Line maintenance rates (i.e., cost per visit taking
into account other station activity) at United's cost
of providing service
- Maintenance reserves for airframe and engines at the
weighted average (based on the number of aircraft
leased) of rates currently in place between US
Airways and Vanguard and IMP for B737-200 aircraft,
and accounting for remaining maintenance life
o DC Air can discontinue wet lease on any given aircraft with
4-month notice
5. Dry Lease for B737-200s:
o Post wet-lease, at DC Air's option, DC Air and United will
negotiate in good faith a dry-lease arrangement for up to 10
B737-200 Advanced aircraft
6. Slots:
o 119 air carrier (jet) slots and 103 commuter slots at DCA.
If US Airways and/or its subsidiaries own more than 1 03
commuter slots at DCA, then the number of commuter slots
shall be increased by the amount of such excess, and the
number of jet slots reduced by the amount of such excess, up
to 1 3 slots
o Exact slot times will be determined by United, US Airways
and DC Air, so as to reasonably accommodate United's and DC
Air's scheduled services. The parties recognize that both
United and DC Air will need to make adjustments to ensure
that both parties may offer viable schedules
7. Airport Facilities
o DC Air will assume the following leases:
- Seven gates at DCA, contiguous or reasonably
contiguous, that work for the operation of DC Air
(necessary, sufficient and reasonably suited)
- Gates at other airports served by both United/US
Airways and DC Air, same conditions
- Ticket counter, ramp, aircraft parking, back office
space, etc., same conditions.
- Ground handling equipment, spare parts, and other
related assets, same conditions
o United and DC Air will discuss optimal line maintenance
facility needs for DC Air, and negotiate a solution that is
necessary, sufficient and reasonably suited to DC Air' 5
requirements, with the provision that DC Air may request,
and if reasonably requested (from the perspective of DC Air'
s business needs) United will provide, US Airways' line
hangar at DCA. DC Air will assume the lease of any line
maintenance facilities provided.
8. Services
o If requested by DC Air, United will provide the following
services at "Market Rate" (If a spread exists in market
rates, United will provide services at the low end of rates
provided for comparable goods and services; and DC Air will
have standard industry "out clauses")
- Fuel, including in-aircraft servicing, for a period
of five years
- Station handling, for a period of five years
- Customary occasional use gate agreements, if gate is
available when requested, for a period of seven years
- Maintenance and training related to dry-leased B737-200
aircraft, for a period of five years
- Access to club facilities, for a period of five years
- Interline ticketing and baggage agreement (standard
industry terms), for a period of five years
9. Consulting Services
o Consulting support as DC Air builds operational experience
and management team, for up to two years, at United' s cost
10. Partnering: DC Air will enter into good faith negotiations toward
partnering (i.e., frequent flyer/code share relationship, etc.)
with other carriers if reasonably requested by United
11. Assignment: Buyer will not assign rights or obligations to another
entity
12. Change of control: If Buyer ceases to hold majority equity /
control (other than through public offering) or disposes of all or
substantially all of the assets, United will have no further
obligations
13. "No Flip": If Buyer sells majority equity interest / control (other
than through public offering) or disposes of all or substantially
all of the assets, within three years of startup, if price is above
purchase price then DC Air will pay United the amount of the excess
14. Price: $141.2 Million
15. Liabilities: Buyer will assume in the definitive documentation all
liabilities primarily related to the DC Air business
16. Indemnification: United's obligation to indemnify Buyer in the
definitive documentation shall be limited to (x) in the case of
losses relating to any breach of a representation or warranty, 40%
of the purchase price paid to United by Buyer, and (y) in the case
of all losses, the purchase price paid by Buyer
