US Airways 2005 Annual Report Download - page 54

Table of Contents
Under the amended credit card agreement, Juniper will pay to US Airways Group fees for each mile awarded to each credit card account administered by
Juniper, subject to certain exceptions. Juniper also agreed to pay a one-time bonus payment of $130 million, following the effectiveness of the merger, subject
to certain conditions. The bonus payment was made to AWA on October 3, 2005. Juniper will pay an annual bonus of $5 million to US Airways Group,
subject to certain exceptions, for each year after Juniper becomes the exclusive issuer of the co-branded credit card. If Juniper is not granted exclusivity to
offer a co-branded credit card after the dual branding period with Bank of America, US Airways Group must repay the $130 million bonus amount and
repurchase unused pre-paid miles with interest, plus $50 million in liquidated damages.
On October 3, 2005 Juniper pre-paid for miles from US Airways Group totaling $325 million, subject to the same conditions as apply to the $130 million
bonus payment. To the extent that these miles are not used by Juniper as allowed under the co-branded credit card program in certain circumstances,
US Airways Group will repurchase these miles in 12 equal quarterly installments beginning on the fifth year prior to the expiration date of the co-branded
credit card agreement with Juniper, until paid in full. US Airways Group makes monthly interest payments at LIBOR plus 4.75% to Juniper, beginning on
November 1, 2005, based on the amount of pre-purchased miles that have not been used by Juniper in connection with the co-branded credit card program and
have not been repurchased by US Airways Group. US Airways Group will be required to repurchase pre-purchased miles under certain reductions in the
collateral held under the credit card processing agreement with JPMorgan Chase Bank, N.A. Accordingly, the prepayment has been recorded as additional
indebtedness in the consolidated financial statements of AWA.
Juniper requires US Airways Group to maintain an average quarterly balance of cash, cash equivalents and short-term investments of at least $1 billion for
the entirety of the agreement. Further, the agreement requires US Airways Group to maintain certain financial ratios beginning January 1, 2006. Juniper may,
at its option, terminate the amended credit card agreement, make payments to US Airways Group under the amended credit card agreement in the form of pre-
purchased miles rather than cash, or require US Airways Group to repurchase the pre-purchased miles before the fifth year prior to the expiration date in the
event that US Airways Group breaches its obligations under the amended credit card agreement, or upon the occurrence of certain events.
Restructuring of Credit Card Processing Agreement — In connection with the merger, AWA, JPMorgan Chase Bank, N.A., successor-in-interest to
JPMorgan Chase Bank, and Chase Merchant Services, L.L.C. (collectively, "Chase"), entered into the First Amendment to the Merchant Services Bankcard
Agreement on August 8, 2005. Pursuant to the amended card processing agreement, Chase will perform authorization, processing and settlement services for
sales on Visa and Mastercard for AWA and US Airways following the merger. The original card processing agreement is guaranteed by America West
Holdings, and US Airways Group executed a guaranty of the amended card processing agreement on the effective date of the merger.
US Airways' credit card processing is currently administered by Bank of America and these processing services are expected to be transferred to Chase on
or before April 25, 2006. US Airways will become a party to the amended card processing agreement at the time that Chase begins processing for
US Airways.
The amended card processing agreement took effect at the effective time of the merger and continues until the expiration of the initial term, which is three
years from the effective date. Upon expiration of the initial term, the amended card processing agreement will automatically renew for successive one-year
periods pursuant to the terms of the agreement.
Under the amended card processing agreement, AWA will pay to Chase fees in connection with card processing services such as sales authorization,
settlement services and customer service. AWA and US Airways are also required to maintain a reserve account to secure Chase's exposure to outstanding air
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