Warrant To Purchase Common Stock/Air Transportation Stabilization Board

THIS WARRANT AND THE UNDERLYING SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO SUCH SECURITIES UNDER THE SECURITIES ACT UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE


US AIRWAYS GROUP, INC.
WARRANT TO PURCHASE COMMON STOCK


NO. PW-1 September 27, 2005


VOID AFTER January 18, 2012


THIS CERTIFIES THAT, for value received, Air Transportation Stabilization Board, with its principal office at 1120 Vermont Avenue, Suite 970, Washington, DC 20005, and/or its transferees and assigns (individually or collectively, the "HOLDER"), is entitled to purchase at the Exercise Price (defined below) from US Airways Group, Inc., a Delaware corporation, with its principal office at 111 West Rio Salado Parkway, Tempe, AZ 85281 (the "COMPANY"), 7,735,770 shares of common stock, par value $0.01 per share, of the Company (the "COMMON STOCK"), as provided herein. This Warrant is being delivered to the Holder in replacement of and upon delivery for cancellation by the Holder to America West Holdings Corporation ("AMERICA WEST HOLDINGS") of the warrant issued to the Holder on January 18, 2002 by America West Holdings.


1. DEFINITIONS. As used herein, the following terms shall have the following respective meanings:


"AFFILIATE" shall mean, as to any specified Person, any other Person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified Person. For the purposes of this definition, "control," when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise and the terms "affiliated," "controlling" and "controlled" have meanings correlative to the foregoing.


"APPLICABLE PRICE" shall mean:


(i) for purposes of any issuance of Additional Shares of Common Stock (as defined below) under Section 5.4, the greater of (A) the Fair Market Value of a share of the class of Common Stock being issued (or, if being issued in an underwritten offering, the Market Price on the day that such offering is being priced), and (B) the then effective Exercise Price; and


(ii) for purposes of any issuance under Section 5.1(b), the greater of (A) the Market Price on the date of such issuance, and (B) the then effective Exercise Price.


"AWA LOAN AGREEMENT" means that certain Amended and Restated Loan Agreement dated as of the date hereof among America West Airlines, Inc. as borrower thereunder, the Company, the subsidiaries of the Company from time to time party thereto, Citibank, N.A., in its capacity as Initial Lender thereunder, Citibank, N.A., in its capacity as agent thereunder, Wilmington Trust Company, as Collateral Agent and the Air Transportation Stabilization Board
"BUSINESS DAY" shall mean each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on which banking institutions in New York, New York are authorized or obligated by law or executive order to close.


"COMMON STOCK" shall mean the Common Stock of the Company, and all other stock of any class or classes (however designated) of the Company from time to time outstanding, the holders of which have the right, without limitation as to amount, either to all or to a share of the balance of current dividends or liquidating distributions after the payment of dividends and distributions on any shares entitled to preference.


"EXERCISE PERIOD" shall mean the time period commencing with the date hereof and ending at 5:00 p.m. New York time on the tenth anniversary of the date hereof.


"EXERCISE PRICE" shall mean seven dollars and twenty seven cents ($7.27) per share, subject to adjustment pursuant to Section 5 below.


"EXERCISE SHARES" shall mean the shares of the Common Stock issuable upon exercise of this Warrant, subject to adjustment pursuant to the terms herein, including but not limited to adjustment pursuant to Section 5 below and shall also mean any other shares, securities, assets or property otherwise issuable upon exercise of this Warrant.


"EXCLUDED ISSUANCE" shall mean:


(a) shares of Common issued upon exercise of this Warrant or the warrants issued on or prior to the date hereof to General Electric Capital Corporation, AFS Cayman Limited, debis AirFinance Leasing USA I, Inc. and Citibank N.A. (this Warrant and such other warrants, collectively, the "Loan Warrants") or upon conversion of the America West Holding's outstanding 7.5% Convertible Senior Notes due 2009 or in exchange for America West Airlines, Inc. 7.25% Senior Exchangeable Notes due 2023;


(b) shares of Common Stock issued (i) in connection with the plan of reorganization of the Company and its domestic subsidiaries (the "PLAN OF REORGANIZATION"), (ii) pursuant to an underwritten public offering pursuant to the Company's registration statement on Form S-1, File No. 333-126226 (the "PUBLIC OFFERING"), (iii) upon exercise of certain options granted pursuant to the Letter Agreement, dated September 16, 2005 between the Company, America West Holdings, Par Investment Partners, L.P., Peninsula Investment Partners, L.P., ACE Aviation Holdings Inc., Eastshore Aviation, LLC, Wellington Investors and Tudor Investors, (iv) upon conversion of convertible notes issued pursuant to a private placement of $125 million in principal amount of convertible notes, plus the initial purchasers' over-allotment option (the "PRIVATE PLACEMENT") or (v) upon the exercise of options granted to the Air Line Pilots Association ("ALPA")as contemplated by the Letter Agreement between the Company, US Airways and ALPA, dated as of September 14, 2005.


(c) (i) shares of Common Stock granted as restricted stock units pursuant to the US Airways Group, Inc. 2005 Equity Incentive Plan ("RSUS") or ( ii) shares of Common Stock and/or options, warrants or other Common Stock purchase rights issued and the Common Stock issued pursuant to such options, warrants or other rights after the date hereof to employees,


2. officers or directors of, or consultants or advisors to the Company or any subsidiary pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board (the "PLANS"); provided that such shares, options, warrants or other Common Stock purchase rights (other than RSUs) and the Common Stock issued pursuant to such options, warrants or other rights shall not be Excluded Issuances in any case where the grantee acquires the shares, or options, warrants or other rights to purchase Common Stock at a price per share less than the Market Price on the date of grant;


(d) shares of Common Stock issued pursuant to the exercise of rights, options, warrants or convertible securities outstanding as of the date hereof; and


(e) shares of Common Stock issued to any charitable organization described in Section 170(c) of the Internal Revenue Code of 1986, as amended, provided that no more than 50,000 shares are issued in any fiscal year pursuant to this clause (e).


"FAIR MARKET VALUE" shall mean,


(i) with respect to a share of Common Stock, or any other security of the Company or any other issuer:


(a) the average daily Market Price during the period of the most recent twenty (20) Trading Days, ending on the last Trading Day before the date of determination of Fair Market Value, if such class of Common Stock or other security is (i) traded on a national securities exchange or admitted to unlisted trading privileges on such an exchange, or (ii) is quoted on the National Market System of the Nasdaq Stock Market (the "NATIONAL MARKET SYSTEM") or the Nasdaq Small Cap Market (the "SMALL CAP MARKET"); or


(b) if such class of Common Stock or other security is not then so listed, admitted to trading or quoted, the Fair Market Value shall be the Market Price on the last Business Day before the date of determination of Fair Market Value; or


(ii) with respect to any assets or property other than cash or Common Stock or other securities, the fair market value as determined in accordance with the Valuation Procedure.


"MARKET PRICE" shall be, as of any specified date with respect to any share of any class of Common Stock or any other security of the Company or any other issuer, if such class of Common Stock or other security is traded on a national securities exchange or admitted to unlisted trading privileges on such an exchange, or is quoted on the National Market System or the Small Cap Market, the last reported share or unit sale price of such class of Common Stock or other security on such exchange or on the National Market System or the Small Cap Market on such date or if no such sale is made on such day, the mean of the closing bid and asked prices for such day on such exchange or on the National Market System or the Small Cap Market; provided that if such class of Common Stock or other security is not so listed or admitted to unlisted trading privileges or quoted, the Market Price as of a specified date shall be the mean of the last bid and asked prices reported on such date (x) by the Nasdaq or (y) if reports are unavailable under clause (x) above by the National Quotation Bureau Incorporated; provided further that if such class of Common Stock or other security is not so listed or admitted to unlisted trading privileges or quoted and bid and ask prices are not reported, the Market Price shall be determined in accordance with the Valuation Procedure.


3.
"PARTICIPATING SECURITIES" shall mean, (i) any equity security (other than Common Stock) that entitles the holders thereof to participate in liquidations or other distributions with the holders of Common Stock or otherwise participate in the capital of the Company other than through a fixed or floating rate of return on capital loaned or invested, and (ii) any stock appreciation rights, phantom stock rights, or any other profit participation rights with respect to any of the Company's capital stock or other equity ownership interest, or any rights or options to acquire any such rights; provided that any stock appreciation rights, phantom stock rights or any other profit participation rights, or any rights or options to acquire such rights, issued pursuant to any of the Plans shall not be deemed a Participating Security if their grant or issuance would constitute an Excluded Issuance.


"PERSON" shall mean any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, estate, unincorporated organization or government or any agency or political subdivision thereof, or any entity whatsoever.


"RECORD DATE" shall mean, with respect to any dividend, other distribution or issuance, the record date for the determination of stockholders entitled to receive such dividend, distribution or issuance, or if no such record date exists, the date of such dividend, distribution or issuance.


"TRADING DAY" shall mean, with respect to any class of Common Stock or any other security of the Company or any other issuer a day (i) on which the securities exchange or other trading platform applicable for purposes of determining the Market Price of a share or unit of such class of Common Stock or other security shall be open for business or (ii) for which quotations from such securities exchange or other trading platform of the character specified for purposes of determining such Market Price shall be reported.


"US AIRWAYS LOAN AGREEMENT" means that certain Amended and Restated Loan Agreement dated as of the date hereof among US Airways, Inc., as borrower thereunder, the Company, the subsidiaries of the Company from time to time party thereto, the several lenders from time to time party thereto, Citibank, N.A., as Agent, Citicorp North America, Inc., as Govco Administrative Agent, Wilmington Trust Company, as Collateral Agent and the Air Transportation Stabilization Board.


"VALUATION PROCEDURE" shall mean a determination made in good faith by the Board of Directors of the Company (the "BOARD") that is set forth in resolutions of the Board that are certified by the Secretary of the Company, which certified resolutions (i) set forth the basis of the Board's determination, which, in the case of a valuation in excess of $10.0 million, shall include the Board's reliance on the valuation of a nationally recognized investment banking or appraisal firm, and (ii) are delivered to the Holder within ten (10) Business Days following such determination. A Valuation Procedure with respect to the value of any capital stock shall be based on the price that would be paid for all of the capital stock of the issuer in an arm's-length transaction between a willing buyer and a willing seller (neither acting under compulsion).


2. EXERCISE OF WARRANT.


2.1 EXERCISE. This Warrant may be exercised in whole or in part at any time during the Exercise Period, by delivery of the following to the Company at its address set forth above (or at such other address as it may designate by notice in writing to the Holder):


4.
(a) an executed Notice of Exercise in the form attached hereto;


(b) payment of the Exercise Price (i) in cash or by check, (ii) by cancellation of indebtedness, including, without limitation, indebtedness owing to the Holder under the US Airways Loan Agreement and the AWA Loan Agreement or (iii) pursuant to Section 2.2 hereof; and


(c) this Warrant.


Upon the exercise of this Warrant, a certificate or certificates (or other evidence of ownership generally provided to holders of Common Stock) for the Exercise Shares so purchased, registered in the name of the Holder or such other Person as may be designated by the Holder (to the extent such transfer is not validly restricted and upon payment of any transfer taxes that are required to be paid by the Holder in connection with any such transfer), shall be issued and delivered to the Holder or such other Person as soon as practicable (and in any event within five Business Days) after this Warrant shall have been exercised. If this Warrant shall not have been exercised in full, a new Warrant exercisable for the number of Exercise Shares remaining shall be executed by the Company and delivered at the same time as the certificate for the Exercise Shares that are being issued.


The Person in whose name any certificate or certificates (or other applicable evidence of ownership) for the Exercise Shares are to be issued upon exercise of this Warrant shall be deemed to have become the holder of record of such shares on the date on which this Warrant was surrendered and payment of the Exercise Price was made, irrespective of the date of delivery of such certificate or certificates, except that, if the date of such surrender and payment is a date when the stock transfer books of the Company are closed, such Person shall be deemed to have become the holder of such shares at the close of business on the next succeeding date on which the stock transfer books are open (whether before or after the end of the Exercise Period).


2.2 NET EXERCISE. Notwithstanding any provision herein to the contrary, if the Market Price of one share of the Common Stock is greater than the Exercise Price (at the date of calculation as set forth below), in lieu of exercising this Warrant by payment of cash, check or cancellation of indebtedness, the Holder may elect (the "CONVERSION RIGHT") to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Notice of Exercise in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula:


X = Y (A-B)
-------
A


Where X = the number of shares of Common Stock to be issued


Y = the number of shares of Common Stock purchasable under this Warrant or, if only a portion of this Warrant is being exercised, the portion of this Warrant being exercised (at the date of such calculation)


A = the Market Price of one share of the Common Stock (at the date of such calculation)


5.
B = Exercise Price (as adjusted pursuant to Section 5 hereof to the date of such calculation)


The Company shall pay all reasonable administrative costs incurred by the Holder in connection with the exercise of the Conversion Right by the Holder pursuant to this Section 2.2.


3. COVENANTS AND REPRESENTATIONS OF THE COMPANY; SECURITIES MATTERS.


3.1. COVENANTS AS TO EXERCISE SHARES.


(a) The Company covenants and agrees that all Exercise Shares that may be issued upon the exercise of this Warrant will, upon issuance, be validly authorized, issued and outstanding, fully paid and nonassessable, free of preemptive rights and free from all taxes, liens and charges with respect to the issuance thereof. If the Common Stock or the class of securities of any other Exercise Shares is then listed or quoted on a national securities exchange, the National Market System or the Small Cap Market, all such Exercise Shares upon issuance shall also be so listed or quoted. The Company further covenants and agrees that the Company will at all times during the Exercise Period, have authorized and reserved solely for purposes of the exercise of this Warrant, free from preemptive rights, a sufficient number of shares of its Common Stock or the class of securities of any other Exercise Shares to provide for the exercise in full of this Warrant (without taking into account any possible exercise pursuant to Section 2.2 hereof). If at any time during the Exercise Period the number of authorized but unissued shares of Common Stock or the class of securities of any other Exercise Shares shall not be sufficient to permit exercise in full of this Warrant (without taking into account any possible exercise pursuant to Section 2.2 hereof), the Company will take such corporate action as shall be necessary to increase its authorized but unissued shares of Common Stock or the class of securities of any other Exercise Shares to such number of shares as shall be sufficient for such purposes.


(b) In the event that at any time, including as a result of any provision of Section 5, the Exercise Shares shall include any shares or other securities other than shares of Common Stock, or any other property or assets, the terms of this Warrant shall be modified or supplemented (in the absence of express written documentation thereof, shall be deemed to be so modified or supplemented), and the Company shall take all actions as may be necessary to preserve, in a manner and on terms as nearly equivalent as practicable to the provisions of this Warrant as they apply to the Common Stock, the rights of the Holder hereunder (including, without limitation, the provisions of Section 5 hereof), including any equitable replacements of the term "Common Stock" with the term "Exercise Shares" and adjustments of any formula included herein.


(c) The Company's filings under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), will comply in all material respects as to form with the Exchange Act and the rules and regulations thereunder.


(d) Without prior written consent of the holders of Loan Warrants exercisable for a majority of the securities issuable upon exercise of the outstanding Loan Warrants, the Company shall not permit any Significant Subsidiary (as defined by Rule 1-02(w) of Regulation S-X under the Securities Act or any successor rule) to issue or grant (i) any capital


6. stock or equity ownership interest, including any Participating Security; (ii) any rights, options, warrants or convertible security that is exercisable for or convertible into any capital stock or other equity ownership interest, including any Participating Security; or (iii) any stock appreciation rights, phantom stock rights, or any other profit participation rights, or any rights or options to acquire any such rights, in each case of clauses (i), (ii) and (iii) above, to any Person other than the Company or its wholly-owned subsidiaries.


3.2. NO IMPAIRMENT. Except and to the extent as waived or consented to in writing by the Holder, the Company will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Warrant and in the taking of all such action as may be necessary or appropriate in order to protect the exercise rights of the Holder against impairment consistent with the intent and principles expressed in Section 5.9 below.


3.3. NOTICES OF RECORD DATE. In the event (i) the Company takes a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, (ii) the Company authorizes the granting to the holders of Common Stock (or holders of the class of securities of any other Exercise Shares) of rights to subscribe to or purchase any shares of capital stock of any class or securities convertible into any shares of capital stock or of any other right, (iii) the Company authorizes any reclassification of, or any recapitalization involving, any class of Common Stock or any consolidation or merger to which the Company is a party and for which approval of the stockholders of the Company is required, or of the sale or transfer of all or substantially all of the assets of the Company, (iv) the Company authorizes or consents to or otherwise commences the voluntary or involuntary dissolution, liquidation or winding up of the Company or (v) the Company authorizes or takes any other action that would trigger an adjustment in the Exercise Price or the number or amount of shares of Common Stock or other Exercise Shares subject to this Warrant (other than a stock split or combination), the Company shall mail to the Holder, at least ten (10) days prior to the earlier of the record date for any such action or stockholder vote and the date of such action, a notice specifying (a) which action is to be taken and the date on which any such record is to be taken for the purpose of any such action, (b) the date that any such action is to take place and (c) the amount and character of any stock, other securities or property and amounts, or rights or options with respect thereto, proposed to be issued, granted or delivered to each holder of Common Stock (or holders of the class of securities of any other Exercise Shares).


3.4. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants to the Holder, as of the date hereof, that:


(a) The Company: (i) is a corporation duly organized, validly existing and in good standing under the laws of the state of its formation; (ii) is duly qualified to do business and is in good standing in every jurisdiction where the nature of its business requires it to be so qualified (except where the failure to so qualify could not reasonably be expected to have a material adverse effect, individually or in the aggregate, on its business, financial condition or operations of the Company and its subsidiaries taken as a whole or on its ability to pay or


7. perform its obligations under this Warrant and the Registration Rights Agreement (as defined below) (collectively, the "WARRANT DOCUMENTS")); (iii) has received all permits necessary to conduct the businesses now operated by it and has not received notice of proceedings relating to the revocation or modification of any permit that, if adversely determined, would reasonably be expected to have, individually or in the aggregate, a material adverse effect on its business, financial condition or operations of the Company and its subsidiaries taken as a whole, or on its ability to pay or perform its obligations under the Warrant Documents; (iv) has all requisite power and authority to own its properties and to carry on its business as now conducted and as proposed to be conducted, and to execute and deliver the Warrant and to perform its obligations hereunder and under the Registration Rights Agreement; and (v) is in compliance in all material respects with all applicable law, rules, regulations and orders;


(b) The execution, delivery and performance by the Company of the Warrant and the performance by the Company of the Registration Rights Agreement and the consummation of the transactions contemplated herein and therein: (i) are within its powers and have been duly authorized by all necessary corporate and stockholder action; (ii) do not contravene its charter documents or any law, rule, regulation or administrative or court order binding on or affecting the Company or its property; and (iii) do not conflict with or constitute a breach of, or default under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company pursuant to any material contract, indenture, mortgage, loan agreement, note or other instrument to which it is a party, by which it may be bound or to which its assets may be subject;


(c) The Warrant has been duly authorized, executed and delivered and each of the Warrant Documents constitutes a valid and binding obligation of the Company, enforceable against it in accordance with its terms, except as the enforceability thereof may be subject to or limited by bankruptcy, insolvency, reorganization, arrangement, moratorium or other similar laws relating to or affecting the rights of creditors generally and general equitable principles (whether applied in an action at law or a suit in equity);


(d) There is no action, suit or proceeding affecting the Company pending or, to its knowledge, threatened before any court, arbitrator, or governmental authority, domestic or foreign, which would reasonably be expected to have, individually or in the aggregate, a material adverse effect on its ability to pay or perform its obligations under the Warrant Documents or on the business, financial condition or operations of the Company and its subsidiaries taken as a whole;


(e) The authorized capital stock of the Company consists of 200,000,000 shares of Common Stock, par value $0.01 per share of which no more than 68,263,680 shares of Common Stock are expected to be outstanding immediately following the effective time of the merger of Barbell Acquisition Corp. with and into America West Holdings pursuant to the Agreement and Plan of Merger, dated as of May 19, 2005, by and among the Company, America West Holdings and Barbell Acquisition Corp. All of the outstanding shares of Common Stock have been duly authorized and validly issued, fully paid and nonassessable and are free of any preemptive rights and the shares of Common Stock deliverable upon exercise of this Warrant have been, and at all times will be, duly authorized and reserved for issuance upon such exercise,


8. and, when delivered upon such exercise, will be validly issued, fully paid and nonassessable and free of any preemptive rights;


(f) Except as set forth in the Plan of Reorganization or the Company's Registration Statement on Form S-1, File No. 333-126226, there are not outstanding nor are there any commitments or obligations to issue or grant (i) any securities, rights, options, warrants or subscriptions giving any Person the right to acquire from the Company, or requiring that the Company or any of its subsidiaries issue any capital stock or other equity interest in the Company or any of its subsidiaries; (ii) any stock appreciation rights, ...