Document:

Exhibit 10.1

 

DELTA AIR LINES, INC.

2007 OFFICER AND DIRECTOR SEVERANCE PLAN

As amended October 14, 2007

 

INTRODUCTION

 

Delta Air Lines, Inc. (the “Company” or together with its Affiliates, “Delta”) has adopted this Officer and Director Severance Plan (the “Plan”) to provide benefits to certain eligible U.S.-payroll regular full-time Officer and Corporate Director level employees of the Company. Capitalized terms that are not otherwise defined within the text of this Plan are defined in Appendix A.  As of the Effective Date, this Plan shall supersede the Company’s prior Director and Officer Severance Plan (the “Prior Plan”) in its entirety and, as of that date, the Prior Plan shall be void and of no further force or effect.  Notwithstanding anything herein to the contrary, a Participant (as defined
below) shall not be entitled to receive benefits under the Plan if the Participant has entered into an employment or other agreement with the Company or any Affiliate that provides benefits similar to the type of benefits provided by this Plan, which benefits have not been waived by the Participant or terminated by the Company.

 

ELIGIBILITY CRITERIA

 

	
            •
 	
            Separation from Delta
 

Any employee who is classified as (i) a Corporate Director (a “Director”) or  Officer (an “Officer”) of the Company according to the Company’s Human Resources records, is eligible for benefits under this Plan (a “Participant”) in accordance with the terms described below.  In addition, with respect to any Affiliate that does not offer a severance plan or program to its executive employees, any officer or director of such Affiliate may be designated by the Plan Administrator as a Participant in the Plan and any reference herein to a director or officer of the Company shall be deemed to also be a reference to a director or officer of equivalent level of such Affiliate who
has been so designated.  Notwithstanding anything in this Plan to the contrary, at his request, Gerald Grinstein, the Company’s current Chief Executive Officer, is not eligible to be a Participant in this Plan.  

 

Subject to the terms of the Plan, a Participant shall receive the benefits described in Attachment B hereto if:  (1) the Participant’s employment is terminated by Delta other than for Cause; or (2) the Participant (a) resigns from employment with Delta for Good Reason during the period beginning on a Change in Control Date and ending on the second anniversary thereof  and (b) was employed by Delta as of the Change in Control Date. 

 

	
            •
 	
            Full Execution of Separation Agreement and General Release
 

In order to receive the benefits of this Plan, eligible Participants must first sign a Separation Agreement and General Release prepared by Delta (the “Agreement”) within 45 days of the date that the Agreement is presented to the Participant.  Participants who fail to sign the Agreement within 45 days or who rescind the Agreement within the applicable Revocation Period are not eligible to receive the benefits of this Plan.  The Agreement is designed to ensure that both Delta and the Participant have their rights and obligations established with certainty and finality.  Delta is offering benefits under this Plan in exchange for the execution of the Agreement.  The Agreement shall be in a form provided by and satisfactory to Delta 

 

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and shall include, without limitation, a release in favor of Delta and its employees, directors and Affiliates and certain non-competition, non-solicitation and non-recruitment agreements for the benefit of Delta; provided, however, that for the two year period following a Change in Control Date, the Agreement shall be in substantially the same form as the form of Agreement used prior to the Change in Control Date.

 

PLAN ADMINISTRATION AND INTERPRETATION

 

The “Plan Administrator” is the Executive Vice President – Human Resources and Labor Relations of the Company (or any other Officer of the Company designated by the Personnel & Compensation Committee of the Board).  The “Plan Year” is January 1 to December 31.  Benefits from this Plan are paid from the general assets of Delta.  

 

The Plan Administrator, or his delegate, has the full power and authority, in his sole discretion to construe, interpret and administer this Plan and his decisions shall be final and binding.  The Plan Administrator shall have the broadest discretionary authority permitted under law in the exercise of all its functions including, but not limited to, deciding questions of eligibility, interpretation and the right to benefits hereunder.

 

PLAN CLAIMS AND APPEALS  

 

The terms applicable to claims and appeals are set forth at Appendix C. 

 

AMENDMENT

 

Except as expressly set forth herein, the Company may amend or terminate this Plan at any time; provided, however, that as of a Change in Control Date, no amendment to or termination of this Plan that is adverse to any person who is an employee of Delta on the Change in Control Date shall be effective until after the second anniversary of the Change in Control Date.

 

SUCCESSORS AND ASSIGNS

 

This Plan shall be binding upon Delta’s successors and assigns.

 

GOVERNING LAW

 

This Plan is governed by the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), but it is intended to qualify as a plan maintained for the purpose of providing benefits to a select group of management or highly compensated employees.  As such, it is exempt from certain provisions of ERISA pursuant to ERISA Sections 201(2), 301(a)(3), 401(a)(1) and 4021(b) and applicable regulations (including Department of Labor Regulation 2520.104-23).  However, some of the underlying benefits provided for under the terms of this Plan, such as travel privileges, financial planning and career transition services are not governed by ERISA, and their inclusion in this Plan does not deem them subject to ERISA.  To the extent not superseded by ERISA, the Plan and all determinations made and actions taken thereunder shall be governed by the internal
substantive laws of the State of Delaware and construed accordingly.

 

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SECTION 409A OF THE INTERNAL REVENUE CODE

 

To the extent required to be in compliance with Section 409A of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (together, “Section 409A”), notwithstanding any other provision of this Plan, any payment or benefit to which a Participant is eligible under this Plan, including a Participant who is a “specified employee” as defined in Section 409A, shall be adjusted or delayed in such manner as to comply with Section 409A and maintain the intent of this Plan to the maximum extent possible.  For example, compliance with Section 409A could require a significant delay of payment or commencement of benefits beyond separation in certain circumstances.  Notwithstanding the foregoing, Delta shall not have any liability to any Participant or any other person if any payment or benefit is determined to constitute
“nonqualified deferred compensation” within the meaning of Section 409A and does not satisfy the additional conditions applicable to nonqualified deferred compensation under Section 409A.

 

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APPENDIX A

 

DEFINITIONS

 

The following definitions shall apply for purposes of the Plan:

 

“Affiliate” means any entity that directly or indirectly controls or is controlled by or under common control with the Company.

 

“Base Salary” means the Participant’s monthly base salary at the time of separation, excluding expense reimbursements and supplemental salary payments, and any items not considered by the Plan Administrator to be a component of regular monthly base earnings; provided, however, that, as of a Change in Control Date, in the event of a termination of employment by the Participant because of a reduction in the Participant’s pay, “Base Salary” means the Participant’s monthly base salary prior to the reduction in pay which gave rise to the Participant’s termination of employment.

 

“Board” means the Board of Directors of the Company.

 

“Cause” means the Participant’s 

 

(i)  continued, substantial failure to perform his duties with Delta (other than any such failure resulting from incapacity due to physical or mental illness) after a written demand for substantial performance is delivered to the Participant which identifies the manner in which Delta believes that the Participant has not performed his duties, or

 

(ii)  misconduct which is economically injurious to Delta, or

 

(iii)  conviction of, or plea of guilty or no contest to, a felony or any other crime involving moral turpitude, fraud, theft, embezzlement or dishonesty, or 

 

(iv)  material violation of any material Delta  policy or rule regarding conduct, which policy or rule has been communicated in writing to the Participant.

 

A Participant shall have at least ten (10) business days to cure, if curable, any of the events (other than clause (iii)) which could lead to his termination of Cause.  For any Participant who is an Executive Vice President or more senior executive of the Company, a termination for Cause must be approved by a 2/3 vote of the entire Board. 

 

“Change in Control” means the occurrence after the Effective Date of any of the following: 

 

(i)  any “person” (as defined in Section 13(d) of the Securities Exchange Act of 1934 (“Act”)) other than the Company, its Affiliates or an employee benefit plan or trust maintained by the Company or its Affiliates, becoming the “beneficial owner” (as defined in Rule 13d-3 under the Act), directly or indirectly, of more than 35% of the combined voting power of the Company’s then outstanding Voting Stock (excluding any “person” who becomes such a beneficial owner in connection with a transaction described in clause (A) of paragraph (iii) below), unless such person acquires beneficial ownership of more than 35% of the combined 

 

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voting power of the Company’s Voting Stock then outstanding solely as a result of an acquisition of Company Voting Stock by the Company which, by reducing the Company Voting Stock outstanding, increases the proportionate Company Voting Stock beneficially owned by such person to more than 35% of the combined voting power of the Company’s Voting Stock then outstanding; provided, that if a person shall become the beneficial owner of more than 35% of the combined voting power of the Company’s Voting Stock then outstanding by reason of such Voting Stock acquisition by the Company and shall thereafter become the beneficial owner of any additional Company Voting Stock which causes the proportionate voting power of such Company Voting Stock beneficially owned by such person to increase to more than 35% of the combined voting power of such Voting
Stock then outstanding, such person shall, upon becoming the beneficial owner of such additional Company Voting Stock, be deemed to have become the beneficial owner of more than 35% of the combined voting power of the Company’s Voting Stock then outstanding other than solely as a result of such Voting Stock acquisition by the Company;

 

(ii)  at any time during a period of twelve consecutive months (but not including any period before the Effective Date) individuals who at the beginning of such period constituted the Board (and any new member of the Board, whose election by the Board or nomination for election by the Company’s shareowners was approved by a vote of at least two-thirds of the members of the Board then still in office who either were member of the Board at the beginning of the period or whose election or nomination for election was so approved), cease for any reason to constitute a majority of members then constituting the Board; or

 

(iii)  the consummation of (A) a reorganization, merger or consolidation of the Company or any direct or indirect subsidiary of the Company with any other corporation, other than a reorganization, merger or consolidation which results in the Company’s Voting Stock outstanding immediately prior to such merger or consolidation continuing to represent (either by remaining outstanding or being converted into Voting Stock of the surviving entity or any parent thereof) more than 65% of the voting power of the Voting Stock or the total fair market value of the securities of the Company or such surviving entity or any parent thereof outstanding immediately after such merger or consolidation, or (B) any sale, lease, exchange or other transfer (in one transaction or a series of transactions) of assets of the Company having a total gross fair market value equal to more than 40% of the total gross
fair market value of all assets of the Company immediately prior to such transaction or transactions other than any such sale to an Affiliate.

 

Notwithstanding the foregoing, in no event shall a Change in Control be deemed to have occurred with respect to a Participant if the Participant is part of a “group”, within the meaning of Section 13(d)(3) of the Act, which consummates the Change in Control transaction.  In addition, for purposes of the definition of Change in Control, a person engaged in business as an underwriter of securities shall not be deemed to be the beneficial owner of, or to beneficially own, any securities acquired through such person’s participation in good faith in a firm commitment underwriting until the expiration of forty days after the date of such acquisition.

 

“Change in Control Date” means the date on which a Change in Control occurs.

 

“Change in Control Event” has the meaning set forth under the definition of Severance Pay below.

 

 

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“Disability” means long-term or permanent disability as determined under the disability plan of the Company or Affiliate applicable to the Participant.

 

“Effective Date” means the effective date of the Debtors’ Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code--Case No. 05-17923(ASH). 

 

“Good Reason” means with respect to any Participant who is employed by Delta on a Change in Control Date, any of the following that occurs without a Participant’s express written consent during the period beginning on the Change in Control Date and ending on the second anniversary thereof:  

          (i)           in
the case of any Participant, a diminution or other reduction of such Participant’s
authorities, duties or responsibilities, other than an insubstantial and inadvertent act
that is promptly remedied by Delta after written notice by such Participant to the Chief
Executive Officer of the Company; 

          (ii)          the
Participant’s office is relocated by more than 50 miles; 

          (iii)          a
reduction of Participant’s Base Salary or incentive compensation opportunities, in
either case other than pursuant to a uniform percentage salary reduction for all
full-time domestic employees not subject to a collective bargaining agreement; 

          (iv)          the
Company does not keep in effect compensation, retirement, health and welfare benefits, or
perquisite programs under which the Participant receives benefits substantially similar,
in the aggregate, to those in effect prior to a reduction (other than a reduction
pursuant to an equivalent reduction in such benefits for all full-time domestic employees
who are not subject to a collective bargaining agreement); or  

          (v)          a
material breach by Delta of any binding obligation to the Participant relating to a
material term of the Participant’s employment, including, but not limited to,
indemnification or the terms of an award under the Delta Air Lines, Inc. 2007 Performance
Compensation Plan, or any failure of a successor to the Company to assume and agree to
perform such obligation. 

Notwithstanding the foregoing:  (x) any grant of a long-term incentive award on or about the Effective Date under the Delta Air Lines, Inc. 2007 Performance Compensation Plan will be ignored for purposes of determining whether a Participant has suffered a reduction that constitutes Good Reason under subsection (iii) and (iv) above;  (y) as to any Participant, an event described in subsections (i) through (v) above shall constitute Good Reason only if such Participant gives the Company written notice of intent to resign and the reasons therefore within ninety (90) days of the occurrence of such event, unless the Plan Administrator agrees otherwise; and (z) no event described in subsections (i) through (v) which is curable shall constitute Good Reason if such event is cured by Delta within ten (10) days of the Participant’s notice, given in accordance with (y) above. 

“MIP Target Amount” means as to any Participant, such Participant’s target award amount under the Company’s Management Incentive Plan  (or any similar plan) in effect at the time such Participant has a termination of employment that entitles the Participant to benefits hereunder.

 

“Protected Period” means the six month period immediately prior to a Change in Control Date. No period may be identified as a Protected Period until a Change in Control Date has occurred. 

 

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“Revocation Period” means, as applicable, the seven (7) or twenty-one (21) calendar days immediately following the date a Participant signs an Agreement. 

 

“Severance Event” has the meaning set forth under the definition of Severance Pay below.

 

 “Severance Pay” means: 

 

(1)       with respect to any termination of employment: (a) by Delta without Cause either:  (i) prior to a Change in Control (other than with respect to terminations of employment during the Protected Period); (ii) after a Change in Control with respect to any Participant who was not employed by Delta as of the Change in Control Date; or (iii) after the second anniversary of a Change in Control Date or (b) as a consequence of the Participant’s Disability (individually and collectively, a “Severance Event”), an amount equal to: 

 

(a)        6 months’ Base Salary for Directors, plus 50% of any applicable MIP Target Amount; 

 

(b)       9 months’ Base Salary for Vice Presidents and Senior Vice Presidents, plus 75% of any applicable MIP Target Amount; or 

 

(c)        12 months’ Base Salary for Executive Vice Presidents and higher ranking Officers, plus 100% of any applicable MIP Target Amount; and 

 

(2)       with respect to any termination of employment: (a) by Delta without Cause either (i) during the Protected Period or (ii) during the period between the Change in Control Date and the second anniversary thereof but only with respect to any Participant employed by Delta as of the Change in Control Date; or (b) due to any Participant’s  resignation from employment for Good Reason between the Change in Control Date and the second anniversary thereof but only with respect to by a Participant employed by Delta as of the Change in Control Date (individually and collectively, a “Change in Control Event”), an amount equal to: 

 

(a)        6 months’ Base Salary for Directors, plus 50% of any applicable MIP Target Amount; 

 

(b)       12 months’ Base Salary for Vice Presidents and Senior Vice Presidents, plus 100% of any applicable MIP Target Amount; or

 

(c)        24 months’ Base Salary for Executive Vice Presidents and higher ranking Officers, plus 200% of any applicable MIP Target Amount. 

 

 

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“Severance Period” means:  

 

(1)       with respect to any Severance Event, the period beginning on the Participant’s employment termination date from Delta and ending: 

 

	
             
 	
            (a)
 	
            6 months after the termination date for Directors;
 

 

	
             
 	
            (b)
 	
            9 months after the termination date for Vice Presidents and Senior Vice Presidents; or
 

 

	
             
 	
            (c)
 	
            12 months after the termination date for Executive Vice Presidents and  higher ranking Officers; and 
 

 

(2)         with respect to any Change in Control Event, the period beginning on the Participant’s employment termination date from Delta and ending:  

 

	
             
 	
            (a)
 	
            6 months after the termination date for Directors;
 

 

	
             
 	
            (b)
 	
            12 months after the termination date for Vice Presidents or Senior Vice Presidents of the Company; or
 

 

	
             
 	
            (c)
 	
            24 months after the termination date for Executive Vice Presidents and higher ranking Officers.
 

 

 “Voting Stock” means securities entitled to vote generally on the election of members of the board of directors.

 

 

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APPENDIX B

 

DESCRIPTION OF SPECIFIC BENEFITS1

 

SEVERANCE PAY

 

	
            •
 	
            This Plan provides for the payment of Severance Pay based on job level at the time of termination of employment; provided, however, that following a Change in Control, in the event of a Participant’s resignation for Good Reason because of a significant diminution of the Participant’s position, responsibilities or duties, Severance Pay shall be based on the Participant’s job level prior to the diminution which gave rise to the Participant’s resignation.
 

	
            •
 	
            Severance Pay is paid as a one-time lump-sum payment promptly following the Participant’s separation from employment and fulfillment of the other eligibility criteria. For purposes of any termination by Delta without Cause during the Protected Period, the Participant’s termination will change from a Severance Event to a Change in Control Event as of the Change in Control Date and such Participant’s Severance Pay and Severance Period will be adjusted accordingly as soon as practicable after the Change in Control Date.
 

	
            •
 	
            All applicable federal, state, and local taxes will be withheld from all Severance Payments that are made.  Federal tax will be withheld at a rate consistent with applicable law.    
 

	
            •
 	
            Severance Pay will not be considered as earnings under the Delta Retirement Plan, the Delta Family-Care Savings Plan, the Delta Family-Care Disability and Survivorship Plan, or any other qualified or non-qualified plans.
 

	
            •
 	
            Severance Pay will be provided by check and cannot be direct deposited to any financial institution.
 

 

MEDICAL/DENTAL AND LIFE INSURANCE BENEFITS

 

Payment of COBRA Premiums

 

	
            •
 	
            Employees who have a separation from employment are offered the right to continue applicable medical, dental, vision and Health Flexible Spending Account coverage in accordance with the Consolidated Omnibus Budget Reconciliation Act of 1985 (“COBRA”).  Under this Plan, Delta will pay the premiums for medical, dental and/or vision COBRA coverage elected by a Participant or his eligible dependents for a period not to exceed the Severance Period, as further described below in this section.  
 

	
            •
 	
            Delta will not pay any portion of the COBRA premium required for the Healthcare Flexible Spending Account COBRA coverage that is elected by a Participant or his or her eligible dependents.  The COBRA statute, COBRA regulations and COBRA provisions of the Delta Family-Care Medical Plan (or corresponding pilot or Affiliate plan, if applicable) will, in all cases, govern whether a Participant or his dependents are eligible for COBRA coverage and accordingly whether such Participant or dependent will receive any payment of COBRA premiums by Delta in accordance with this Plan.  
 

	
            •
 	
            If the Participant and/or dependent fail to meet these requirements, such Participant and/or dependent will not be eligible for COBRA continuation coverage at either Delta’s expense or
 

_________________________

1 It is intended that the benefits under this Plan be appropriately integrated with severance provided for under other arrangements, if any, covering the Participant to avoid duplication of severance pay.

 

 

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their own.  Delta’s payment of the COBRA premiums under this Plan will expire on the earlier of: (i) the end of the Severance Period; or (ii) the date the Participant’s or the Participant’s dependents’ eligibility for COBRA coverage ceases as provided under COBRA and the terms of the Delta Family-Care Medical Plan (or corresponding pilot or Affiliate plan, applicable).   

 

Payment of Retiree Medical Premiums

 

	
            •
 	
            To the extent applicable, for those Participants who take special early, early or normal retirement at the time of their separation, and elect COBRA coverage, instead of retiree medical and/or dental coverage, the above section entitled “Payment of COBRA Premiums” will apply with respect to any Delta-paid COBRA premium.  If the Participant instead elects retiree medical and/or dental coverage, Delta will, as an alternative to paying COBRA premiums as described above, pay the retiree medical and/or dental premium for the Participant and their eligible, properly enrolled dependents during the Severance Period.  
 

	
            •
 	
            In order to be eligible, the Participant must timely complete and return the separate retiree medical election form that is provided to employees at retirement.  Failure to meet this requirement will result in no retiree medical coverage and therefore no payment of the retiree medical premium by Delta.  
 

	
            •
 	
            If a Participant or his dependents become ineligible for Delta retiree coverage for any reason or opt out of such coverage, all coverage will cease and Delta will have no responsibility to pay any further retiree medical and/or dental premiums under this Plan.  
 

 

BASIC LIFE INSURANCE

 

	
            •
 	
            To the extent applicable, Participants will also have their basic life insurance coverage under the Delta Family-Care Disability and Survivorship Plan (or corresponding pilot or Affiliate plan, if applicable) continued for the Severance Period at Delta’s expense.  The amount of coverage continued will be equal to the amount of basic life insurance coverage in effect immediately prior to separation up to a maximum of $50,000.  
 

	
            •
 	
            If a Participant instead shall have reached early retirement age at the time of his or her separation, he or she will not be eligible for this continuation of basic life coverage but instead will receive the standard retiree basic life coverage (currently $10,000 at the Company).  
 

 

TRAVEL PRIVILEGES

 

	
            •
 	
            During the Severance Period, a Participant will be eligible for continued travel privileges comparable to Delta’s travel policy as in effect for similarly situated active employees during such period.
 

	
            •
 	
            Family status changes (marriage, divorce, adoption or birth of child) that occur during the Severance Period must be reported to the Employee Service Center (or corresponding Affiliate administrator) within 30 days of the status change.  Failure to do so will result in the ineligibility of the new family member for travel privileges described under this Plan. 
 

	
            •
 	
            All travel privileges shall be governed by all applicable rules and procedures which are generally applicable at the time the travel privileges are used, except as expressly modified in this Plan.  Travel privileges may be used for pleasure, vacation, or personal emergency, but may not be used for any type of business or professional activity.  Any violation of the rules 
 

 

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governing non-revenue and reduced rate travel may result in the suspension or termination of all travel privileges. 

	
            •
 	
            With respect to any Participant who (i) incurs a termination that constitutes a Change in    Control Event and (ii) is a  Vice President of the Company or more senior Officer at the time of the Change in Control Event, such Participant will be treated as a retiree for purposes of the Company’s travel policy regardless of the Participant’s actual age or years of service and the Participant’s travel benefits will be based on the Company travel policy in effect immediately prior to the Change in Control Event that was applicable to the Participant.
 

 

CAREER TRANSITION SERVICES

 

	
            •
 	
            Participants are eligible to receive career transition services valued at up to $5,000 at a career transition services firm chosen by Delta.
 

	
            •
 	
            These career transition services may include seminars, job search work teams, productivity clinic, resumé preparation, assessments, resource library, on-line database, job lead development, individual counseling, administrative support, computer lab, and workspace phone/fax.
 

	
            •
 	
            The eligibility to receive these services will expire upon the employee becoming employed or the expiration of the Severance Period, whichever occurs first.
 

 

FINANCIAL PLANNING SERVICES

 

	
            •
 	
            Participants are eligible for continuation of the financial planning services for which they are eligible at the time of their separation from Delta.
 

	
            •
 	
            The eligibility to receive these services will expire at the conclusion of the calendar year in which the Participant separates from Delta, even if that occurs during the Severance Period.
 

 

GROSS-UP PAYMENT

 

	
            •
 	
            (a)   Gross-Up Payments.  In the event that a Participant becomes entitled to benefits under this Appendix B, Delta shall pay to such Participant an additional lump sum payment (the “Gross-Up Payment”), in cash, equal to the amounts, if any, described in sub-paragraph (x), subject to sub-paragraph (y), below:
 

 

(x)  Subject to sub-paragraph (y) below, if any portion of any payment under this Appendix B, when taken together with any payment under any other agreement with or plan of Delta (in the aggregate “Total Payments”) would be subject to the excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as amended (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 Participant shall be entitled under this paragraph to an additional amount such that after payment by the Participant of all such Participant’s applicable federal, state and
local taxes, including any Excise Tax, imposed upon such additional amount, the Participant will retain an amount sufficient to pay the Excise Tax imposed on the Total Payments.

 

(y)  Notwithstanding the provisions of sub-paragraph (x) above, if it shall be determined that the Participant would be entitled to a Gross-Up Payment, but that the Total Payments would not be subject to the Excise Tax if the Total Payments were 

 

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reduced by an amount that is less than 10% of the portion of the Total Payments that would be treated as “parachute payments” under Section 280G of the Code, then the amounts payable to the Participant shall be reduced (but not below zero) to the maximum amount that could be paid to Participant without giving rise to the Excise Tax (the “Safe Harbor Cap”), and no Gross-Up Payment shall be made to the Participant.  Such reduction of the amounts payable to the Safe Harbor Cap, if applicable, shall be made by reducing payments comprising the Total Payments in such order as elected by the Participant.

 

	
            •
 	
            The amounts payable under this paragraph (a) shall be paid by Delta as soon as practicable (but in no event more than 30 days) after the occurrence of the events giving rise to the Participant’s right to benefits under Appendix B.
 

 

	
            •
 	
            (b)  Determinations.  In the event of a Change in Control, all determinations required to be made under paragraph (a) above, including the amount of the Gross-Up Payment, whether a payment is required under paragraph (a) above, and the assumptions to be used in determining the Gross-Up Payment, shall be made by the nationally recognized accounting firm generally used by the Company as its financial auditor (the “Accounting Firm”) which shall provide detailed supporting calculations both to Delta and the Participant within twenty business days of the receipt of notice from the Participant that there has been an event giving rise to the right to benefits under paragraph (a) above, or such earlier time as is requested by Delta.  In the event that the Accounting
Firm is serving as accountant or auditor for a person effecting the Change in Control or is otherwise unavailable, the Participant may appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder).  All fees and expenses of the Accounting Firm shall be borne solely by Delta.
 

 

	
            •
 	
            (c)  Subsequent Redeterminations.  Unless requested otherwise by the Company, each Participant must use reasonable efforts to contest in good faith any subsequent determination by the Internal Revenue Service that such Participant owes an amount of Excise Tax greater than the amount previously determined under paragraph (a); provided, however, that  Participants shall be entitled to reimbursement by Delta of all fees and expenses reasonably incurred by the Participant in contesting such determination.  In the event the Internal Revenue Service or any court of competent jurisdiction determines that the Participant owes an amount of Excise Tax that is either greater or less than
the amount previously taken into account and paid under paragraph (a), Delta shall promptly pay to such Participant, or the Participant shall promptly repay to Delta, as the case may be, the amount of such excess or shortfall.  In the case of any payment that Delta is required to make to the Participant pursuant to the preceding sentence (a “Later Payment”), Delta shall also pay to the Participant an additional amount such that after payment by the Participant of all such Participant’s applicable federal, state and local taxes on such additional amount, the Participant will retain an amount sufficient to pay the total of such Participant’s applicable federal, state and local taxes arising due to the Later Payment.  In the case of any repayment of Excise Tax that a Participant is required to make to Delta pursuant to the second sentence of this paragraph (c), the Participant shall also repay to Delta the amount of any
additional payment received by such Participant from Delta in respect of applicable federal, state and local taxes on such repaid Excise Tax, to the extent the Participant is entitled to a refund of (or has not yet paid) such federal, state or local taxes.
 

 

 

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APPENDIX C

 

PLAN CLAIMS AND APPEALS  

 

FILING A CLAIM

 

All claims for benefits under this Plan must be submitted in writing to the Vice President – Compensation and Benefits of the Company (or such other officer as may be designated by the Company).  If a claim is denied, the claimant will receive written notification of the denial within 90 days after the claim is properly and completely filed.  Special circumstances may require an additional period of no more than 90 days.  In that event, the claimant will receive a written notice of the special circumstances requiring the extension and the date when the claimant may expect a decision on the claim.  If the claimant is not furnished with written notification of the decision on the claim within 90 days (or within 180 days if an extension is necessary) after the claim is properly and completely filed, the claimant or his/her authorized representative may request a
review of the claim under the appeal procedures described below.

 

APPEAL PROCEDURES FOR DENIED CLAIMS

 

If a claimant is dissatisfied with a denial of a claim under the Plan, the claimant has the right to appeal the denial.  All appeals must be addressed to the proper party in a timely manner.  All appeal time deadlines will be strictly enforced.

 

If a claimant desires a review of a denial, he/she or his/her representative designated in writing must submit a written request that is received by the Plan Administrator within 90 days of the date of this Plan’s letter denying benefits.  The date of the denial indicated on the denial letter counts as day one in determining this 90-day period and the Plan Administrator expressly reserves the right to refuse to consider tardy appeals.  

 

The claimant will be notified in writing of the decision on review within 60 days after the Plan Administrator receives the review request.  If the claim denial is upheld, the claimant will be so advised and informed of the reason, the provisions of the Plan document upon which the denial was based, and, if applicable, an explanation of other relevant material or information necessary to perfect the claim.  The Plan Administrator may take an additional 60 days to inform a claimant of a decision if special circumstances require an extension of processing time and the Plan Administrator has notified the claimant in writing that there will be a delay, the reasons for needing more time, and the date by which the final decision will be made.

 

Review by the Plan Administrator is made only upon the written record.  The claimant or a representative designated by the claimant in writing may review pertinent documents relating to the denial and may submit comments, a statement of issues, and/or additional documentary evidence if desired.  Personal appearances are not permitted.

 

A claimant must timely exhaust the administrative remedies allowed under this Plan as described above before filing any legal action on a claim.  The previously described procedure is the exclusive administrative claims procedure provided under this Plan.

 

 

C-1August 28, 2007

 

Mr. Richard H. Anderson

 

 

 

Dear Richard:

 

I am pleased to confirm our offer of employment for the position of Chief Executive Officer of Delta Air Lines, Inc. (“Delta” or “Company”).  As per our discussions, your active employment in this position will begin on September 1, 2007 (“Starting Date”).  The following information generally summarizes the terms of our agreement.

 

Your starting annual base salary will be at the rate of $600,000 per annum, payable in accordance with the usual pay practices of the Company, and will be subject to annual review by the Board of Directors.  

 

To align your variable compensation opportunities with the creation of shareholder value and the variable compensation opportunities provided to all Delta people, you will participate in certain annual and long-term incentive plans as outlined below.

 

	
             
 	
            1.
 	
            You will participate in our annual cash incentive plan, the Delta Management Incentive Plan (“MIP”), according to the terms of the MIP as in effect from time to time.  The 2007 MIP links pay and performance by providing approximately 1,200 management employees with a compensation opportunity based on Delta’s achieving key business plan goals in this year.  It also aligns the interests of
Delta’s management and other employees because these goals are the same ones that drive payouts under the broad-based employee profit sharing plan and shared rewards program.  For 2007, your Target MIP Award (as defined in the MIP) will be 150% of the annual base salary prorated for actual service in 2007.  For 2008, your Target MIP Award will be at least 150% of your starting annual base salary.
 

 

	
             
 	
            2.
 	
            You will participate in Delta’s long-term incentive program on the same basis as the Company’s other Executive Officers.  In 2008, you will receive a long-term incentive award with a targeted value of $4,000,000.  This award will generally vest over a three-year period and is subject to the performance goals and other terms and conditions as may be established by the Personnel & Compensation Committee of
Delta’s Board of Directors.  
 

 

	
             
 	
            3.
 	
            In recognition of the substantial compensation awards that we understand you will forfeit by leaving your current employer, upon the Starting Date, you will receive certain equity awards under
Delta’s 2007 Performance Compensation Plan (the “2007 Plan”).  The terms of these awards, which are attached hereto as Exhibit A, are similar to the equity awards granted to Delta officers in connection with the
Company’s emergence from bankruptcy on April 30, 2007.  The value of these awards is tied to and contingent on Delta’s future performance.
 

 

Mr. Richard H. Anderson

August 28, 2007

Page 2

 

 

Except as otherwise provided in this letter agreement, your employment with Delta will be subject to Delta’s standard policies applicable to all employees and will be governed by the terms and conditions of the Human Resources Practices Manual, as may be amended from time to time hereafter.  You will also be entitled to such other benefits as are provided to the Company’s Executive Officers.  

 

During your employment with Delta, you may continue to serve as a member of the board of directors for Cargill, Incorporated and Medtronic, Inc.  In addition, subject to approval by the Delta Board of Directors, you will be allowed other outside activities such as corporate, trade, and charitable board memberships.

 

You will also be subject to non-competition, non-solicitation, and confidentiality covenants, as provided in Exhibit A.

 

You will be eligible to participate in Delta’s standard benefit programs applicable to all employees, as amended from time to time, including healthcare, disability, and defined contribution retirement plans.  

 

In addition, you will participate in the Delta Air Lines, Inc. Officer and Director Severance Plan (“O&D Plan”) in accordance with the terms of the O&D Plan, subject to the understanding that (a) “Severance Pay” shall mean 24 months’ Base Salary, plus 200% of any applicable MIP Target Amount (as such terms are defined in the O&D Plan), (b) “Severance Period” shall mean 24 months after the date of your termination of employment and (c) the definition of Severance Event (as defined in the O&D Plan) shall include your resignation for Good Reason (as such term is defined in the 2007 Plan). 

 

You will be eligible for a relocation benefit as provided under the terms of the Delta Air Lines Officer Relocation Program (“Relocation Policy”), except that the provisions of this policy will apply for 18 months.  In addition, should you sell your Minnesota residence within 18 months of the Effective Date and the net sales price, as defined in the Relocation Policy, is less than $2,100,000 (your cost of acquiring that residence), Delta will reimburse you for the difference.  If you are due the difference between the sales price and your cost of acquiring that residence, such payment will be grossed-up to cover taxes due on this payment.

 

All consideration provided by Delta shall be provided subject to withholding and other federal, state and local taxes and deductions as provided by law.

 

This letter agreement supersedes all prior discussions and documentation concerning your compensation arrangements with the Company.

 

If the terms provided herein reflect your understanding of our agreement and you accept employment based on these terms, please indicate your acceptance by signing the two original letters provided.  Please keep one letter for your records and return the other to me.

 

Mr. Richard H. Anderson

August 28, 2007

Page 3

 

 

Richard, we are extremely pleased to have you join the Delta team, and we look forward with great pleasure to our association with you in this important role at Delta.

 

Sincerely,

 

/s/ David R. Goode

 

David R. Goode

Chair, Personnel & Compensation Committee 

Board of Directors of Delta Air Lines, Inc.

 

 

	
            /s/ Richard H. Anderson
 

 

Richard H. Anderson

 

	
            29 August 2007
 

Date

 

Enclosure

 

	
             
 	
            Exhibit A
 

 

DELTA 2007 PERFORMANCE COMPENSATION PLAN

AWARD AGREEMENT

August 28, 2007

 

 

Richard H. Anderson

 

This Award Agreement, including Appendix A hereto (the “Agreement”), describes some of the terms of your award (the “Award”) under the Delta 2007 Performance Compensation Plan (the “Plan”).  Your Award is subject to the terms of the Plan and this Agreement.  Words beginning with a capital letter which are used but not otherwise defined in this Agreement have the meaning set forth in the Plan.  In order for this Award to become effective, you must accept the Award in accordance with the terms of Section 9 below.  This Agreement is contingent on your commencement of employment as the Chief Executive Officer of Delta Air Lines, Inc. as of September 1, 2007.  If, for any reason, your employment does not commence on that date, this Agreement shall
be null and void as of that date.

 

1.         Summary of Award.  Subject to your acceptance, your Award will include a Nonqualified Stock Option, Restricted Stock and a Performance Award as described below.  Terms applicable to your Award, including vesting and forfeitability, are included at Appendix A to this Agreement.

 

(a)        Nonqualified Stock Options.  Effective as of Saturday, September 1, 2007, (the “Grant Date”), you are hereby awarded a Nonqualified Stock Option (the “Stock Option”), exercisable for 264,300 shares of Delta Common Stock, par value $0.0001 per share (“Common Stock”).  The exercise price of the shares subject to the Stock Option will be the closing price of a share of Common Stock on the New York Stock Exchange on Friday, August 31, 2007.

 

 (b)        Restricted Stock.  As of the Grant Date, you are hereby awarded 341,900 shares of Restricted Stock.  

 

(c)        Performance Award. As of the Grant Date, you are hereby awarded a Performance Award for 124,300 shares of Common Stock at the target level.  

 

2.         Restrictive Covenants.  In exchange for the Award, you hereby agree as follows:

 

(a)       Trade Secrets. You hereby acknowledge that during the term of your employment with Delta Air Lines, Inc., its subsidiaries and affiliates (“Delta”), you will acquire knowledge of secret, confidential and proprietary information regarding Delta and its business that fits within the definition of “trade secrets” under the law of the State of Georgia, including, without limitation, information regarding Delta’s present and future operations, its financial operations, marketing plans and strategies, alliance agreements and relationships, its compensation and incentive programs for employees, and the business methods used by Delta and its employees, and
other information which derives economic value, actual or potential, from not being generally known to, and not being readily ascertainable by proper means by, other persons who can obtain economic value from its disclosure or use, and is the subject of efforts that are reasonable under the circumstances to maintain its secrecy (each, a “Trade Secret”).  You hereby agree that for so long as such information remains a Trade Secret as defined by Georgia law, you will hold in a fiduciary 

 

capacity for the benefit of Delta and shall not directly or indirectly make use of, on your own behalf or on behalf of others, any Trade Secret, or transmit, reveal or disclose any Trade Secret to any person, concern or entity.  Nothing in this Agreement is intended, or shall be construed, to limit the protections of any applicable law protecting trade secrets.  

 

 (b)         Confidential or Proprietary Information.  You further agree that you will hold in a fiduciary capacity for the benefit of Delta, and, during the term of your employment with Delta and for the two year period after such employment terminates, shall not directly or indirectly use or disclose, any Confidential or Proprietary Information, as defined hereinafter, that you acquire (whether or not developed or compiled by you and whether or not you were authorized to have access to such Confidential or Proprietary Information) during the term of, in the course of, or as a result of your employment by Delta.  Subject to the provisions set forth below, the term “Confidential or Proprietary
Information” as used in this Agreement means the following secret, confidential and proprietary information of Delta not otherwise included in the definition of Trade Secret:  all marketing, alliance, advertising and sales plans and strategies; all pricing information; all financial, advertising and product development plans and strategies; all compensation and incentive programs for employees; all alliance agreements, plans and processes; all plans, strategies, and agreements related to the sale of assets; all third party provider agreements, relationships, and strategies; all business methods and processes used by Delta and its employees; all personally identifiable information regarding Delta employees, contractors, and applicants; and all lists of actual or potential customers or suppliers maintained by Delta.  The term “Confidential and Proprietary Information” does not include information that has become generally available to the public by
the act of one who has the right to disclose such information.  Nothing in this Agreement is intended, or shall be construed, to limit the protections of any applicable law protecting confidential or proprietary information.  

 

(c)        Employee Non-Solicitation Agreement.  During the term of your employment with Delta and during the one-year period following the termination of such employment, you will not directly or indirectly (on your own behalf or on behalf of any other person, company, partnership, corporation or other entity), employ or solicit for employment any individual who is a management or professional employee of Delta for employment with any entity or person other than Delta or solicit, encourage or induce any such person to terminate their employment with Delta.  The restrictions set forth in this Section shall be limited to those Delta management or professional employees who: (i) were employed by Delta
during your employment in a supervisory or administrative job; and (ii) with whom you had material professional contact during your employment with Delta.

 

(d)       Non-Competition Agreement.  During the term of your employment with Delta and for the one-year period following the termination of such employment, you will not on your own behalf or on behalf of any person, firm, partnership, association, corporation or business organization, entity or enterprise, provide the same or substantially similar services, as an employee, consultant, partner, or in any other capacity, to any of the following entities, which you hereby acknowledge are all competitors of Delta:  AMR Corporation, American Airlines, Inc., Continental Airlines, Inc., Southwest Airlines Co., UAL Corporation, United Air Lines, Inc., US Airways, Inc., Jet Blue Airways, Inc., AirTran Airways, Inc., or Northwest
Airlines, Inc. (individually and collectively, the “Competitor”).  This restriction shall only apply to the extent that you may not provide services to the Competitor:  (a) while working within a fifty (50) 

 

2

mile radius of the city limits of Atlanta, Georgia; or (b) while working out of or within a fifty (50) mile radius of the corporate headquarters of the Competitor.

 

(e)
        Return of Property.  You hereby agree
that all property belonging to Delta, including records, files, memoranda, reports, personnel information (including benefit files, training records, customer lists,
operating procedure manuals, safety manuals, financial statements, price lists and the like), relating to the business of Delta, with which you come in contact in the course
of your employment (hereinafter “Delta’s Materials”) shall, as between the parties hereto, remain the sole property of Delta.  You hereby warrant that you shall promptly return all originals and copies of
Delta’s Materials to Delta at the time your employment terminates.

 

(f)    Cooperation.  You hereby agree that you shall, both during and after your employment with Delta, to the extent requested in writing and reasonable under the circumstances, cooperate with and serve in any capacity requested by Delta in any pending or future litigation in which Delta has an interest, and regarding which you, by virtue of your employment with Delta, have knowledge or information relevant to the litigation.  

 

3.         Dispute Resolution.  (a) Arbitration.  You hereby agree that except as expressly set forth below, all disputes and any claims arising out of or under or relating to the Award or this Agreement, including without limitation any dispute or controversy as to the validity, interpretation, construction, application, performance, breach or enforcement of this Agreement, shall be submitted for, and settled by, mandatory, final and binding arbitration in accordance with the Commercial Arbitration Rules then prevailing of the American Arbitration Association.  Unless an alternative locale is otherwise agreed in writing by the parties to this Agreement, the arbitration shall be conducted
in the City of Wilmington, Delaware.  The arbitrator will apply Delaware law to the merits of any dispute or claim without reference to rules of conflicts of law.  Any award rendered by the arbitrator shall provide the full remedies available to the parties under the applicable law and shall be final and binding on each of the parties hereto and their heirs, executors, administrators, successors and assigns and judgment may be entered thereon in any court having jurisdiction.  You hereby consent to the personal jurisdiction of the state and federal courts in the State of Delaware for any action or proceeding arising from or relating to any arbitration under this Agreement.  The prevailing party in any such arbitration shall be entitled to an award by the arbitrator of all reasonable attorneys’ fees and expenses incurred in connection with the arbitration.  However, Delta will pay all fees associated with the American Arbitration Association and the arbitrator.  All parties must
initial here for this Section 3 to be effective:

 

/s/ RHA
    Richard H. Anderson

/s/ DRG
    Delta Air Lines, Inc.—David Goode, Chairman of the Personnel & Compensation Committee of the Board

 

(b)        Injunctive Relief in Aid of Arbitration; Forum Selection.  You hereby acknowledge and agree that the provisions contained in Section 2 of this Agreement are reasonably necessary to protect the legitimate business interests of Delta, and that any breach of any of these provisions will result in immediate and irreparable injury to Delta for which monetary damages will not be an adequate remedy.  You further acknowledge that if any such provision is breached or threatened to be breached, Delta will be entitled to seek a temporary restraining order, preliminary injunction or other equitable relief in aid of arbitration in any court of competent jurisdiction without the necessity of posting a bond, restraining you from continuing to commit
any violation of the covenants, and you 

 

3

hereby irrevocably consent to the jurisdiction of the state and federal courts of the State of Delaware, with venue in Wilmington, which shall have jurisdiction to hear and determine any claim for a temporary restraining order, preliminary injunction or other equitable relief brought against you by Delta in aid of arbitration.  

 

(c)        Consequences of Breach.  Furthermore, you acknowledge that, in partial consideration for the awards described in the Plan and this Agreement, Delta is requiring that you agree to and comply with the terms of Section 2 and you hereby agree that without limiting any of the foregoing, should you violate any of the covenants included in Section 2 above, you will not be entitled to and shall not receive any Awards under the Plan and this Agreement and any outstanding Awards will be forfeited.  

 

 (d)        Tolling.  You further agree that in the event the enforceability of any of the restrictions as set forth in Section 2 of this Agreement are challenged and you are not preliminarily or otherwise enjoined from breaching such restriction(s) pending a final determination of the issues, then, if an arbitrator finds that the challenged restriction(s) is enforceable, the time period set forth in such Section shall be deemed tolled upon the filing of the arbitration or action seeking injunctive or other equitable relief in aid of arbitration, whichever is first in time, until the dispute is finally resolved and all periods of appeal have expired. 

 

(e)    Governing Law.  Unless governed by federal law, this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to principles of conflicts of laws of that State.  

 

(f)        Waiver of Jury Trial.  TO THE MAXIMUM EXTENT PERMITTED BY LAW, YOU HEREBY KNOWINGLY, VOLUNTARILY, AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN CONNECTION WITH ANY MATTER ARISING OUT OF, UNDER, IN CONNECTION WITH, OR IN ANY WAY RELATED TO THIS AGREEMENT.  THIS INCLUDES, WITHOUT LIMITATION, ANY DISPUTE CONCERNING ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENT (WHETHER VERBAL OR WRITTEN), OR ACTION OF DELTA OR YOU, OR ANY EXERCISE BY DELTA OR YOU OF OUR RESPECTIVE RIGHTS UNDER THIS AGREEMENT OR IN ANY WAY RELATING TO THIS AGREEMENT.  YOU FURTHER ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR DELTA TO ISSUE AND ACCEPT THIS AGREEMENT.

 

4.       Validity; Severability.  In the event that one or more of the provisions contained in this Agreement shall for any reason be held invalid, illegal, or unenforceable in any respect, such holding shall not affect any other provisions in this Agreement, but this Agreement shall be construed as if such invalid, illegal, or unenforceable provisions had never been contained herein.  The invalidity, illegality or unenforceability of any provision or provisions of this Agreement will not affect the validity or enforceability of any other provision of this Agreement, which will remain in full force and effect.

 

5.         Authority of the Committee.  You acknowledge and agree that the Committee has the sole and complete authority and discretion to construe and interpret the terms of the Plan and this Agreement.  All determinations of the Committee shall be final and binding for all purposes and upon all persons, including, without limitation, you and the Company, and your heirs and successors.  The Committee shall be under no obligation to construe this Agreement or 

 

4

treat the Award in a manner consistent with the treatment provided with respect to other Awards or Participants.

6.         Amendment.    This Agreement may not be amended or modified except by written agreement signed by you and Delta.

7.         Acknowledgement. By signing this Agreement:  (a) you acknowledge that you have had a full and adequate opportunity to read this Agreement and you agree with every term and provision herein, including without limitation, the terms of Sections 2, 3, 4, and 5; (b) you acknowledge that you have received and had a full and adequate opportunity to read the Plan; (c) you agree, on behalf of yourself and on behalf of any designated beneficiary and your heirs, executors, administrators and personal representatives, to all of the terms and conditions contained in this Agreement and the Plan; and (d) you consent to receive all material regarding any awards under the Plan, including any prospectuses, electronically with an e-mail notification
to your work e-mail address.

8.         Entire Agreement.  This Agreement, together with the Plan (the terms of which are made a part of this Agreement and are incorporated into this Agreement by reference), constitutes the entire agreement between you and Delta with respect to the Award. 

 

9.          Acceptance of this Award.  If you agree to all of the terms of this Agreement and would like to accept this Award, you must sign and date the Agreement where indicated below and return an original signed version of this Agreement to Mary Steele, either by hand or by mail to Department 936, P.O Box 20706, Atlanta, Georgia 30320.  If you have any questions regarding how to accept your Award, please contact Ms. Steele at (404) 715-6333.  Delta hereby acknowledges and agrees that its legal obligation to make the Award to you shall become effective when you sign this Agreement.

 

You and Delta, each intending to be bound legally, agree to the matters set forth above by signing this Agreement, all as of the date set forth below.

 

	
            DELTA AIR LINES, INC.
 
	
             

                                         
 
	
            By:
 	
            /s/ David R. Goode
 
	
             
 	
            Name:  David Goode
 Title:    Chairman

Personnel & Compensation Committee of

the Board of Directors
 

 

	
            PARTICIPANT
 
	
             

/s/ Richard H. Anderson
 
	
            Richard H. Anderson

 
 
	
            Date: 29 August 2007
 

 

5

APPENDIX A   

 

The terms of this Appendix A shall apply to the Award set forth in the Delta 2007 Performance Compensation Plan Award Agreement to which this Appendix is attached.  Words beginning with a capital letter which are used but not otherwise defined in this Appendix have the meaning set forth in the Agreement or the Plan.  For purposes of Appendix A, Richard H. Anderson is referred to as “Participant.”  This Award will be ignored for purposes of determining whether Participant has suffered a reduction that constitutes Good Reason under subsection 2(p)(v) or 2(p)(vi) of the Plan.

 

	
             
 	
            A.
 	
            STOCK OPTION.
 

1.          Exercise Period.  Subject to the terms of the Plan, including Section A of this Appendix A, the Stock Option (a) shall become exercisable with respect to one-third of the Shares on each of the first, second and third anniversaries of the Grant Date1; and (b) shall be exercisable through and including the day immediately preceding the tenth anniversary of the Grant Date (“Expiration Date”).

 

2.         Change in Exercisability and Exercise Period upon Termination of Employment.  The exercisability of the Option and the exercise period set forth in Section A.1 of this Appendix A is subject to the following terms and conditions:

 

(a)        Without Cause or For Good Reason.  Upon Participant’s Termination of Employment by the Company without Cause or by Participant for Good Reason (including the Termination of Employment of any Participant employed by an Affiliate at the time the Company sells or otherwise divests itself of such Affiliate), the Option shall become fully and immediately exercisable and shall remain exercisable, in whole or in part, during the period:  (i) beginning on the date of such termination; and (ii) ending on the earlier of (A) the second anniversary of such termination or (B) the Expiration Date.

 

(b)        Voluntary Resignation.  Upon Participant’s Termination of Employment by reason of a voluntary resignation (other than for Good Reason):  (i) any portion of the Option that is not exercisable at the time of such termination shall be forfeited; and (ii) any portion of the Option that is exercisable at the time of such termination shall remain exercisable until the earlier of (A) 90 days after such termination or (B) the Expiration Date. 

(c)        Death or Disability.  Upon Participant’s Termination of Employment due to death or Disability, the Option shall become fully and immediately exercisable and shall remain exercisable, in whole or in part, during the period:  (i) beginning on the date 

_________________________

1 The number of Shares subject to each installment will be
equal to the total number of Shares subject to the Option divided by three; provided, that if
this formula results in any fractional Share allocation to any Option Installment, the number of Shares in the first installment will be increased so that only full shares are covered by each installment.  

 

of such termination; and (ii) ending on the earlier of (A) the third anniversary of such termination or (B) the Expiration Date.

 (d)       For Cause.  Upon Participant’s Termination of Employment by the Company for Cause, the Option shall be immediately forfeited.

3.        Change in Control.  Subject to Section D of this Appendix A, upon a Change in Control which occurs prior to Participant’s Termination of Employment, the Option shall become fully and immediately exercisable and shall remain exercisable, in whole or in part, during the period (i) beginning on the date of such Change in Control; and (ii) ending on the Expiration Date; provided, however, that the unexercised portion of the Option shall be immediately forfeited upon Participant’s Termination of Employment by the Company for Cause; provided, further, that upon Participant’s Termination of Employment for any reason other than by the Company for Cause, the period to exercise the Option will end on the earlier of (i) the third anniversary of such termination or (ii) the Expiration Date.    

	
             
 	
            B.
 	
            RESTRICTED STOCK
 

1.          Restrictions.  Until the restrictions imposed by this Section B.1 (the “Restrictions”) have lapsed pursuant to Section 2, 3, 4, or 5 below, Participant will not be permitted to sell, exchange, assign, transfer, pledge or otherwise dispose of the Restricted Stock and the Restricted Stock will be subject to forfeiture as set forth below. 

 

2.         Lapse of Restrictions--Passage of Time.  Subject to the terms of the Plan and the Agreement, including Section B of this Appendix A, the Restrictions shall lapse and be of no further force or effect with respect to one-third of the Shares of Restricted Stock six (6) months after the Grant Date, with respect to one-third of the Shares of Restricted Stock eighteen (18) months after the Grant Date and with respect to one-third of the Shares of Restricted Stock thirty (30) months after the Grant Date.2

 

3.         Accelerated Lapse of Restrictions.  If, at any time during the twelve (12) month period commencing on October 30, 2007, the aggregate market value of all outstanding Shares is at least $14,000,000,000 for ten (10) consecutive trading days, as determined by the closing price of the Shares on the New York Stock Exchange, the Restrictions shall lapse and be of no further force or effect on the last day of such twelve (12) month period, provided that Participant has not had a Termination of Employment prior to such day.

4.         Lapse of Restrictions/Forfeiture upon Termination of Employment.  In addition to the other provisions of the Plan and this Agreement, the Restricted Stock and the Restrictions set forth in Section B of this Appendix A are subject to the following terms and conditions:

 

_________________________

2 The number of Shares subject to each installment will be
equal to the total number of Shares subject to the Restricted Stock Award divided by three; provided, that if this formula results in any fractional Share allocation to any installment, the number of Shares will be adjusted in the same manner as described in footnote 1 above. 

 

ii

(a)        Without Cause or For Good Reason.  Upon Participant’s Termination of Employment by the Company without Cause or by Participant for Good Reason, the Restrictions shall immediately lapse and be of no further force or effect as of the date of such termination.

 

(b)        Voluntary Resignation.  Upon Participant’s Termination of Employment by reason of a voluntary resignation (other than for Good Reason), any portion of the Restricted Stock subject to the Restrictions shall be forfeited as of the date of such termination. 

(c)        Death or Disability.  Upon Participant’s Termination of Employment due to death or Disability, the Restrictions shall immediately lapse and be of no further force or effect as of the date of such termination.

(d)       For Cause.  Upon Participant’s Termination of Employment by the Company for Cause, any portion of the Restricted Stock subject to the Restrictions shall be forfeited as of the date of such termination. 

5.         Change in Control.  Subject to Section D of this Appendix A, upon a Change in Control which occurs prior to Participant’s Termination of Employment, the Restrictions shall immediately lapse on the date of such Change in Control and be of no further force or effect as of such date.   

6.         Dividends.  In the event a cash dividend shall be paid in respect of Shares at a time the Restrictions on the Restricted Stock have not lapsed, Participant shall receive the dividend.  

	
             
 	
            C.
 	
            LONG-TERM PERFORMANCE AWARDS.
 

1.          Payout Criteria.  Except as otherwise expressly set forth in this Appendix A, the actual number of Shares paid, if any, to Participant under the Performance Award will be based on (a) the Company’s EBITDAR performance and (b) the occurrence of a contemporaneous annual payout under the Company’s broad-based employee Profit Sharing Program (a “Profit Sharing Payout”), as described below.

 

2.         Annual Vesting Opportunities for 2007 and 2008.  Subject to the terms of the Plan and the Agreement, including Section C of this Appendix A, Performance Awards will be subject to the following vesting opportunities in 2007 and 2008.   

(a)        Calendar Year 2007.  If the Company (i) has achieved EBITDAR of at least $2,838,000,000 for the year ending December 31, 2007 and (ii) made a Profit Sharing Payout for 2007, a number of Shares equal to 15% of the Performance Award (rounded up to the nearest whole share) shall vest and be paid.    

 

 (b)        Calendar Year 2008.  If the Company (i) has achieved cumulative EBITDAR of at least $6,295,000,000 for the two year period ending December 31, 2008 and (ii) made  a Profit Sharing Payout for 2008, a number of Shares equal to 15% of the Performance Award (rounded up to the nearest whole share) shall vest and be paid.  

(c)        Condition Precedent.  No Performance Awards will vest or be paid under this Section C.2 with respect to any year for which there is no Profit Sharing Payout.  

 

iii

(d)       Timing of Payment.  The Company will pay Performance Awards that vest under this Section C.2 as soon as practicable after the determination that the payment criteria described in this Section have been met.

3.         Vesting Opportunity for 2009; Payment of Vested Shares.  Subject to the terms of the Plan and the Agreement, including Section C of this Appendix A, the Performance Award shall vest, as described in this Section 3, as of December 31, 2009, to the extent the Company meets or exceeds the EBITDAR goals described below.  If the Company does not meet the Threshold Level, as defined below, any unpaid portion of the Performance Award will lapse and become void as of December 31, 2009. 

(a)        Threshold Vesting.  If the Company has achieved cumulative EBITDAR of $7,433,000,000 (“Threshold Level”) for the three year period ending December 31, 2009, the Performance Award will vest with respect to a number of Shares equal to (i) 50% of the Performance Award, (ii) minus the number of Shares, if any, paid to Participant under Section C.2 above.  The remaining unvested portion of the Performance Award will lapse and become void. 

(b)        Target Vesting.  If the Company has achieved cumulative EBITDAR of $9,911,000,000 (“Target Level”) for the three year period ending December 31, 2009, the Performance Award will vest with respect to a number of Shares equal to (ii) 100% of the Performance Award, (ii) minus the number of Shares, if any, paid to Participant under Section C.2 above.    

(c)        Maximum Vesting.  If the Company has achieved cumulative EBITDAR of at least $11,849,000,000 (“Maximum Level”) for the three year period ending December 31, 2009, the Performance Award will vest with respect to a number of Shares equal to (i) 150% of the Performance Award, (ii) minus the number of Shares, if any, paid to Participant under Section C.2 above. 

(d)        Vesting by Interpolation.  If the Company has achieved cumulative EBITDAR for the three year period ending December 31, 2009 which is above the Threshold Level but below the Target Level, or above the Target Level but below the Maximum Level, the Performance Award will vest with respect to a number of Shares equal to (i) the Specified Percentage of the Performance Award, (ii) minus the number of Shares, if any, paid to Participant under Section C.2 above.  For purposes of this Section 3(d), the “Specified Percentage” will be determined by interpolating on a straight line basis as follows:  (i) between Threshold Level (at which 50% of the Performance Award vests) and Target Level (at which 100% of the Performance Award vests) if the
Company’s cumulative EBITDAR for the three year period ending December 31, 2009 is above the Threshold Level and below the Target Level; and (ii) between Target Level (at which 100% of the Performance Award vests) and Maximum Level (at which 150% of the Performance Award vests) if the Company’s cumulative EBITDAR for the three year period ending December 31, 2009 is above the Target Level and below the Maximum Level.3

_________________________

3 The interpolation calculation is a four step process.  The following is the calculation for a cumulative EBITDAR that is between Threshold Level and Target Level:

Step 1:  Subtract the cumulative EBITDAR achieved from $9,911,000,000 (Target Level).

Step 2:  Divide the total in Step 1 by $2,478,000,000 (the difference between Target Level and Threshold Level).

Step 3:  Multiply the result of Step 2 by 50% or 0.50 (the difference between 100% target vesting and 50% threshold vesting).  Round up to the nearest thousandth; in other words, 0.456908 would be rounded up to 0.457

Step 4:  The fraction resulting from Step 3 is the percentage subtracted from the 100% target vesting level to determine the actual percentage of the Participant’s Performance Award that will vest.

 

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(e)        Definition of EBITDAR.  “EBITDAR” means, with respect to any fiscal period of the Company, an amount equal to the consolidated operating income of the Company and its subsidiaries during such fiscal period, determined prior to the charges, costs, and expenses associated with depreciation, amortization, and aircraft rent, based on regularly prepared and publicly available statements of operations of the Company, prepared in accordance with generally accepted accounting principals (“GAAP”); provided, however, that EBITDAR shall be adjusted to exclude the following items, in each
case as determined by the Committee, where applicable, in accordance with GAAP and only to the extent to which these items impact the Company’s consolidated operating income:  (i) all asset write downs related to long term assets; (ii) gains or losses with respect to employee equity securities; (iii) gains or losses incurred as a consequence of “fresh start accounting”; and (iv) gains or losses with respect to extraordinary, one-time or non-recurring events.

 

 (f)         Condition Precedent.  No Shares that vested under this Section C.3 will be paid to Participant until there is a Profit Sharing Payout for 2009 or a subsequent year. 

(g)        Timing of Payment.  The Company will pay Participant any Shares that vest under this Section C.3 as soon as practicable after the determination that the payment criteria described in this Section have been met.   

4.         Accelerated Vesting/Forfeiture upon Termination of Employment.  In addition to the other provisions of the Plan and this Agreement, the Performance Award is subject to the following terms and conditions:

 

(a)        Without Cause or For Good Reason.  Upon Participant’s Termination of Employment by the Company without Cause or by Participant for Good Reason (including the Termination of Employment of Participant is employed by an Affiliate at the time the Company sells or otherwise divests itself of such Affiliate), Participant will be entitled to any Shares that become payable under Section C.2 and/or Section C.3 in the same manner and to the same extent as if Participant’s employment had continued. 

 

(b)        Voluntary Resignation.  Upon Participant’s Termination of Employment by reason of a voluntary resignation (other than for Good Reason), Participant will immediately forfeit any unpaid portion of the Performance Award as of the date of such termination. 

(c)        Death or Disability.  Upon Participant’s Termination of Employment by reason of death or Disability, the number of Shares subject to the target Performance 

 

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Award as of the date of such termination will be recalculated and will be the result of the following formula (the “Adjusted Performance Award”):  S × (T ÷ E) where, 

 

S = the total number of Shares subject to Participant’s Performance Award as of the Grant Date; 

T = the number of calendar months from the Grant Date to the date of such Termination of Employment (rounded up for any partial month); and 

E = the number of calendar months from the Grant Date to December 31, 2009 (rounded up for any partial month).

 

The Shares subject to the Adjusted Performance Award will become immediately vested and will be paid as soon as practicable thereafter to Participant or Participant’s estate, as applicable.

 

(d)       For Cause.  Upon Participant’s Termination of Employment by the Company for Cause, Participant will immediately forfeit any unpaid portion of the Performance Award as of the date of such termination. 

5.         Change in Control.  Subject to Section D of this Appendix A, upon a Change in Control, any Performance Award not previously forfeited under Section 4(b) or  Section 4(d), or settled under Section 4(c), shall immediately vest and be paid to Participant as soon as practicable without regard to whether a Profit Sharing Payout has been made.  The number of Shares to be paid to Participant in respect of the Performance Award shall be equal to 100% of the number of Shares subject to the Performance Award minus the number of Shares paid, if any, under Section C.2 above to Participant.     

	
             
 	
            D.
 	
            Gross-Up for Certain Taxes.
 

1.          Gross-Up Payments.  In the event that Participant becomes entitled to benefits under the Plan, the Company shall pay to Participant an additional lump sum payment (the “Gross-Up Payment”), in cash, equal to the amounts, if any, described in sub-section (a), subject to sub-section (b), below:

 

(a)  Subject to sub-section (b) below, if any portion of any payment under the Plan, when taken together with any payment under any other agreement with or plan of the Company (in the aggregate “Total Payments”) would be subject to the excise tax imposed by Section 4999 of the Code or any interest or penalties with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then Participant shall be entitled under this paragraph to an additional amount such that after payment by  Participant of all Participant’s applicable federal, state and local taxes, including any Excise Tax, imposed upon such additional amount, Participant will retain an amount sufficient
to pay the Excise Tax imposed on the Total Payments.

 

(b)  Notwithstanding the provisions of sub-section (a) above, if it shall be determined that Participant would be entitled to a Gross-Up Payment, but that the Total Payments would not be subject to the Excise Tax if the Total Payments were reduced by an amount that is less than 10% of the portion of the Total Payments that 

 

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would be treated as “parachute payments” under Section 280G of the Code, then the amounts payable to Participant shall be reduced (but not below zero) to the maximum amount that could be paid to Participant without giving rise to the Excise Tax (the “Safe Harbor Cap”), and no Gross-Up Payment shall be made to Participant.  Such reduction of the amounts payable to the Safe Harbor Cap, if applicable, shall be made by reducing payments comprising the Total Payments in such order as elected by Participant.

 

The amounts payable under this Section D.1 shall be paid by the Company as soon as practicable (but in no event more than 30 days) after the occurrence of the events giving rise to Participant’s right to benefits under the Plan.

 

2.          Determinations.  In the event of a Change in Control, all determinations required to be made under Section D.1 above, including the amount of the Gross-Up Payment, whether a payment is required under Section D.1 above, and the assumptions to be used in determining the Gross-Up Payment, shall be made by the nationally  recognized accounting firm generally used by the Company as its financial auditor (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and Participant within twenty business days of the receipt of notice from Participant that there has been an event giving rise to the right to benefits under Section D.1 above, or such earlier time as is
requested by the Company.  In the event that the Accounting Firm is serving as accountant or auditor for a person effecting the Change in Control or is otherwise unavailable, Participant may appoint another nationally recognized accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder).  All fees and expenses of the Accounting Firm shall be borne solely by the Company.

 

3.          Subsequent Redeterminations.  Unless requested otherwise by the Company, Participant must use reasonable efforts to contest in good faith any subsequent determination by the Internal Revenue Service that Participant owes an amount of Excise Tax greater than the amount previously determined under paragraph (a); provided, however, that Participant shall be entitled to reimbursement by the Company of all fees and expenses reasonably incurred by Participant in contesting such determination.  In the event the Internal Revenue Service or any court of competent jurisdiction determines that Participant owes an amount
of Excise Tax that is either greater or less than the amount previously taken into account and paid under Section D.1, the Company shall promptly pay to Participant, or Participant shall promptly repay to the Company, as the case may be, the amount of such excess or shortfall.  In the case of any payment that the Company is required to make to Participant pursuant to the preceding sentence (a “Later Payment”), the Company shall also pay to Participant an additional amount such that after payment  by Participant of all Participant’s applicable federal, state and local taxes on such additional amount, Participant will retain an amount sufficient to pay the total of Participant’s applicable federal, state and local taxes arising due to the Later Payment.  In the case of any repayment of Excise Tax that Participant is required to make to the Company pursuant to the second sentence of this Section D.3, Participant shall
also repay to the Company the amount of any additional payment received by Participant from the Company in respect of applicable federal, state and local taxes on such repaid Excise  Tax, to the extent Participant is entitled to a refund of (or has not yet paid) such federal, state or local taxes. 

 

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