SOURCE: The Arizona Republic http://www.azcentral.com/arizonarepublic/business/articles/0629amwest29.html AmWest-US Air merger's details revealed SEC filing features items of note for investors Dawn Gilbertson The Arizona Republic Jun. 29, 2005 12:00 AM America West Airlines and US Airways weren't formally engaged until last month, but the pair began flirting well over a year ago. The long-distance courtship began in February 2004, according to new merger documents filed Tuesday with securities regulators. It was a case of opposites attracting: America West was strong on the West Coast, US Airways on the East. The airlines broke up last summer over money differences (US Airways' expenses were too high) but by the end of the year were talking about getting back together because US Airways was in better shape. They did, in January, and cemented the relationship with a merger announcement on May 19. The new airline will be based in Tempe but called US Airways. advertisement The background of the initially hush-hush merger talks was among a host of disclosures in a 386-page legal document the two companies filed with the Securities and Exchange Commission. There were no blockbuster revelations involving board dissent over the merger or competing offers or rich insider deals. One airline analyst called the document standard. Still, there were some noteworthy disclosures for shareholders to mull over as they decide whether to approve the merger later this summer: ? America West's board is considering a new agreement with Chief Executive Officer Doug Parker under which he would waive the severance rights in his employment contract. The severance portion of the pact ensures he will be paid a multiple of his salary and bonuses, among a host of other benefits, if he leaves voluntarily within 24 months of a merger or related transaction. The SEC document doesn't say why the board wants him to waive those rights, or what Parker will receive in exchange. Spokeswoman Elise Eberwein said, "Clearly the board is interested in Doug leading this new company and doing so for the foreseeable future." ? America West's board members, executive officers and their spouses receive lifetime travel benefits for first-class travel. ? The two airlines expect hefty expenses from combining their operations. The costs, which are still being calculated, include expenses for severance, relocation and closing facilities, on both sides. Some will be booked before the merger, and others will be booked as restructuring charges after the deal closes, initially hurting the new company's bottom line. ? America West's financial adviser, Greenhill & Co., will be paid $7.5 million when the merger is completed. It received $200,000 of that up front. If the deal doesn't happen, Greenhill is entitled to 20 percent of any breakup fee. The breakup fee if either airline calls off the deal is $15 million. ? The new airline's proposed bylaws may make it more difficult for shareholders to unseat members of the board or for suitors to make a takeover bid. The provisions include early deadlines to file shareholder proposals to be considered at the annual meeting. ? The largest individual shareholder in the new US Airways after the merger will be Wellington Management Co., a Boston-based latecomer to the merger party with a commitment of $150 million in equity a week after the merger was announced. It will own about 9 million shares, or 16 percent. Close behind is the parent of Air Wisconsin, another major investor, at 15 percent. Together, the new equity investors will control 49 percent of the new company. That compares with 39 percent for current America West shareholders, who will get 0.4125 of a share of the new company for each share of America West they currently own. Fractional shares will be paid in cash. ? Texas Pacific Group, the firm that helped bring America West out of bankruptcy in 1994, will get a 30 percent premium for its America West shares. It has a special class of shares and controls 55 percent of the voting power of the current America West, but will have regular shares in the new company. It will receive 0.5362 of a share for each current share. TPG, a veteran airline turnaround investor, is receiving a separate $6.4 million fee for advising America West on merger financial issues. TPG has a representative on America West's board. ? The parent of Air Canada, which is investing $75 million in the new airline, seems to have driven a hard bargain for its contribution. One of its conditions to doing the deal: the new airline must make at least $280 million a year in maintenance work immediately available to be outsourced to a subsidiary of Air Canada. America West executives said that the key words are "made available" and that the contract will be awarded only if the price is competitive. The airline's maintenance outsourcing is currently done in Goodyear, Georgia and El Salvador. Analyst Ray Neidl of Calyon Securities in New York said Air Canada Technical Services has a "very good" reputation for its aircraft maintenance.