Delta Airlines 2003 Annual Report Download - page 50

Table of Contents
ESOP Preferred Stock. Delaware General Corporation Law ("Delaware law") provides that a company may pay dividends on its stock only (1) out of its
"surplus," which is generally defined as the excess of a company's net assets over the aggregate par value of its issued stock, or (2) from its net profits for the
fiscal year in which the dividend is paid or from its net profits for the preceding fiscal year. Delaware law also prohibits a company from redeeming or
purchasing its stock for cash or other property, unless the company has sufficient "surplus."
Because we expected to have, and did in fact have, a negative "surplus" at December 31, 2003, our Board of Directors took the following actions, effective
in December 2003, related to our ESOP Preferred Stock to comply with Delaware law:
• Suspended indefinitely the payment of dividends on our ESOP Preferred Stock. Unpaid dividends on the ESOP Preferred Stock will accrue without
interest, until paid, at a rate of $4.32 per share per year. The ESOP Preferred Stock is held by Fidelity Management Trust Company in its capacity as
trustee for the Delta Family-Care Savings Plan, a broad-based employee benefit plan ("Savings Plan").
• Changed the form of payment we use to redeem shares of ESOP Preferred Stock when redemptions are required under the Savings Plan. For the
indefinite future, we will pay the redemption price of the ESOP Preferred Stock in shares of our common stock rather than in cash.
At December 31, 2003, approximately 5.8 million shares of ESOP Preferred Stock were held by the Savings Plan. About 3.8 million shares of ESOP
Preferred Stock are currently allocated to the accounts of Savings Plan participants; the remainder of the shares is available for allocation in the future.
We are generally required to redeem shares of ESOP Preferred Stock (1) to provide for distributions of the accounts of Savings Plan participants who
terminate employment with us and request a distribution and (2) to implement annual diversification elections by Savings Plan participants who are at least
age 55 and have participated in the Savings Plan for at least ten years. In these circumstances, shares of ESOP Preferred Stock are redeemable at a price equal
to the greater of (1) $72.00 per share or (2) the fair value of the shares of our common stock issuable upon conversion of the ESOP Preferred Stock to be
redeemed, plus, in either case, accrued but unpaid dividends on such shares of ESOP Preferred Stock. Under the terms of the ESOP Preferred Stock, we may
pay the redemption price in cash, shares of our common stock (valued at fair value), or in a combination thereof. Each share of ESOP Convertible Preferred
Stock is convertible into 1.7155 shares of our common stock, subject to adjustment in certain circumstances.
During 2003, an average of approximately 20,000 shares of ESOP Preferred Stock was redeemed each month under the Savings Plan, resulting in an
average aggregate monthly redemption price of $1.4 million plus accrued and unpaid dividends. At this rate, and assuming a Delta common stock price of
$12.00 per share, we estimate that we will issue approximately 3.5 million shares of our common stock during 2004 and 2005 to redeem ESOP Preferred
Stock. The actual number of shares of our common stock issued may differ materially from this estimate because the actual number of shares will depend on
various factors, including the duration of the period during which we may not redeem ESOP Preferred Stock for cash under Delaware Law;
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