US Airways 2005 Annual Report Download - page 83

Table of Contents
of America against US Airways Group, US Airways and AWA. (See Part I, Item 3, "Legal Proceedings")
The amended credit card agreement with Juniper took effect at the effective time of the merger and the credit card services provided by Juniper under the
amended credit card agreement commenced in early January 2006, and will continue until the expiration date, which is the later of December 31, 2012 or
seven years from the date on which Juniper commences marketing to the general public.
Under the amended credit card agreement, Juniper pays 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 and 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. The one-time bonus was paid to AWA on October 3, 2005. 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 this bonus payment 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 described above. 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 those 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 77